Resolution - Payment of Commission to Non-executive Directors

A public company shall not pay to its non-executive directors, i.e. the directors who are neither managing directors nor whole-time directors, a remuneration exceeding (a) 1% of the net profits of the company, if there is already a managing or whole-time director or manager; or (b) 3% of the net profits in any other cases. (refer section 197 of the Companies Act, 2013 for detailed provisions)

The net profits as mentioned herein-above is calculated as per the conditions given in section 198 of the companies act 2013.

These companies can pay the remuneration exceeding the limits as mentioned above after taking approval of the company in the shareholders' general meeting by passing a special resolution. In other cases, only an ordinary resolution for taking approval of the members of the company will be good enough.

Templates of such board and shareholders resolutions are as follows —

Board Resolution for Payment of Commission to Non-executive Directors

SAMPLE #1

“RESOLVED THAT in accordance with the provisions of Sections 197, 198 and any other applicable provisions of the Companies Act, 2013, as amended from time to time, the Articles of Association of the Company, subject to approval of the members of the Company and any other approval(s) as may be needed, the consent of the Board of Directors be and is hereby accorded for payment of commission from Financial Year 20XX-XX to the Non-Executive Directors of the Company as may be decided by the Board from time to time, provided that the total commission payable to all the Non-Executive Directors during a financial year shall not exceed one percent of the net profits of the Company for that financial year as computed in the manner prescribed under Section 198 of the said Act plus applicable taxes.

FURTHER RESOLVED THAT Ms. .........................., Managing Director and Mr. ........................, Company Secretary be and are hereby severally authorised to do all such acts, deeds, matters and things as may be required to give effect to this resolution.”

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SAMPLE #2

“Resolved that pursuant to the provisions of section 197 and other applicable provisions, if any, of the Companies Act, 2013, including any statutory modification(s) or re-enactment(s) thereof, a sum not exceeding one percent of the net profits of the Company per annum, calculated in accordance with the provisions of section 198 of the said Act, be paid to and distributed amongst the Non-Wholetime Directors of the Company, subject to approval of the members of the Company and other approval(s) as may be required, in such proportions and in such manner as may be decided by the Managing Director in consultation with the Chairman of the Company and such payments shall be made in respect of the net profits of the Company for each financial year, for a period of three consecutive years, commencing April 1, 20XX.

FURTHER RESOLVED THAT Ms. .........................., Company Secretary be and is hereby authorised to do all such acts, deeds, matters and things as may be required to give effect to this resolution.”

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AGM Resolution for Payment of Commission to Non-executive Directors

SAMPLE #3 (In case of a Listed Company)

#. Ordinary Resolution for fixing Commission on Profits to Non-Executive Directors

To consider and, if thought fit, to pass the following resolution as an Ordinary Resolution:

“RESOLVED THAT, in pursuant to the provisions of sections 197, 198 and any other applicable provisions of the Companies Act, 2013, including any amendments thereto or re-enactments thereof (the 'Act'), and Regulation 17(6) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Non-Executive Directors of the Company be paid annually, for a period not exceeding three years, for each of the financial years commencing from 1st April, 20XX, commission in the range between ............./- and ................./- individually, as the Board of Directors of the Company (the 'Board') and/or a committee of the Board may determine, based on performance and guidelines framed by the Board for this purpose, in addition to the fees for attending the meetings of the Board / Committee thereof, provided that the aggregate remuneration, including commission, paid to such Non-Executive Directors shall not exceed one percent of the net profits of the Company in a financial year.”

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SAMPLE #4 (In case of an Unlisted Company)

#. Payment of Commission to Non Whole-time Directors of the Company

To consider and if thought fit to pass with or without modification(s) the following resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Sections 149(9), 197 and other applicable provisions, if any, of the Companies Act, 2013 (the 'Act'), including any statutory modifications(s) or re-enactment thereof for the time being in force and subject to such approval(s) as may be necessary, the consent of the members of the Company be and is hereby accorded for payment of profit related commission to Non-executive directors of the Company not exceeding of ................./- each (exclusive of applicable taxes) per annum or any of them in such amounts or proportions and in such manner as may be decided from time to time by the Board of Directors and such payments shall be made in respect of the profits of the Company for each financial year commencing from 1st April 20XX, provided that the aggregate commission paid to all Non-executive Directors of the Company shall not exceed one percent of the net profits of the Company calculated in accordance with the provisions of Section 198 of the Act, in respect of each financial year.

RESOLVED FURTHER THAT ...................., Company Secretary be and is hereby authorised to do all such acts, deeds, matters and things as may be required to give effect to the foregoing resolution.”

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SAMPLE #5 (Increase in payment of annual commission to non-executive directors)

#. Increase in Payment of Commission to Non-Executive Directors of the Company from existing limit of ................../- to ........................./- in a financial year

To consider and if thought fit to pass with or without modification(s) the following resolution as a Special Resolution:

“RESOLVED THAT in accordance with Sections 197, 198 and any other applicable provisions of the Companies Act, 2013 (including any statutory modification or re-enactment thereof), applicable clauses of the Articles of Association of the Company, in consideration of the recommendations of the Nomination and Remuneration Committee and Audit Committee, the consent of the members of the Company be and is hereby accorded to increase the payment of annual commission made to non-executive directors by increasing the existing limit of .........../- (exclusive of goods and services tax) per non-executive director to Rs. ............../- (exclusive of applicable goods and services taxes) per non-executive director with effect from financial year 20XX-XX, provided that the total annual commission along with the applicable taxes thereon, if any, to all the non-executive directors shall not exceed 1% of the net profit of the Company during any financial year.

FURTHER RESOLVED THAT the above remuneration shall be in addition to the fee payable to the director(s) for attending the meetings of the Board or a Committee thereof and reimbursement of expenses for attending the Board and other meetings.”



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NOTE: The resolution sample(s) here is only for reference, to help you with drafting. Do refer the exact provisions of the Act, relevant rules framed thereunder and any other applicable laws to be able to not to miss out anything important while drafting.