Customer Care No.

91-1145562222

MCA eases disclosures

under Managerial
Remuneration Rules
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MCA vide its notification dated June 30, 2016 amends the
Companies (Appointment and Remuneration of Managerial
Remuneration) Rules, 2014 (hereinafter referred to as the
"Rules") by issuing Companies (Appointment and
Remuneration of Managerial Remuneration) Amendment
Rules, 2016 (Amendment Rules)(hereinafter referred to as
the "Notification") giving relaxation to the companies in
terms of filing and disclosure requirements related to
appointment and remuneration of directors and key
managerial personnel in a company. The said Notification
has been made effective from the date of its issuance i.e.
June 30, 2016 The text of the proposed amendments in the
aforesaid rules is given as Annexure 1.
This article discussed the recent amendments made in the
aforesaid Rules.
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2. Major Amendments
2.1 Return of appointment requirement for CEO, CFO and CS has been omitted
Section 196(4) provides that any appointment of a managerial personnel being a managing
director, manager or whole-time director is to be filed in return as may be prescribed with the
Registrar. Rule 3 of the Companies (Appointment and Managerial Personnel) Rules, 2014
pursuant to such requirement u/s 196(4) required filing of MR 1. However, the rules prescribed
filing of MR 1 not only for the managerial personnel as prescribed u/s 196 but also included filing
w.r.t appointment of (a) Company Secretary (CS) (b) Chief Financial Officer (CFO) (c) Chief
Executive Officer (CEO). This requirement did create a lot of confusion as this created multiple
filing requirements in case of a CS and new requirement of filing w.r.t appointment of CEO and
CFO- few companies did go ahead with the filing while many companies had a different
interpretation and did not chose to file considering that the scope of section 196 does not extend
to CS/CFO/CEO.
After a gap of almost 2 years, MCA amends the rules to do away with the requirement of filing
return of appointment in Form No. MR 1 for appointment of a CS, CFO and CEO. However, this
will surely apply for appointments made post the Notification becoming effective and may not
hold good for appointments already made and are yet due for filing. One may but take a clue
from the amendment that the intent was always to not have such filing requirement and
thereforeCare
one No.
may91-11even chose not to file for appointments made prior to the effective
date of
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Disclosure requirements in Board's Report
2.2 Section 197 read with the Rules requires listed companies to make disclosure about the
ratio of remuneration of each director to the median employee's remuneration in its Board's
Report. The list of matters required to be disclosed in the Board's Report by listed companies is
given in the Rules. The list of disclosures required to be made by a listed company has been
reduced by deleting the following matters which were earlier required to be disclosed in the
report:
(ii)the explanation on the relationship between average increase in remuneration and company
performance;
(ii)comparison of the remuneration of the Key Managerial Personnel against the performance of
the company;
(iii)variations in the market capitalisation of the company, price earnings ratio as at the closing
date of the current financial year and previous financial year and percentage increase over
decrease in the market quotations of the shares of the company in comparison to the rate at
which the company came out with the last public offer in case of listed companies, and in case
of unlisted companies, the variations in the net worth of the company as at the close of the
current financial year and previous financial year;
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(iv)comparison
the each remuneration of the Key Managerial Personnel
against the

The concept of director's remuneration report was taken from UK Companies Act, 2006. When
the similar concept was introduced under the Companies Act, 2013, it helps in ensuring
transparency and fair disclosure by the companies to enable the stakeholders at large to know
the remuneration policy and scale within a company.
Deletion of the above clauses will certainly be an easier task, however two things remain
inexplicable- (a) rationale for deletion- is it because of practical difficulty? Does it serve any
purpose? (b) why did this change had to come after the finalisation and approval of the board's
report of many companies as by now all concerned companies would have already approved
their director's report. Therefore, effectively this change will be put into implementation only
next year.

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