By Himanshu V. Kishnadwala
Chartered Accountant
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Section A: Reporting in case of Managerial Remuneration in excess of statutory limits
1) Jyothy Laboratories Limited (31-03-2013)
From Notes to Financial Statements
Employee benefit expenses include Rs. 1, 113.72 lakh paid/payable during the year towards remuneration payable to its Whole Time Directors. The maximum remuneration payable under para (1) (B) of Section II of Part II of Schedule XIII of the companies Act, 1956(‘Act’) is Rs. 192 lakh. Based on the legal advice received by the Company, management has computed the maximum remuneration payable to Whole Time Directors amounting to Rs. 1, 025 lakh.
The company has filed an application with the Central Government and is in the process of obtaining necessary approval from shareholders for remuneration payable to its Whole Time Directors. Pending receipts of such approval, the excess remuneration paid to the directors is held in trust by the said Directors.
From Auditor’s Report
Emphasis of Matter
Without qualifying our report, we draw attention to Note 40 to the Financial Statements regarding managerial remuneration amounting to Rs. 1,113 lakh paid/provided during the year of which Rs. 921 lakh is in excess of the limits prescribed under Schedule XIII of the companies Act, 1956. As informed to us, the company has filed an application with the central government and is in the process of obtaining necessary approval from shareholders for approval of such excess remuneration.
2) Gillette India Limited 30-6-2013)
From Notes to Financial Statements
Commission to Non – Executive Directors
During the current year, an aggregate amount of Rs. 80 lakh has been paid as commission to the Non – Executive Directors which is within the overall limits of commission payable to such directors under schedule XIII to the Companies Act, 1956. The said payment constitutes 53% of the aggregate amount of Rs. 153 lakh (excluding service tax of Rs. 19 lakh) which is payable to the Non – Executive Directors and is provided for in the financial statements.
The aggregate amount of Commission of Rs. 172 lakh (including service tax Rs. 19 lakh) payable and charged for the year in the financial statements as is stated above, exceeds the maximum amount payable based on 1% of the net profits of the Company amounting to Rs. 148 lakh (as per computation below) for the year ended 30th June, 2013, by an amount of Rs. 24 lakh (including service tax of Rs. 3 lakh). The said excess amount of Rs. 24 lakh which is provided but not paid, is subject to by approval of the Members of the Company by way of a special resolution at the ensuing 29th Annual General Meeting of the Company, and the Central Government.
During the previous year ended 30th June, 2012, also the Company had to paid commission to Non – Executive Directors amounting to Rs. 160 lakhs, of which an amount of Rs. 48 lakh (including service tax of Rs. 10 lakh), being amount in excess of 1% of net profits for the year ended 30th June, 2012. This was paid during the current year and the same was ratified by the members at the 28th Annual General Meeting of the Company. The Company has made an application to the Central Government on 3rd January, 2013 for the waiver of the excess commission, which is as yet pending for approval by the Central Government.
Computation of Net Profit in accordance with section 349 and section 309 (5) of the Companies Act, 1956 (not reproduced here)
From Auditor’s Report
Emphasis of Matter
We draw attention to Note 36(b) to financial statements regarding excess commission provided but not paid to the Executive Directors amounting to Rs. 24 lakh (including Rs. 3 lakh of service tax), which is subject to the approval of the members at the ensuring Annual General Meeting of the company and the Central Government. Further, as reported for previous year ended 30th June, 2012, the Company had provided excess commission amounting to Rs. 48 lakh, (including service tax of Rs. 10 lakh) which was since ratified by the members of the company at the 28th Annual General Meeting of the company and paid during the current year, application for which is as yet pending for approval with Central Government.
3) Jindal Stainless Limited (31-03-2013)
From Notes to Financial Statements
i. For the remuneration amounting to Rs. 16.20 lakh and Rs. 18.11 lakh paid to whole time director for the years 2008-09 and 2009-10 respectively, company’s representation is pending before Central Government;
ii. For the remuneration amounting to Rs. 63.60 lakh and Rs. 160.57 lakh paid to whole time director for year 2011-12 and 2012-13 respectively, company’s representation is pending before the Central Government.
From Auditor’s Report
Emphasis Of Matter
Note no. 51(C) (i) regarding pending necessary approvals for managerial remuneration as explained in the said note.
4) Ranbaxy Laboratories Limited (31-12-2012)
From Notes to Financial Statements
On the basis of a legal advice, the Company is of the view that the appointment and payment of remuneration to Mr. Arun Sawhney, CEO and Managing Director for the full year ended 31st December 2011 is in accordance with the conditions stipulated under the Notification no. GSR 534(E) dated 14th July 2011 read with the clarification dated 16th August 2012 issued by the Ministry of Corporate Affairs.
From Auditor’s Report
Emphasis Of Matter
Without qualifying our opinion, we draw attention to Note 37 of the financial statements, wherein it has been stated that on the basis of a legal advice, the company is of the view that the appointment of and payment of remuneration to Mr. Arun Sawhney, CEO and Managing Director for the full year ended on 31st December, 2011 is in accordance with the stipulated under notification no. GSR 534(e) dated 14th July 2011 read with the clarification dated 16th August 2012 issued by the Ministry of Corporate Affairs.
5) Network 18 Media & Investments Limited (31-03-2013)
From Notes to Financial Statements
Managerial remuneration paid, up to 31st March 2013, by the Company amounting to Rs. 26,388,400 (31st March 2012 – Rs 20,100,400) is in excess of the limits prescribed under the Companies Act, 1956 (“the Act”). The Company is in the process of obtaining the necessary approvals as per the Act.
From Auditor’s Report
Qualified Opinion
The company has paid Rs. 2, 63, 88,400/- as managerial remuneration to its Managing Director upto 31st March 2013 (upto 31st March, 2012 Rs. 1, 01, 00,400/-), which is in excess of the limits prescribed under the Act. Had the company accounted for the remuneration in accordance with the Act, the net loss after tax for the year ended 31st March, 2013 would have been lower by Rs. 2,63,88,400/- and short term loans and advance would have been higher by Rs. 2,63,88,400/-. Our report on the FS for the year ended 31st March, 2012 was also qualified in respect of this matter.
From Director’s Report
In regard to reservations/qualifications in the Auditors’ Report, the relevant notes on the accounts are self- explanatory and therefore do not call for any further comments of Directors. However, your Directors wish to offer the explanations in regard to note no. 6 of the Auditors Report. It is clarified that the Central Government has partially accepted the Company’s application for approval of the remuneration paid to the Managing Director and the Company has filed a representation for reconsideration of the matter and approval is awaited.
6) Mafatlal Industries Limited (31-03-2013)
From Notes to Financial Statements
Mafatlal Denim Limited (MDL), the erstwhile company which has amalgamated with the Company had re – appointed Mr. Rajiv Dayal as Managing Director & Executive Officer and Mr. Vishad P. Mafatlal as Joint Managing Director of MDL with effect from 1st April, 2011 for a term of 5 years. Managerial Remuneration of Rs. 139.28 lakh had been paid during the year 2011-12. As stipulated by the provisions of the Companies Act, 1956 requiring the approval of the Central Government for the appointment and remuneration of Managerial personnel in the case, inter alia, of a company that is in default in payment of its debts, erstwhile MDL had made the applications to the Government on 20th June, 2011 seeking approval for re – appointment and payment of remuneration to Mr. Rajiv Dayal and Mr. Vishad P. Mafatlal.
The erstwhile MDL was technically in default to SICOM Limited, a secured lender pending the Sanction of the section 391 Scheme pending before the Hon’ble Gujarat High Court. SICOM declined to give their No Objection Certificate for the re – appointments for the reason that they already had their debts adjudicated by the Hon’ble Debt Recovery Tribunal, Mumbai. The Government rejected the applications of MDL on 23rd September, 2011 for the reason that MDL had not submitted No Objection Certificate from SICOM, one of the secured lenders. MDL has made an application for reconsideration, as default to the secured lenders no longer exists.
Subsequently, SICOM Limited assigned the entire Debt in favour of M/s. Mishapar Investments Limited (another Company that amalgamated with the company) on 26th July, 2012. Thereafter, MDL obtained the No Objection Certificate from the said assignee and approached the MCA once again on 5th September, 2012. Pursuant to the said letter, MCA advised MDL to file applications afresh. Accordingly, MDL has filed Fresh Applications on 25th October, 2012 and awaits their approval.
From Auditor’s Report
Qualified Opinion
Attention is invited to Note no. 32.1 (a) to the financial statements, in the earlier year, erstwhile Mafatlal Denim Limited (the Amalgamating Company) had made representation to the Ministry of Corporate Affairs against the rejection of application u/s. 269, 198, 309 and 310 of the Act, relating to re – appointment and payment of remuneration with effect from 1st April, 2011 to 31st March, 2013. The said approval is pending from the Ministry Of Corporate Affairs and accordingly, we are unable to comment on the impact, if any arising out of the same in these financial statements.
From Director’s Report
The specific notes forming part of the Accounts referred to in the Auditor’s Report are self – explanatory and give complete information.
