Applicability of section 197 on private companies
Section 197 of the Companies Act applies on public companies and listed companies. See the opening lines :
- Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits.
1. The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager
Further sub section 12 of section 197 applies specifically to listed companies which reads as under
Sub section. 12. Every listed company shall disclose in the Board’s report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed.
The corresponding rule of section 197(12) is rule 5 of companies ( appointment & remuneration of Managerial Personnel) Rules, 2014 which seeks disclosure of statistical calculation of remuneration of each director and employees and top ten employees separately. Since this rule correspondence to subsection 12 which is specifically applies to listed companies only ,therefore all sub rulees of rule 5 including sub rule 2 will apply to listed companies only and not to private companies . Further the ICSI in its referencer to board’s report, it has clarified that rule 5 does not apply to private companies.