Key Note : Whether Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 applies to Unlisted Companies?
Manoj Singh Bisht
Key Note
Whether Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 applies to Unlisted Companies?
My personal view
Section 197(12) states as under:
“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.”
Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 relating to disclosure in Board’s Report has been prescribed by the Ministry of Corporate Affairs under sub-section (12) of Section 197 of the Companies Act, 2013.
It is amply clear that the sub-section (12) of Section 197 is applicable only in case of listed entity.
Further, Sub-rule (1) of Rule 5 clearly starts with the words “Every listed company shall disclose in the Board’s Report”.
Further, Sub-rule (2) of Rule 5 starts with the words “The Board’s Report shall include a statement showing the name of every employee of the company”. The use of the word ‘company’ in sub-rule (2) creates a interpretational issue as to whether the sub-rule (2) applies to all companies or only to listed entities?
Based on harmonious construction of Section 197(12) read with Rule 5, it can be concluded that the words ‘Board Report’ and ‘Company’ appearing in sub-rule (2) should be read in context with sub-rule (1) on account of the fact that the Rule 5 is issued under 197(12) which applies only in case of listed Company.
Also, the word ' company' is used loosely in Rule 5(1) as well. The word 'company' is used in rule 5(1) (i), (iv),(vi), (vii), (ix), (xiii). In my view, wherever the word 'company' is used, it should be read as listed company. Unlisted company need not be covered by Rule 5 until and unless the words ‘unlisted company’ are specifically stated under the said rule. Example: use of the words 'unlisted company' in Rule 5(1)(vii).
Hence, unlisted companies are not required to give details relating to employees remuneration pursuant to sub-rule (2) & (3) of Rule 5. However, details as required under rule 5(1)(vii) to be provided by unlisted companies in its Board’s Report.
Regards
Manoj Bisht
