MD Remuneration in a Loss Year: Can a Listed Company Still Get Shareholder Approval After the AGM Has Passed?

The Core Question

When a listed company discovers — typically after its accounts are audited and finalized — that the financial year turned out to be a loss year, a pressing governance question surfaces: the Annual General Meeting has already concluded without a resolution on the Managing Director's remuneration for that loss year. Does the opportunity to obtain shareholder approval simply lapse? The short answer is no. A missed AGM is a procedural inconvenience, not a legal dead end. The framework under the Companies Act, 2013, read alongside the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, offers clear and workable alternative routes that a listed company can use to regularize the position.

This article walks through the applicable legal architecture, the practical compliance sequence, and the consequences of inaction — so that boards and compliance officers can respond to this situation in an informed and timely manner.

Companies Act, 2013

The following provisions form the backbone of the analysis:

  • Section 197(1) — Caps total managerial remuneration at 11% of net profits computed under Section 198. Individual caps for a managing director, whole-time director, or manager apply within this ceiling. Exceeding these caps requires shareholder approval by special resolution.

  • Section 197(3) — Where a company records no profit or inadequate profit in a financial year, the 11% ceiling mechanism under Section 197(1) is effectively displaced. In its place, Schedule V of the Companies Act, 2013 becomes the governing framework, and any remuneration paid to a managing director, whole-time director, or manager must conform to its provisions.

  • Schedule V, Part II, Section II — Prescribes actual remuneration slabs applicable in a year of no profit or inadequate profit, calibrated to the company's effective capital. Remuneration within the applicable slab may be paid upon passing an ordinary resolution of shareholders; remuneration exceeding the slab requires a special resolution.

  • Schedule V, Part II, Section IV — Mandates a certificate — from the company's Auditor, or from a practising Company Secretary where permitted — confirming that the company is not in default of payments to any bank, financial institution, debenture holder, or other secured creditor. This certificate is a precondition to any Schedule V approval and cannot be dispensed with.

  • Section 197(9) — Where remuneration is drawn in excess of what is permitted, or without the approval that Section 197 requires, the concerned director is obligated to refund such amount to the company within two years, or such shorter period as the company may direct. Until refunded, the amount is deemed to be held by that director in trust for the company.

  • Section 197(10) — The company cannot waive recovery of any amount refundable under Section 197(9) unless shareholders pass a special resolution to that effect within two years of the date the amount became refundable.

  • Section 197(15) — Following the Companies (Amendment) Act, 2020, contravention of Section 197 is a civil penalty offence. The company is liable to a penalty of up to ₹5 lakh, and every officer in default faces a penalty of up to ₹1 lakh.

  • Section 100 — Governs the calling of an Extraordinary General Meeting (EGM). An EGM can be convened by the Board at any time, and the shareholder approval required under Schedule V can be obtained through this route in the absence of an upcoming AGM.

  • Section 110 read with the Companies (Management and Administration) Rules, 2014 — Governs the postal ballot procedure, which carries the same legal effect as a resolution passed at a general meeting. This provides another valid route for obtaining shareholder approval outside an AGM.

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Two regulations are directly relevant for a listed company:

  • Regulation 44, SEBI LODR Regulations, 2015 — Remote e-voting is mandatory for listed companies on every shareholder resolution, regardless of whether it is being transacted at a physical general meeting or through a postal ballot.

  • Regulation 17(6)(e), SEBI LODR Regulations, 2015 — An independent, listed-company-specific requirement. Where an executive director is a promoter or belongs to the promoter group, shareholder approval by special resolution is required if that director's annual remuneration exceeds ₹5 crore or 2.5% of the listed entity's net profit computed under Section 198, whichever is higher. Where more than one such director exists, the aggregate remuneration threshold is 5% of net profit.

Relevant Statutory Extracts

**Section 197(3)😗* Where a company has no profits or its profits are inadequate, remuneration to a managing director, whole-time director or manager "shall be paid in accordance with the provisions of Schedule V."

**Section 197(9)😗* A director who draws remuneration in excess of what is permitted, or without the approval Section 197 requires, "shall refund such sums to the company, within two years… and until such sum is refunded, hold it in trust for the company."