Page 37 - GSTL_ 28th May 2020_Vol 36_Part 4

2020 ] GST ON DIRECTOR’S REMUNERATION — A CRITICAL ANALYSIS J97
or “Board”, in relation to a company, means the collective body of the directors
of the company. The Companies Act recognises various types of directors such as
whole-time director, managing director, independent director, additional direc-
tor, nominee director, women director, director for small shareholders, etc. The
said selection needs to be done at the time of filing DIN-12, which is a return con-
taining the particulars of appointment of director. Broadly speaking, these direc-
tors are classified into two categories - executive directors and non-executive di-
rectors. Further, Section 197 read with Schedule V of the Companies Act contains
the provision for the computation and payment of director’s remuneration.
According to Rule 2(1)(k) of the Companies (Specification of Definitions
Details) Rules, 2014 “Executive Director” means a Whole-Time Director as de-
fined in clause (94) of Section 2 of the Act. As per Section 2(94) of the Companies
Act, “whole-time director” includes a director in the whole-time employment of
the company. Thus, a director who is in whole time employment of a company is
an executive director. In other words, a whole-time director or an executive di-
rector means a director who is entrusted with the routine day-to-day operations
of the company. They are generally entitled to a monthly remuneration as they
are in full time employment of the company. As per Section 2(78) of the Compa-
nies Act, “remuneration” means any money or its equivalent given or passed to
any person for services rendered by him and includes perquisites as defined un-
der the Income-tax Act.
A “managing director”, according to Section 2(54) of the Companies Act,
means a director who, by virtue of the articles of a company or an agreement
with the company or a resolution passed in its general meeting, or by its Board of
Directors, is entrusted with substantial powers of management of the affairs of
the company and includes a director occupying the position of managing direc-
tor, by whatever name called. Before concluding the position of “managing di-
rector” as to an executive director or not, it would be relevant to see the defini-
tion of “manager” and related provisions in Companies Act.
According to Section 2(53) “manager” means an individual who, subject
to the superintendence, control and direction of the Board of Directors, has the
management of the whole, or substantially the whole, of the affairs of a compa-
ny, and includes a director or any other person occupying the position of a man-
ager, by whatever name called, whether under a contract of service or not. Sec-
tion 196(1) of the Companies Act, further states that no company shall appoint or
employ at the same time a managing director and a manager.
From the above reading, one can opine that a managing director or man-
ager (only if he is a director), being entrusted with substantial powers of man-
agement would be a whole time employee of the company and hence an execu-
tive director. This position is further strengthened by the decision of Hon’ble Su-
preme Court in Employees State Insurance Corpn. v. Appex Engineering P. Ltd.,
(1998) 1 Comp LJ 10 wherein the Court held that managing director occupies du-
al capacity - one as a “principal employer” and another as an “employee”, in the
context of Employees State Insurance Act, 1946.
The non-executive director, on the other hand, does not take part in the
daily activities of the company and attend only meetings of board or committee
thereof held at periodical intervals. They assist the executive directors in making
strategic decisions. According to Section 197(5) of Companies Act, these directors
may receive remuneration by way of fee for attending the Board or Committee
meetings. A managing director or a whole time director, who is getting remuner-
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