What is the Sitting Fee concerning the Companies Act, 2013?

Once upon a time, in the bustling realm of corporate governance, there existed a unique form of remuneration known as the sitting fee. This peculiar coinage was bestowed upon esteemed figures known as Non-Executive Directors and Independent Directors. Unlike their executive counterparts, Independent Directors were not graced with the luxury of monthly stipends or regular paychecks from the company coffers. Instead, they found solace in the promise of a sitting fee, a token of appreciation bestowed upon them for each meeting they graced with their presence throughout the financial year.

But the story did not end there. Oh no, for there was more to this tale of compensation. Beyond the realms of the sitting itself, the Non-Executive and Independent Directors were entitled to another boon – the reimbursement of their noble expenses incurred in their journey to the hallowed halls of corporate discourse.

Whether it be the toll of travel, the savoring of sustenance, or the comfort of accommodations, these gallant souls were compensated for their venturesome endeavors in service to the company’s cause. Thus, in the world of corporate governance, the sitting fee and the reimbursement of expenses intertwined to form a tapestry of appreciation for the dedication and commitment of those who guided the ship of business through the tempestuous seas of commerce.

They also get commission over profits earned by the company which requires prior approval from the shareholders of the company. Everything stated above is driven by Section 197(5) of the Companies Act, 2013 reading with Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

An Introduction to Directors as per the Companies Act, 2013

As per the Company Law there, multiple forms of directorships are defined in the Companies Act, 2013 including Executive Directors, Non-Executive Directors, Whole-time Directors, Nominee Directors, Additional Directors, Alternate Directors, Managing Director, Women Directors, Independent Directors, and Small Shareholder’s Director. Make sure to comment or mail if I did not mention any category of Director.

All the aforementioned categories of directors can be Resident or Non- Resident in India whereas the Companies Act also states that every company must have a Resident Director who stayed in India for more than 182 days.

Different categories draw different remuneration or sitting fee as per their designation in the company which is decided with the help of Board resolution and further approved by the members of the company in the Annual General Meeting.

What is the Maximum Amount of Sitting Fee with respect to the Companies Act, 2013?

A Non-Executive Director or An Independent Director is entitled to receive up to 1 lac each Board Meeting they attend. For more than One Lac, the approval of shareholders is required. Furthermore, the Sitting Fee paid to Independent Director/Woman Director should not be less than the sitting fee paid to the other Directors of the company.

Withholding to the Companies Act, 2013 Board has the power to finalize the amount of Sitting Fee of Non-Executive Directors or Independent Directors. That amount should be within the purview of the 1 lac limit as prescribed in the act.

A limit of Rupees One Lac is also applicable to participation in Committee meetings also. Where Non-Executive Directors or Independent Directors attend Audit Committee meetings or Nomination & Remuneration Committee meetings etc. they may receive sitting fees up to rupees One Lac per meeting only.

Stock Option (ESOS or ESOP) to Director in Place of Remuneration

Companies can offer ESOP or ESOS to their Director in place of remuneration or sitting, also in addition to the sitting fee or remuneration. But this option is not applicable in the case of Independent Directors.  But a Non-executive director can receive stock options issued by the company.

Stock Options are usually offered to the employees of the company for their work appreciation. Likewise, Sweat Equity shares are issued for the hard work of the employees.

Can We Pay Sitting Fee to Executive Directors or Managing Directors?

There is no specific prohibition under the Indian Companies Act on payment of Fee to Executive Directors therefore a Company can make payment of Sitting Fee to its Managing Directors, Whole-Time Directors, and Executive Directors. Again the limit of Rupees One Lac per meeting applies to them as well.

Also, the payment of the Sitting Fee to other directors in the company cannot exceed the amount payable to women directors and Independent Directors.

Is the Sitting Fee payable in case of loss or inadequacy of profits?

With the recent amendment held in the year 2021, the payment of the sitting fee to the Non-Executive Director and Independent Directors cannot be denied by the company.  The Notified amendment on 18th March 2021 states that in case of inadequate or no profits in the company, the Non–Executive Directors and Independent Directors are entitled to their Sitting Fee.

The minimum annual payment in case of inadequacy of profits in the company is Rupees 12 lacs and a Maximum of Rs. 24 lacs and 0.01% of the capital over 250 Crores. The same can be understood effectively with the help of the below table.

What is Effective Capital for Payment Calculation of Sitting Fee?

For the purpose of Schedule V, the Effective Capital for Payment Calculation of Sitting Fee following illustration would be a great help for you all.

The first thing to note in advance is that figures are to be taken from the end date of the preceding financial year.

Taxability of Sitting Fee

Unlike Salary or Remuneration, the Sitting Fee received by the directors of the company is taxable under the head of Income from other sources in taxation matters.  But if the sitting fee is received by any Executive Director in the company like Managing Director, the same shall be included in the amount of salary and taxable under the head of “Salary”.

What is a Sitting Fee?

The term “sitting fee” refers to a payment or compensation provided to individuals for their time and participation in a sitting or session, typically in the context of photography, modeling, or certain professional services. The literal meaning of sitting fee revolves around the act of sitting for a specific purpose or activity, where individuals are remunerated for their presence and cooperation.

In photography, sitting fees are commonly paid to models or subjects who pose for photographs during a photoshoot session. The fee acknowledges the model’s time, effort, and contribution to the creative process, regardless of whether the images are eventually used for commercial purposes. It serves as a form of compensation for the model’s availability, professionalism, and cooperation throughout the shoot.

Similarly, in certain professional services such as consulting or advisory roles, sitting fees may be offered to individuals for attending meetings, conferences, or advisory sessions. These fees recognize the individual’s expertise, time, and input provided during the session, regardless of the outcome or decision reached.

The literal meaning of the sitting fee emphasizes the transactional nature of compensating individuals for their time and participation in a sitting or session. It underscores the value placed on the individual’s presence, cooperation, and contribution, irrespective of the final outcome or usage of the images or information obtained during the session. Sitting fees play a crucial role in ensuring fairness, respect, and professionalism in various industries where individuals are engaged for their time and expertise.

Do We Need to Alter AOA for Payment of Sitting Fee?

Yes, In case the amount of sitting fee payable to each director exceeds Rupees One Lac per meeting. For payment of a Sitting Fee above 1lac rupees, the company needs to alter their remuneration clause in AOA (Article of Association) by passing a Special Resolution in duly convened General Meeting.

Also, E-for MGT 14 is required to be filed within 30 days of the general meeting for intimation of Special Resolution to MCA/ROC.

End Notes about Sitting Fee

Every topic related to outflow or inflow of funds in the company is usually very debated in terms of corporate governance and sitting fee is one of them as funds are outflowing from the company. This write-up might give you ease with the term “Sitting Fee”. On payment of Sitting Fee to directors, Company must obtain receiving of the same in writing for good corporate practice.

The Payment and Dues of Sitting Fees to directors are recommended in the Committee Meetings held by the Board of Directors. It is primarily proposed in the Nomination and Remuneration Committee at the time of appointment of Directors.

References

1. https://onlinelibrary.wiley.com/doi/full/10.1002/smj.2421
2. https://www.sciencedirect.com/science/article/abs/pii/S0165410108000347