Salaries of Executives of Defaulting Companies at the Mercy of Financing Bank

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The Parliament has amended Companies Act and formulated stricter provisions against loan defaulters or companies which hold dues from Banks, if the salary of the executives is more than 11% of the net profit of the company.

The amendments were notified on last week of December, 2017.

As per the amended provisions of Companies Act, now it has become mandatory for defaulter companies who failed to repay loans to take approval from lenders/banks in case the managerial remuneration exceeds 11%of its net profit.

The Government incorporated this provision with objective to deter defaulter promoters of Bank from extracting money by receiving high remuneration with ease. Moreover, by paying more remuneration to the promoters, companies used to keep the profits at a lower level to evade tax.

The Government has also amended Insolvency and Bankruptcy Code to put a curb upon errant promoters who are making repeated default in making payment of dues of banks willfully and deliberately.

RBI has already been publicized list of 12 large defaulters who are heavily debt ridden i.e. around 2.6 lacs Crores and Banks initiated insolvency proceeding against these defaulters. They have been referred to NCLT (National Company Law Tribunal).

The RBI adopts liberal approach towards restructuring of loans and bankruptcy actions and it removes restrictions on issuing shares at a discount.

The amendment now allows companies to issue shares at below the face value if it is a part of RBI scheme.

The Companies has also relaxed in rules for valuers and limit of ban is reduced to 3 years.

Will this amendment in Companies Act really lead to reduce NPAs of Banks?

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