Receiving Additional Remuneration from Subsidiary Companies

A managing director wearing two hats in the same business group is common in India. She runs the flagship company, sits on the board of its subsidiary, and draws a commission from both. Does earning twice from related companies break any rule? Company law says no, as long as the numbers are out in the open. This is exactly what Section 197(14) of the Companies Act, 2013 permits, and it is a small but important piece of the larger managerial remuneration framework that every commerce student studying company law needs to understand.

What the law actually says 🔗

The Companies Act, 2013 governs how much directors, managing directors, and whole-time directors can be paid, and under what conditions. Within this framework, Section 197(14) deals specifically with directors who earn remuneration from more than one company within the same corporate group.

The provision states that a director already receiving commission from the company, and who also holds the position of managing director or whole-time director, will not be disqualified from receiving remuneration or commission from that company’s holding company or subsidiary company. The only condition attached is disclosure: the payment must be reported by the company in its Board’s Report.

In simple terms, the law recognises that a person can genuinely contribute to more than one company in a group and be paid for it by each of them, provided shareholders and regulators can see exactly what is happening.

Why holding and subsidiary structures matter here 🔗

To understand this provision, it helps to be clear on what a holding-subsidiary relationship actually is. Under the Act, a company is treated as a subsidiary of another if the holding company controls the composition of its board, or holds more than half of its total voting power, either directly or through other subsidiaries, as defined under Section 2(87).

Large Indian business groups routinely operate through such structures. A parent company may have manufacturing, logistics, or financial services carried out through separate subsidiaries, each incorporated as its own legal entity. It is entirely normal for a senior executive of the parent to also direct the affairs of a subsidiary, especially in the early years after a subsidiary is carved out or acquired.

Who exactly does this provision cover 🔗

Section 197(14) is narrower than it might first appear. It applies to a person who satisfies two conditions at the same time:

• Already draws commission from the company as one form of remuneration.
• Holds the position of managing director or whole-time director of that same company.

If both conditions are met, that individual is free to also accept remuneration or commission from the group’s holding company or subsidiary company. An ordinary non-executive director who is not drawing commission, or who does not hold an executive position, does not fall within the specific protection this sub-section offers, though such a director may still be compensated under other provisions of Section 197 and the company’s own remuneration policy.

The disclosure obligation: nothing hidden in the Board’s Report 🔗

The permission to earn from multiple group companies is not unconditional. The single safeguard built into the law is disclosure. The company must state in its Board’s Report that a director has received remuneration or commission from its holding or subsidiary company, so that shareholders reviewing the annual report can see the full picture of how much a director actually earns across the group, not just from the company whose accounts they are reading.

This fits into a much larger set of disclosures that Section 134 and Section 197 together require in the Board’s Report, ranging from board meeting attendance to related party transactions and the ratio of each director’s pay to the median employee’s remuneration. Managerial remuneration disclosure is treated as a core governance requirement, not an optional footnote.

What the disclosure typically includes 🔗

Does this bypass the overall remuneration ceiling? 🔗

A natural question follows: if a director can be paid by two or three companies in a group, does this let them get around the overall cap on managerial pay? The answer is no. Section 197(1) separately caps total managerial remuneration payable by a public company at a percentage of that company’s own net profits, generally eleven per cent, computed independently for each company. A director’s remuneration from the holding company is measured against the holding company’s own profit-linked ceiling, and remuneration from the subsidiary is measured against the subsidiary’s own ceiling. Section 197(14) does not create an exemption from these limits. It simply confirms that being paid by one group company does not disqualify a director from also being properly paid, within limits, by another.

What happens if a company skips the disclosure 🔗

Transparency is the entire basis on which this flexibility is granted, so the law backs it with a penalty. Contravention of the provisions of Section 197, which includes the disclosure requirement under sub-section (14), can attract a fine ranging from one lakh to five lakh rupees for the person responsible for the contravention. There is also an added layer of scrutiny built into the audit process: under Section 143, the company’s auditor is required to state, as part of the audit report, whether the remuneration paid to directors is in line with the provisions of Section 197, which brings cross-company payments under independent verification as well.

How this plays out in a group company setting 🔗

Consider a director who is the whole-time director of a listed manufacturing company and draws a commission linked to profits. The same person is asked to also serve as director of a newly acquired subsidiary that makes components for the parent. The subsidiary’s board decides to pay this director a separate commission for the additional responsibility of overseeing the subsidiary’s operations.

Under Section 197(14), this arrangement is valid. The director is not disqualified from accepting the subsidiary’s commission simply because they are already being paid by the holding company. What the two companies must do is ensure each payment fits within that company’s own remuneration limits, and both companies must reflect the arrangement clearly in their respective Board’s Reports, so any shareholder reading either report knows the director has an income stream from the related entity too.

This is a practical reflection of how Indian corporate groups actually function. Executive talent is often shared across group companies rather than duplicated, and the law accommodates that reality while making sure it does not become a way to quietly pay directors more than shareholders realise.

Why this provision reflects good corporate governance thinking 🔗

Company law in India has moved steadily toward a philosophy of enabling flexibility for business while insisting on disclosure as the trade-off. Managerial remuneration provisions under the 2013 Act were deliberately liberalised compared to the earlier 1956 Act, reducing the need for Central Government approval in many situations, while strengthening the expectation that shareholders get full visibility instead. Section 197(14) is a neat example of this pattern: a director’s ability to earn from more than one group company is not restricted, but it cannot be quietly buried in the accounts either.

For a student of company law, this provision is a useful case study in how disclosure requirements substitute for outright prohibition. Rather than blocking an arrangement that has legitimate business logic, the law simply insists that it be visible to the people whose money is funding it, the shareholders.

What do you think? 🔗

What do you think? If you were a shareholder reviewing a Board’s Report, would knowing that a director also earns from the group’s subsidiary change how you view that director’s total compensation? And should the same logic of disclosure-over-restriction apply to other forms of related-party dealings in a company group?

References

1. https://indiankanoon.org/doc/159436528/
2. https://aracs.in/corporate-llp-laws/directors-report-under-the-companies-act-2013/
3. https://taxguru.in/company-law/disclosures-board-report-companies-act-2013.html
4. https://www.cleartax.in/s/managerial-remuneration
5. https://ibclaw.in/section-197-of-the-companies-act-2013-overall-maximum-managerial-remuneration-and-managerial-remuneration-in-case-of-absence-or-inadequacy-of-profits/
6. https://enterslice.com/learning/managerial-remuneration-of-managing-and-whole-time-directors/