MCA: Submission highlighting challenges faced by Industry in disclosure of employee remuneration and filing form AOC-4

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MCA: Submission highlighting challenges faced by Industry in disclosure of employee remuneration and filing form AOC-4

Tejasvi

@tejasvi

April 27, 2021

Public Policy

132

Based on inputs from the Industry, NASSCOM made a representation to Ministry of Corporate Affairs (MCA) on April 27, 2021 highlighting the following issues:

A) S.197 of Companies Act, 2013 read with Rule 5(2), 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:
Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (Rules) require listed companies to make disclosures in its Board’s report relating to top 10 employees in terms of remuneration drawn and every employee earning more than a prescribed amount of remuneration. Further, proviso to Rule 5(3) requires that such particulars shall be filed with the Registrar of Companies (RoC) and will also be made available to shareholders on their request.

These disclosure requirements are leading to issues for listed companies and its employees whose data is being disclosed. There have been cases where the above disclosure have been abused to publicly release confidential remuneration details along with the names of employees. This leads to compromise of privacy for employees and can also be used to unfairly target the reputation of the company.

Further, based on our analysis, the disclosure requirements in India are more onerous than in the European Union (EU) and the US where such disclosures are limited to details of directors, chief executive officer, chief financial officer and persons holding key managerial position by publicly traded companies.

Financial information such as salary is sensitive personal information, and its disclosure at large may cause harm and distress to the employees. Moreover, with Indian Supreme Court declaring “Privacy” as a fundamental right, and Personal Data Protection Bill yet to become law, there is a greater expectation from employees for a need based disclosure of their personal information and adequate protection against abuse of such disclosures. For employees in other jurisdictions, the companies are obligated to protect their privacy as per obligations under their local laws, for example, the European General Data Protection Regulation (GDPR) in the EU.

Recommendation: In this regard, we have requested MCA to amend provisions under the Companies Act 2013 and related rules thereunder suitably so that privacy of the employees is not abused and requirements of corporate governance are adequately met.

The MCA should amend Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 to require companies to notify details of remuneration paid to top 10 employees and other employees earning more than the threshold amount to the remuneration committee constituted under S.178 of the Act and to the RoC. Further, in case there is a requirement to disclose information to the shareholders upon request – instead of employee specific data, MCA should notify a format that provides for relevant analysis on an aggregate basis that may be made available to the shareholders.

B) 4th Proviso to S.137(1) requiring companies to file financials of subsidiaries incorporated outside India, with the Registrar of Companies
As per 4th proviso to S. 137(1), a company is also required to attach accounts of its subsidiary (ies) incorporated outside India and which have not established their place of business in India. These details are required to be filed in form AOC-4 to the RoC. However, Form AOC-4 allows the limit of attachments up to 6 MB. Companies having presence across the world with multiple overseas subsidiaries may find it difficult to condense subsidiary financials within the size limit of 6 MB.

Recommendation: In this regard, we have requested MCA to increase the attachment limit in Form AOC-4 to at least 15MB. This will help in avoiding procedural hardships for the companies.

We will keep you posted on further developments in this regard.

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Tejasvi