Information as per section 217(2A) red with

Companies (Particulars of Employees) Rules 1975

(Notification No. GSR 212E dated 24 March 2004)

Prof. R Balakrishnan, CS

1. Introduction

Every company is required to disclose the details regarding conservation of

energy, technology absorption and foreign exchange earnings and outgo and
also the details relating to employees who are drawing particular remuneration
and above pursuant to the section 217(2A) of the Companies Act 1956 as
required under the Disclosure of Particulars in the Report of Board of Directors
Rules 1988 by way of the prescribed annexure in format A, B and C

Currently for the employees details, the disclosure is required for those
employees whose remuneration is Rs. 24 lacs and above in the financial year or
Rs. 2 lac per month and the details of employees employed through out the year
and as well employees employed part of the year is required to be disclosed
along with designation /nature of duty, gross remuneration, qualifications,
experience in years, date of commencement of employment, age and the name
of the previous employer.

2. Section 217(2A)

Sub-section 2A of Section 217 of the Companies Act, 1956 mandates that the
Board's report shall include a statement showing the name of every employee of
the company who are in receipt of remuneration in excess of such sum as may
be prescribed, and so on and this requirement is a mandatory requirement made
by the legislators and it is required to be complied with.

It is also pertinent to note that it is a clear intention of the legislature to sub-

delegate only the quantum of the remuneration to be prescribed through
subordinate legislation and accordingly, the then Department of Company Affairs
– now renamed as Department of Corporate Affairs, in exercise of the powers
conferred by sub-rule 2A of Section 217 read with clause (a) of sub-rule (1) of
Section 642 of the Companies Act 1956, has been issuing notifications from time
to time amending the said rules and quantifying the remuneration limit for which
the employees disclosure are required to be made.

3. Relaxation given by the Legislator on the above disclosure

Probably, to achieve some cost economy, the legislators have given a

concession to the companies that the above report need not to be sent along
with the annual report though the same forms part of the annual report and any
shareholders who is interested in obtaining the above information could write to
the company and ask for such information.

Section 219(1)(B)(iv) of the Companies Act 1956 provide for this and many
companies while sending the annual report state in their report that the
information as per Section 217(2A) of the Companies Act, 1956 read with the
Companies (Particulars of Employees) Rules, 1975 forms part of the annual
report and however, in terms of Section 219(1)(b)(iv) of the Companies Act,
1956, the Report and Accounts are being sent to the shareholders excluding the
aforesaid annexure and any shareholder interested in obtaining a copy of the
said annexure may write to the Company Secretary at the Registered Office of
the Company. The company would then send the information to the concerned
shareholder (s) who seeks such information.

4. Notification issued by the DCA bearing GSR212E dated 24th Match 2004

The Department of Company Affairs (DCA) had issued Notifications No.

GSR212E dated March 24, 2004, amending the Companies (Particulars of
Employees) Rules 1975. The substantive part of the said notification reads as
under thus:

"After sub rule (1), as so numbered, the following shall be inserted, namely:

Provided that particulars of employees of companies engaged in `information

technology' sector, posted and working in a country outside India, not being
directors or their relatives, drawing more than Rs 24 lakh per financial year or Rs
2 lakh per month, as the case may be, shall not be included in such statement of
the Board's report, but such particulars shall be furnished to the Registrar of
Companies... "

The above notification issued by the then Department of Company Affairs (now
Department of Corporate Affairs) seems to have issued for which the department
does not have the power to issue such notification. It should be noted that the
legislature – the law making body - requires the information in respect of "every"
employee and the power of defining the limit of remuneration has been delegated
only to prescribe the sum to the Department of Corporate Affairs. Hence, the
Department of Corporate Affairs admittedly has the requisite power to notify such
rules or amend them from time to time. But such notifications have to conform to
the Act and cannot travel beyond the Act.
It is a well-settled by law that the rules cannot overwrite the Act itself. It is
important to note that sub-section 2A of section 217 of the Companies Act 1946
reads as under:

"The Board's report shall also include a statement showing the name of every
employee of the company i) if employed throughout the financial year, was in
receipt of remuneration for that year which, in aggregate, was not less than (such
sum as may be prescribed); or

"ii) If employed for a part of the financial year, was in receipt of remuneration for
any part of that year, at a rate which, in the aggregate, was not less than (such
sum per month as may be prescribed)."

Conclusively, the Department of Corporate Affairs has no powers whatsoever to

exempt certain class of employees for the purpose of disclosure as mandated by
the legislature and the above-referred section of the Companies Act 1956. This
amounts to exempting a class of employees, which is an act of discrimination.

5. The effect of this notification

The above referred notification has the affect of nullifying Section 219 of the Act,
which clearly mandates that a copy of every balance sheet (including the profit
and loss account, the audited report and every other document required by law to
be annexed to the balance sheet) which is laid before a company in a general
meeting shall not be sent to every member of the company less than 21 days
before the date of the meeting. This clearly shows that notification no GSR212E
dated 28th March 2004 ultra vires and this needs to struck down.

6. Disclosure by companies’ consequent to the above notification

It is increasingly seen that many IT companies, after the issue of above

notification depriving the shareholders / investors access to a well-intended
disclosure and the whole concept of disclosure and transparency is getting
defeated in today’s corporate governance where the Government wants to
achieve all companies “the excellence in corporate governance” and have better
transparent disclosures. It is seen in many balance sheets that the companies do
state that in terms of the Notification No.G.S.R.212 (E) dated 24 March 2004
issued by the Department of Company Affairs, Ministry of Finance, Information
Technology companies have been exempted from providing the particulars of
employees including their remuneration, if they have been posted / working in a
country outside India and the particulars of these employees have not been
included in the statement
7. in summary

The stakeholders / investors are deprived the access to the information which
they are entitled to have it as provided by the legislature and the issuing such
notification, the department of Corporate Affairs exceeded its limit and
overwriting the Act by their delegated power given by the legislature which is
definitely ultra vires

8. Conclusion

The Law makers after considering the merits and demerits of disclosing the
related information of the employees, taking into consideration of various factors
had come out with the provision of this disclosure and this need to be and must
be respected. In view of better and transparent disclosure, in the interest better
corporate governance, not to deprive the information to the stakeholders, the
above circular in question should be withdrawn.