- the effective capital is calculated in accordance with the provisions contained in Explanation I of Part II of the Schedule V of the Companies Act 2013;
- the effective capital is less than zero (0).
Negative Effective Capital : Meaning under the Companies Act 2013
Meaning of Negative Effective Capital
The meaning of negative effective capital is given in the Explanation V of Part II of the Schedule V of the Companies Act 2013.
In order to arrive at negative effective capital - it must satisfy two conditions.
The calculation of effective capital is further explained the article available at the following link.
In case of Negative effective capital - Remuneration payable by companies having no profit or inadequate profit without Central Government approval
Where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person Rs. 30 lakhs.
Provided that the above limit shall be doubled if the resolution passed by the shareholders is a special resolution.
Provisions under erstwhile Companies act 1956
The meaning of negative effective capital was given in the Explanation VI of Part II of the Schedule XIII of the Companies Act 1956.