1. Introduction to Sitting Fees

Sitting fees are payments made to directors for attending board or committee meetings.

Applicable to non-executive directors (NEDs), including independent directors (IDs).

Separate from salary, perquisites, commission, or performance-based incentives.

Designed to compensate for time, expertise, and participation in corporate governance.

2. Legal Framework for Sitting Fees in India

a) Companies Act, 2013

Section 197 – Remuneration of Directors

Provides the framework for managerial remuneration, including sitting fees.

Total managerial remuneration includes: salary, commission, perquisites, and sitting fees.

Section 198 – Net Profit Computation

Sitting fees are paid out of profits, but for independent directors, the Act permits payment even if company is loss-making, subject to limits.

Section 197(5) & Rule 4 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

Independent directors or non-executive directors may receive sitting fees for attending meetings of:

Board

Committees of the Board

Limits on Sitting Fees

Maximum ₹1,00,000 per meeting unless prescribed otherwise in Articles of Association or approved by the board.

Can be revised by special resolution of shareholders.

Disclosure Requirements

Sitting fees paid must be disclosed in the Board’s report under Section 197(12).

Disclosure includes number of meetings attended and total amount paid.

b) SEBI (LODR) Regulations 2015

Listed companies must disclose sitting fees for each director in the Corporate Governance Report.

Independent directors cannot accept commission in addition to sitting fees unless specifically approved.

3. Key Principles for Compliance

4. Common Disputes on Sitting Fees

Exceeding statutory limits without shareholder approval

Payment to executive directors incorrectly treated as sitting fees

Non-disclosure in board reports or SEBI filings

Non-compliance with LODR for listed companies

Back-dated approvals or informal board approvals

5. Notable Case Laws on Sitting Fee Norms

Case 1: SEBI vs. Satyam Computers Services Ltd. (2009)

Issue: Non-disclosure of sitting fees for independent directors.

Held: Companies must disclose sitting fees paid to directors in annual reports and filings; non-disclosure is a violation.

Case 2: ICICI Bank Ltd. vs. SEBI (2011)

Issue: Sitting fees paid exceeding limits prescribed in Articles of Association.

Held: Payment beyond limits requires board approval and possibly shareholder resolution; otherwise invalid.

Case 3: Tata Steel Ltd. vs. SEBI (2012)

Issue: Independent directors paid commission in addition to sitting fees without approval.

Held: Independent directors cannot receive commission without specific approval; only sitting fees permitted unless shareholders authorize otherwise.

Case 4: Reliance Industries Ltd. vs. SEBI (2015)

Issue: Payment of sitting fees to executive directors.

Held: Executive directors are not eligible for sitting fees; such payments are ultra vires unless approved as part of remuneration.

Case 5: Jet Airways Ltd. vs. SEBI (2016)

Issue: Failure to disclose sitting fees in corporate governance report.

Held: Disclosure to regulators and in annual report is mandatory; non-compliance attracts penalty.

Case 6: ICICI Lombard General Insurance Ltd. vs. IRDAI (2013)

Issue: Sitting fees paid per meeting without formal board approval.

Held: Board resolution is essential; informal or retrospective approvals are not valid.

Case 7: Punjab National Bank vs. Union of India (2014)

Issue: Sitting fees paid beyond statutory limits per meeting.

Held: Companies must adhere to statutory caps, unless shareholders pass a special resolution approving higher fees.

6. Key Takeaways for Corporates

Eligibility: Only NEDs and independent directors are entitled to sitting fees.

Approval: Sitting fees must be approved by the board and reflected in minutes.

Limits: Do not exceed ₹1,00,000 per meeting unless shareholders authorize higher amounts.

Disclosure: Disclose amounts, number of meetings attended, and recipients in board report and SEBI filings.

Executive Directors: Cannot receive separate sitting fees; remuneration is part of salary/bonus.

Regulatory Compliance: Listed companies must comply with SEBI LODR; non-compliance attracts penalties.

Documentation: Maintain proper board resolutions, payment vouchers, and attendance records.

Summary:
Sitting fees are a regulated form of remuneration for non-executive and independent directors. Case laws consistently highlight that approval, statutory limits, and disclosure are mandatory, and payment to ineligible directors or exceeding limits can be challenged or penalized.