The premium classification turns on a specific statutory provision
Companies Act section 197(13) addresses company insurance on behalf of the listed managing and executive personnel for the stated liabilities in relation to the company. The qualifying premium is not treated as remuneration, but the proviso treats it as remuneration if the person is proved guilty. This guide checks the amended ICSI statutory text on 27 October 2026 and uses ordinary public-company remuneration-control examples. Special company-class exemptions and adaptations must be checked separately. ICSI Companies Act e-book: section 197(13).
Match the policy and the named personnel
The subsection lists managing director, whole-time director, manager, CEO, CFO and Company Secretary. Identify the person, role, company-paid premium and indemnity scope. Do not assume that every product sold as D&O insurance or every insured non-executive director falls within the same express personnel list. Broader coverage needs its own legal analysis rather than an invented extension of this subsection. ICSI Companies Act e-book: section 197(13).
Separate allegations from the statutory condition
Keep the proceeding and finding evidence. A complaint, claim notification or media allegation should not be labelled proof of guilt in the remuneration working. Conversely, where the statutory proviso is triggered, do not leave the premium excluded merely because it was originally purchased as protective cover. Establish the finding and its relevance with the actual legal record; this article does not decide appeal, retrospective-period or disputed-finding questions. ICSI Companies Act e-book: section 197(13).
Allocate a group premium on supported facts
A policy can cover several people and other risks. Obtain the insurer’s schedule, endorsements or another supportable allocation. The subsection does not prescribe equal allocation or a salary-based ratio for every bundled policy. Mark unresolved components separately instead of treating an unsupported split as statutory fact. The examples assume their premium allocations have independently been established. ICSI Companies Act e-book: section 197(13).
Keep remuneration, insurance recovery and accounting separate
The subsection refers to premium paid, not the insurer’s liability limit or claim payout. Excluding a premium from this remuneration measure does not erase the company’s insurance expense. Treating a premium as remuneration under the proviso does not by itself prove that the insurance contract pays the claim, authorise excess remuneration or determine personal tax. Reassess the applicable approvals and limits separately rather than posting an automatic recovery from the officer. ICSI Companies Act e-book: section 197(13).
Applicable primary references
ICSI Companies Act e-book: section 197(13)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Qualifying premium without the proviso triggered
Assume an MD’s remuneration is ₹30 lakh and qualifying premium paid on that person’s behalf is ₹2 lakh. With no finding triggering the stated proviso on the assumed facts, this remuneration measure remains ₹30 lakh, while the company still separately accounts for its ₹2 lakh premium expense.
Illustrative example 2: The assumed finding changes the measure
Use the same remuneration ₹30 lakh and qualifying premium ₹2 lakh. Assume the person is proved guilty in circumstances triggering the proviso. The remuneration measure becomes ₹32 lakh. Whether approvals, limits or recovery consequences follow requires the complete applicable analysis.
Illustrative example 3: Keep two people separate
A supported premium allocation is ₹4 lakh for an MD and ₹6 lakh for a CFO. Their baseline remuneration amounts are ₹20 lakh and ₹30 lakh. Assume the proviso is triggered only for the MD. The measures are ₹24 lakh and ₹30 lakh respectively, totalling ₹54 lakh, not ₹60 lakh merely because both share one policy.
Illustrative example 4: A documented three-person allocation
A policy premium of ₹12 lakh is independently allocated as MD ₹5 lakh, CFO ₹4 lakh and Company Secretary ₹3 lakh. The allocation reconciles to ₹12 lakh. If the proviso is triggered only for the Company Secretary, the incremental amount in this working is ₹3 lakh, not the whole policy premium.
Illustrative example 5: Do not use the claim amount as the premium
Qualifying premium is ₹2 lakh and the policy’s assumed claim payment is ₹100 lakh. The amount addressed by the premium-classification test is ₹2 lakh. Replacing it with the claim payout would overstate that input by ₹98 lakh; claim entitlement and accounting remain separate.
Illustrative example 6: Do not extend the express list by arithmetic
A bundled ₹6 lakh premium is independently allocated as ₹3 lakh for an MD, ₹2 lakh for a CFO and ₹1 lakh for a non-executive director who holds none of the listed roles. The expressly identified listed-person components total ₹5 lakh. The remaining ₹1 lakh needs its own legal basis; this illustration does not automatically classify it as either exempt or remuneration.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Check the company population | Section 197 and any class adaptation |
| 2 | Identify insured personnel | Role and appointment records |
| 3 | Review indemnity scope | Policy and covered liabilities |
| 4 | Establish premium actually paid | Invoice and payment trail |
| 5 | Support bundled allocations | Insurer schedule or documented basis |
| 6 | Review the proceeding status | Allegation versus proved-guilt evidence |
| 7 | Apply the premium classification | Section 197(13) conclusion |
| 8 | Reconcile the remuneration measure | Person-wise baseline and increment |
| 9 | Assess separate approvals and consequences | Full remuneration framework |
| 10 | Keep accounting and claims distinct | Expense, payout and legal working |
Sixteen practitioner FAQs
1. Does the provision refer to every insurance policy?
No. Establish the stated indemnity scope, personnel and company context.
2. Which personnel are expressly listed?
MD, whole-time director, manager, CEO, CFO and Company Secretary.
3. Does the D&O marketing label prove the conditions?
No. Read the actual policy and statutory scope.
4. Are all non-executive directors expressly listed as such?
No. Do not extend the stated personnel list without an independent legal basis.
5. Is a qualifying premium normally included under subsection (13)?
The subsection excludes it, subject to its proviso and actual applicability.
6. What changes if the person is proved guilty?
The proviso treats the premium paid on that insurance as remuneration.
7. Does a bare allegation automatically prove guilt?
Do not substitute an allegation for the statutory condition and actual finding evidence.
8. Does this article resolve every appeal-stage question?
No. Assess the specific finding and its legal status.
9. Must a bundled policy be split equally?
The subsection prescribes no universal equal-allocation formula; obtain supportable facts.
10. Can salary percentages be invented to allocate the premium?
Do not present an unsupported allocation as a statutory requirement.
11. Does one person’s finding automatically affect every insured person?
Maintain person-specific facts and supported premium components.
12. Is the insurer’s claim payout the amount tested here?
No. This subsection addresses the premium paid.
13. Does exclusion from remuneration erase the insurance expense?
No. Keep the company’s accounting separate.
14. Does inclusion automatically authorise excess remuneration?
No. Reassess applicable limits and approvals separately.
15. Does the rule determine personal income tax?
No. That requires a separate analysis under the applicable tax law.
16. Does it automatically order the officer to repay the premium?
Do not infer a universal recovery order from this classification provision alone.
Conclusion
Reconcile qualifying company-paid indemnity insurance premiums under section 197(13), keeping covered personnel, proven-guilt findings and remuneration consequences separate.