Appointment of Managing Director, Whole Time Director or Manager (Section 196 of the Companies Act, 2013) :
Section 196 of the Companies Act, 2013 provides for the provisions for appointment of Managing Director, Whole Time Director or Manager. According to this section:
(i) A company shall not appoint or employ a managing director and a manager at the same time. [Section 196(1)]
(ii) Tenure [section 196(2)]:
(a) No company shall appoint or re-appoint any person as its managing director, wholetime director or manager for a term exceeding five years at a time.
(b) It is further provided that no re-appointment shall be made earlier than one year before the expiry of his term.
(iii) Disqualification [section 196(3)]: No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who-
(a) is below the age of 21 years or has attained the age of 70 years.
Provided that a person who has attained the age of seventy years may be appointed to such office by the passing of a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person.
(b) is an undischarged insolvent or has at any time been adjudged as an insolvent; or
(c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.
(iv) Schedule V to the Companies Act, 2013, has prescribed additional conditions for managing or whole-time director or a manager to be eligible for appointment:
(1) he had not been sentenced to imprisonment for any period, or to a fine exceeding one thousand rupees, for the conviction of an offence under 16 Acts as specified under Schedule V.
(2) he had not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974:
Provided that where the Central Government has given its approval to the appointment of a person convicted or detained under para (1) or para (2), as the case may be, no further approval of the Central Government shall be necessary for the subsequent appointment of that person if he had not been so convicted or detained subsequent to such approval.
(3) where he is a managerial person in more than one company, he draws remuneration from one or more companies subject to the ceiling provided in section V of Part II
(4) he is resident of India.
Explanation 1: Here, resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India,-
(a) for taking up employment in India; or
(b) for carrying on a business or vacation in India.
(v) Procedure of appointment [section 196(4)]:
(1) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed, and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting.
(2) The terms and conditions and remuneration approved by Board of Directors as above shall be subject to the approval of shareholders by a resolution at the next general meeting of the company.
(3) In case such appointment is at variance to the conditions specified in the Schedule V of the Companies Act, 2013, the appointment shall be approved by the Central Government.
(4) The notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any.
(5) A return in the prescribed form (Form No. MR.1) along with the prescribed fee shall be filed with the Registrar within sixty days of such appointment.
(vi) Validity of acts [Section 196(5)]: Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall deemed to be valid.
For ex: A managing director is appointed in board meeting on 1st June, 2015. General meeting was to be held on 7th June, 2015 for approval of the same. The General meeting was held accordingly on 7th June, 2015 but did not approve the appointment of Managing Director.
In this case, acts done by the managing director from 1st June, 2015 to 7t h June, 2015 i.e. upto the non approval of the general meeting, shall be valid subject to the provisions of this Act.
Managing Director [Section 2(54)]: Section 2(54) of the Companies Act, 2013 defines a “Managing Director” as a director who is entrusted with substantial powers of management of the affairs of the company by:
(i) virtue of the articles of a company or
(ii) an agreement with the company or
(iii) a resolution passed in its general meeting, or by its Board of Directors, and includes a director occupying the position of the managing director, by whatever name called.
Explanation to Section 2 (54) clarifies that substantial powers of the management shall not be deemed to include the power to do such administrative acts of a routine nature when so authorised by the Board such as:
(i) the power to affix the common seal of the company to any document or
(ii) to draw and endorse any cheque on the account of the company in any bank or
(iii) to draw and endorse any negotiable instrument or
(iv) to sign any certificate of share or
(v) to direct registration of transfer of any share.
Whole Time Director [Section 2(94)]: “Whole-time director” includes a director in the wholetime employment of the company.
Manager [Section 2(53)]: “Manager” means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not.
Note: (i) In case of Government Companies, section 196(2), (4) and (5) shall not apply (Notification No. G.S.R. 463(E) dated 5th June, 2015).
(ii) In case of Private companies section 196(4)/(5) shall not apply (Notification No. G.S.R. 464(E) dated 5th June, 2015).