APPOINTMENT OF MANAGING DIRECTOR AND MANAGER

[NOTE: The law stated in this post is effective from 12^th September 2018. For the law applicable from 1^st April 2014 till 11^th September 2018, please visit here.]

The Managing Director is Key Managerial Personnel of utmost importance. He is the face of a company and its decision-making mechanism. A person gains significant advantages as the Managing Director which may not be there, in case of his appointment as the Manager or the Chief Executive Officer. While the Chief Executive Officer has no special advantage except his clubbing as a Key Managerial Personnel with the Manager and the Managing Director, the Manager has some advantage. Their definitions speak themselves. Appointment of Managing Director, Whole – Time Director and Manager is governed by the provision of Section 196 of the Companies Act, 2013. They all are a different class of Key Managerial Personnel and has the specific provision of appointment in addition to Section 203, discussed in an earlier post.

APPOINTMENT OF MANAGING DIRECTOR, WHOLE – TIME DIRECTOR OR MANAGER (SECTION 196):

A company can appoint either a Managing Director or a Manager but not both. {Sub – section (1)}

The appointment of a Managing Director, Whole – Time Director or Manager shall only be for a term which must be less than five years. However, the company may re-appointment them for next term before the expiry of their present term but not earlier than one year before the expiry of the term. This means the company may re-appoint them for next term in last one year of the current term.  {Sub – section (2)}

For Government companies, provision of sub-section (2) is not applicable.

The minimum age for the appointment for these positions is twenty – one year and normal retirement age is seventy years. Words used in this Section are “shall appoint or continue the employment of”.  A company may appoint a person on these positions, who has attained the age of seventy years by passing a special resolution. Where it is proposed to appoint a person who has attained aged of seventy years, an explanatory statement justifying such appointment shall be annexed to the notice for the motion of appointment. {Sub – section (3)}

Where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made. {Sub – section (3) second proviso with effect from 12^th September 2018}

The appointee should not be an un-discharged insolvent nor has any time been adjudged as an insolvent. The appointee has not any time suspended payment to his creditors or has made a composition with them. The appointee should not be a convict of an offence and sentenced for a period of more than six months. {Sub – section (3)}

Board of Directors in its meeting shall appoint Managing Director, Whole Time Director or Manager, subject to the approval of the company in its next General Meeting. This appointment should be in accordance with the provision of Section 197 and Schedule V. Where, such appointment is at variance to the conditions specified in Part I the schedule, this appointment shall also be subject to the approval of the Central Government. {Sub – section (4)}

Every application made to the Central Government under the provisions of Chapter XIII shall be made in Form MR – 2 and shall be accompanied by a fee as may be specified for the purpose. {Rule 7(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, as amended}

Every such application seeking approval shall be made to the Central Government within a period of ninety days from the date of such appointment. {Rule 7(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, as amended}

The Notice convening Board or General Meeting for such appointment shall include terms and conditions of such appointment, the remuneration payable and other matter including interests of directors in such appointment. {Sub – section (4)}

A return of such appointment shall be filed within sixty days of such appointment. {Sub – section (4)}

Subsection (4) is not applicable to a private company, government company and specified IFSC public company.

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 not be deemed to be invalid. {Sub – section (5)}

Subsection (5) is not applicable to a private company and government company.

Provisions of this Section 196 are applicable to all companies; while, provisions of next Section 197 which deals with Managerial remuneration are to public companies.

There is a little difference in the appointment of Manager, Managing Director or Whole – Time Director, which reflect from definition clause. While drafting agreement and resolution for such appointment, one should take care of respective definition. These positions solely depend upon drafting of appointment documents not only on the designation mentioned in these documents.