APPOINTMENT OF MANAGING OR WHOLE TIME DIRECTOR

APPOINTMENT OR RE-APPOINTMENT OF MANAGING OR WHOLE TIME DIRECTOR

Definition to managing Director:

As per sec 2(26) of Companies Act 1956, “managing director” means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or, by virtue of its memorandum or articles of association, is entrusted with [substantial powers of management] which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called provided that the power to do administrative acts of a routine nature when so authorized by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within substantial powers of management

Provided further that a managing director of a company shall exercise his powers subject to the superintendence, control and direction of its Board of directors.
Managing Director means  an executive director.

Applicability:

1.       As per sec 269 of Companies Act 1956, every public companies and private companies which is the subsidiary of public companies which has paid up capital of more than Rs. 5 crores shall have a Managing Director or Whole time Director or a Manager who can hold office for a period of 5 years.Managing Director’s appointment shall be in accordance with schedule XIII.  And in such case he may be appointed for a period of 3 years. Appointment includes re-appointment.

Procedure for Appointment:

2.       There shall be an agreement made between the company and the Managing or Whole time director which is approved by the board or the Board resolution should make the appointment with term and conditions.

3.       The articles of association shall also appoint managing Director at the time of incorporation of the company. Private Limited companies appoint Managing Director as per their articles. The provisions of Companies Act, 1956 relating to managing director is not applicable to private limited companies.

4.       The appointment may be made by the approval of Board of directors in the board meeting and further approval by shareholders in the subsequent general meeting by an ordinary resolution.

5.       The appointment shall n be made with  Central Government approval, unless it is made as per part I and II of Schedule XIII, where no approval from central government is required.

6.       The Central Government shall also appoint a Managing or Whole time director for a limited period than the period of 5 years as it deems fit for the betterment of the affairs of the company and public interest.

Required forms to be filed:

7.       The return of appointment shall be made in Form 25C to ROC within 90days of appointment.

8.       Form 24AA shall be received from the appointed Managing or Whole time director about his directorship in other companies.

9.       Form 32 shall be filed within 30 days of appointment

10.   Form 23 shall be filed within 30 days of appointment

11.   If the appointment is not made as per schedule XIII, application to central government shall be made in Form 25A.

12.   In case of any alteration to be made in the terms and conditions of Managing or whole time director it shall be applied to ROC in Form 25B

Vacation of Appointed director:

13.   The Central Government shall after considering the director’s disqualification if any gives approval or refuse to accept the application made for the interest of public and affairs of the Company.

14.   If the Central Government refuses to give the approval, the appointed Managing or Whole time Director shall vacate the office on the day on which it was intimated to the company.

Default by Managing or Whole time Director:

15.   In case of default the Managing or Whole time director shall be punishable with a fine of Rs. 5,000 for each day of default.

Contravention of schedule XIII:

16.   If the company has appointed under part I and II of schedule XIII but they have contravened, the Central Government shall take this issue to the tribunal for its decision

17.   The tribunal shall after given an opportunity of being heard shall issue an order that the company has contravened schedule XIII.

Penalty and prosecution for contravention:

18.   After the order is so passed, the company shall be liable for a fine of Rs. 50,000. The officer in default shall be liable for a fine of Rs. 1,00,000 and liable to refund all the salaries, commissions, perquisites enjoyed by him in the company from the date of his appointment till the date of vacation.

19.   Failing to undergo the above said provisions, the officer in default shall be punishable with an imprisonment which may extend to 3 years and fine of Rs. 500 for every day of default

20.   The acts done by the managing or whole time director till the date of vacation shall not be void as if it was made when there is no order passed by the tribunal. 

Reappointment of Managing or Whole time director:

21.   However the Managing director after his term of office of 5 years can get reappointed as per the approval of Board by passing an ordinary resolution followed by a special resolution in the general meeting by the members’ approval.

22.   Form 23, Form 25C for return of appointment of managing directors to be filed with ROC. No need to file form 32 as there is no changes in the directorship. 

Officer in default

Maximum number of companies in which a Director can be managing director:

A Managing director of a Company shall not be a Managing director or Manager in more than one other Company as per sec 316 of Companies Act 1956.

A Manager of a Company shall not be a Managing director or Manager in more than one other Company as per sec 386 of Companies Act 1956.

Thus a person can be Managing Director in two companies at a time.

Listed Company and Managing Director:

Listed companies will have a committee of directors called remuneration committee who will appoint and fix the remuneration of the managing directors.

Disclosure to the shareholders regarding variation in terms of appointment:

In case of any variation in the terms of appointment of a managing director is made by the Board,  the same shall be  shall be disclosed to the shareholders  within 21 days in accordance with Section 302 (1 ) of the Companies Act, 1956 by giving a notice to the shareholders.

Board  Resolution for appointment of managing director for Public limited company

RESOLVED that in accordance with sec 198, 269 and 309 and 310 read with schedule XIII and other applicable provisions, if any of the companies act 1956 including any statutory modifications or re enactment thereof for the time being in force. Approval of the board be and is hereby accorded to the appointment of Mr. AAA as the Managing Director of the company for a period of five years from on the remuneration and on such terms and conditions as set out below with liberty and authority to the board of directors to alter and vary the terms and conditions of the said appointment form time to time within the scope of schedule XIII of the companies act 1956, or any amendment thereto or any re enactment thereof as may be agreed to between the board of directors and Mr. AAA.

Board  Resolution for appointment of managing director in a listed company

  RESOLVED THAT pursuant to provisions of sec 198, 269. 309. 310, 311 and 316 read with schedule XIII and other applicable provisions of any of the companies act 1956, including any statutory modifications or re enactments thereof for the time being in force, subject to approval of the members in general meeting and subject to approval of the central government and such other consents and permission as may be necessary and subject to such modifications, variations as may be approved and acceptable to the appointee, the consent of the board of directors be and is hereby accorded for the appointment of Mr. AAA as Managing Director of the company for a period of three years form ……. To ………. And payment of remuneration for the aforesaid period on the terms and conditions as approved by the remuneration committee in its meeting.

General Meeting resolution in a listed company:

“RESOLVED THAT pursuant to the provisions of section 198, 258, 269, 309, 310, 311, schedule XIII and other applicable provisions of the Companies Act, 1956 including any statutory modification or re-enactment thereof, or any other law and subject to such consent(s), approval(s) and permission(s) as may be necessary in this regard and subject to such conditions as may be imposed by any authority while granting such consent(s), permission(s) and approval(s) and as are agreed to by the Board of Directors (hereinafter referred to as the Board, which term shall unless repugnant to the context or meaning thereof, be deemed to include any committee thereof and any person authorized by the Board in this behalf), consent of the members be and is hereby accorded to the appointment of Mr. AAA as Managing Director of the Company for a period of three years with effect from …….(date)…… , on the terms and conditions set out below as approved by the remuneration committee in its meeting.