Whole Time Director
Let’s discuss the provisions of Whole Time
Director: Whenever we discuss about the term Whole Time Director many questions
come in our mind.
1.
Whether WTD is executive Director or
non-executive Director?
2.
Whether a director in employment will
be considered as Whole Time Director?
3.
Whether they are rotational director
or non-rotational director?
1)
Whether WTD is executive Director or non-executive
Director?
Non-executive
director is no where defined under Companies Act, 2013. But Executive director
is defined under in Companies (Specification of definitions details) Rules,
2014 Rule 2(k) “Executive Director” means a whole time director as
defined in clause (94) of section 2 of the Act.
Clause
(94) of section 2, whole-time director” includes a director in the
whole-time employment of the company.
Therefore,
as per above two definitions it is clear that a Whole time director will be
always executive director vise versa.
2)
Whether a director in employment will be considered as
Whole Time Director?
Example: A person was
employee of the Company XYZ Public Limited later on such person appointed as
director of the Company. The issue is
·
Whether such person will be treated as director or whole
time director?
As
per definitions discussed in question No. 1. If a ‘Director” in the ‘whole time
employment’ of the Company (Director+ Whole time Employee) such director will
be treated as ‘Whole Time Director’. Therefore, as per the act such person will
be treated as whole time director of the Company from the date of appointment
as director.
·
If such employee appointed as director then whether need to
comply section 196 or not?
As we discussed on appointment as director by
effect of act such person will be treated as WTD, then company have to follow
all the compliances which are required to appoint a WTD (section 196). Like:
his appointment will be subject to approval of shareholder.
·
Whether remuneration to such director will be decided as
per section 197?
As
stated u/s 197 ‘The total managerial remuneration payable by a public company,
to its directors, including managing director and whole-time director, and its
manager in respect of any financial year shall not exceed eleven per cent. of
the net profits of that company’.
Therefore,
such person from the date became appointment as director treated as WTD and his
remuneration will decide as per limit prescribed under section 197. If his
remuneration will exceed the limit u/s 197 then remuneration will be decided as
per schedule V or Central Government approval.
·
Whether Company required fixing his term of appointment?
As
stated in section 196 ‘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’
Therefore,
in case of appointment of normal director there is no need to fix the tenure
they can continue as director as per their agreement of appointment. But in
case such person treated as WTD his a term of appointment will be maximum 5
year. Term of appointment is required to mention in the resolution and
explanatory statement also.
Example -2: if same
situation occurs in case of Private Limited
Company then what will be answers of above mentioned three questions:
· Such Person will be treated as WTD in
the Private Company also and in form of his appointment (DIR-12) Company will select
as Whole time Director. On each and every document of the company will mention
WTD with his name.
· Yes Company have to follow the
process of appointment stated u/s 196 but no need of Shareholder approval
because section 196(4) & (5) are not applicable on the private limited
Company as per exemption notification issued by MCA for private limited
Companies as on 05.06.2015.
· As the section 197 not applicable on
private limited companies. Therefore no need question for limit of remuneration
for WTD in case of private limited Company.
· Same as public Company in private
company also maximum term of an appointment of WTD will be 5 year.
3)
Whether they are rotational director or non-rotational
director?
The
provision of rotations is applicable on only public company and private limited
Company which is subsidiary of a public Company (Deemed Public Company)
All the
directors shall be retire by rotation except;-
·
Nominee director
·
Independent director
·
Director appointed by any tribunal
·
Director appointed by proportional representation as per section
163
·
Small share holder director
Articles of most companies contain an express provision
excluding managing and whole-time directors from the conditions for retirement
by rotation and provides that a person shall not be liable to retirement by
rotation so long as he continues to hold the office of the managing or
whole-time director. Such a provision may read thus:
"The managing director/s or whole-time director/s shall
not while he/they continues/continue to hold the office, be taken into account
in determining the rotation of retirement of directors or the number of
directors to retire and his/their appointment shall be subject to determination
ipso facto if he/they ceases/cease from any cause to be a director or if
the company in general meeting resolves that his/their tenure of office as
managing director or whole-time director be determined".
Therefore,
thus become WTD he will be fall in limit of rotational director only when 2/3
of total director include the WTD also.
(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES
Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)
Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
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information is not a professional advice and is subject to change without
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