Difference between Executive & Non- executive Director
Executive & Non- executive Director
In
this Editorial author shall discuss the provisions of ‘Executive & Non –
Executive Director’. There are many classes of Directors under Companies Act,
2013 like (Executive, Non-executive, Independent Director, and Nominee Director
etc etc). However, professionals / corporates always confused between statuses
of a Director as Executive Director. Many questions came into mind like: (i) who
is Executive or non- executive Director? (ii) who Is entitled to get
remuneration or not etc. many more questions.
Although
there is no legal distinction between the powers and duties of executive
directors and non-executive directors, the two play different roles on a board
of directors. Even u/s 166 of Companies Act, 2013 duties of directors are
prescribed which are equal for both executive and non-executive Director.
Before commencement of Companies Act, 2013 it was very
difficult to understand the difference between term executive and non-executive
Director. However, Companies Act, 2013 given clarity to understand the term
executive Director.
Provisions of the
Companies Act, 2013 – Executive Director
ExecutiveDirector:As per Rule 2(1)(k) of the
Companies (Specification of definitions details)
Rules,
2014 “Executive
Director” means a Whole
Time Directoras defined in clause (94) of
section2 of the Act”
Whole Time Director: As per Clause
2(94) of Companies Act, 2013 ““whole-time
director” includes a Directorin
the whole-time
employment of thecompany.
After
reading of above mentioned both definitions one can opine that following shall
be considered as Executive Director:
A.
Executive Director: (Whole Time Director)
Condition-I:
To became
executive Director ‘a person should be
Director’ of the Company.
Condition-II:
To became
executive Director ‘a person should be
Whole Time Employee’ of the Company.
Condition-II:
To became
executive Director ultimately ‘a person
should be Whole Time Director’ of the Company.
Note*
as per definition of Whole time Director, both conditions should be fulfilled
to consider a person as WTD. {Director + Whole Time Employee}
In
Simple Words; A person who is DIRECTOR + Whole Time Employee of the
Company indirectly shall be considered as Executive Director due to (2)(1)(k)
whether designated by Company as executive Director or not.
Therefore, from the above mentioned provisions a
person can opine that “Whole Time Directors” shall be considered as ‘Executive
Directors’.
B.
Executive Director: (Managing Director)
Managing Director: As per Clause
2(54) of Companies Act, 2013 “managing director” means a director who, by
virtue of the articles of a company oran agreement with the company or a
resolution passed in its general meeting, or byits Board of Directors, is
entrusted with substantial powers of management of theaffairs of the company
and includes a director occupying the position of managingdirector, by whatever
name called
After
reading of above mentioned definition of Managing Director, one can opine that:
As
MD is entrusted with powers of the Management, affairs of the Company and he
shall be whole time employee of the Company (as to manage affairs of the
Company and power of management a person have to give his whole time and
attention).
Note*as
per definition of Managing Director, A Managing Director is {First Director of the
Company}
and {Second Whole Time
Employee of the Company}.
As
discussed above, a person fulfilling both conditions {Director + Whole Time
Employee}shall be considered as Whole Time Director of
the Company. Therefore, in other words Managing Director shall be considered as
Whole Time Director of the Company.
In
Simple Words; A person as Managing Director of the company shall
fall under 2(1)(k) and considered as Executive Director of the Company.
Quick Questions:
A. Whether a person can
be Executive Director in more than one Company?
As per above mentioned
definitions, to become executive Director a person should be in whole time
employment of the Company. Practically, a person can have whole time employment
in one company only. Therefore, one can opine that a person can be executive
director only in one Company at a time.
Exception
to above answer:
As per Section 203 a person can be
Managing Director in more than one Company with the approval of the Board of
Director of First Company. Therefore, this is exception situation in which a
person can be executive director in more than one Company.
B. To consider a person
executive director, is it mandatory to designate him as executive Director?
As discussed in above by the definitions of
‘executive director’ and ‘whole time director’.
ü If
a person is Director of the Company and Whole time employee of the Company
shall be considered as Whole time Director of the Company whether designated by
the Company or not. By virtue of law such person shall be considered as Whole
Time Director.
ü If
a person fall under definition of ‘whole time director’ even by virtue of law
shall be considered as executive Director.
ü Therefore
one can opine that, all the whole time directors of the Companies shall be
considered as executive director.
Whether company has designated him/her as executive Director or not.
NOTE*If
a person fulfill both conditions (Director + Employee) but in his appointment
form DIR-12 company has chosen non-executive Director. He shall consider as
Executive Director. It means selection in form as executive or non-executive
can’t over-ride the Law. If a person fall under the definition of Executive
Director shall be considered as executive Director only.
C. Whether a person can
be Executive Director without acceptance of any remuneration from the Company?
Yes, a person can be executive director
without acceptance of remuneration.
In the situation, if he is
whole time employee of the Company and not getting any remuneration from the
Company.
Provisions of the
Companies Act, 2013 – NON - Executive Director
Non-executive Director, nowhere described under
Companies Act, 2013. However, meaning of non- executive Director can be taken
from the definition of executive Director.
In simple word;a person who is
not falling in conditions of definition of ‘Executive Director’ shall be
considered as ‘Non-Executive Director’.
Therefore, one
can opine that all the Directors except ‘Whole Time Director’ and “Managing
Director’ shall be considered as Non- Executive Director.
Quick Questions:
D. A director accepting
remuneration from the Company shall be considered as executive director or
non-executive Director?
As mentioned above ‘Director
+ Whole Time Employee’ shall be considered as Executive Director.
However, to accept the remuneration it
is not mandatory to become whole time employee of the Company. A Director can
be accepting the remuneration as part time employee {Director + Part time
Employee}.
Therefore,
one can opine that a director getting remuneration from the Company can be
non-executive director of the Company.
Note*after
reading all the above mentioned provisions one can opine that – Executive
Director include ‘Managing Director and Whole Time Director’. Except MD &
WTD all the Directors of the Company are non-executive Director.
(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 provisions of applicable Laws. The user of the
information agrees that the information is not a professional advice and is
subject to change without notice. I assume no responsibility for the
consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE
FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING
OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION
very helpful
ReplyDeletethankyou.
The Definition of Managing Director does not state that he must be a whole time director. You have interpreted it so and have asserted it as a fact.
ReplyDeleteNice
ReplyDeleteVery nice sir.
ReplyDeleteDear sir
ReplyDeletePlease also clear our doubts on
Remuneration and salary difference?
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