PROVISIONS RELATING TO Managing Director / Whole Time Director
PROVISIONS RELATING TO
Managing Director /
Whole Time Director
SECTIONS INVOLVED:
Section
152(2): Save as otherwise expressly provided in this Act, Every Director shall be appointed by the company in general
meeting.
Section
170(2) A return containing such particulars and documents as may be prescribed,
of the directors and the key managerial personnel shall be filed with the
Registrar within thirty days from the appointment of every director and key
managerial personnel, as the case may be, and within 30 days of any change
taking place.
[1]Section
117(3)(c) A copy of resolution of the Board of Directors of a company or
agreement executed by a company, relating to the appointment, re-appointment or
renewal of the appointment, or variation of the terms of appointment, of a Managing Director shall be filed
with the Registrar within thirty days of the passing or making thereof.
Section
161(1): The articles of a company may confer on its Board of Directors the
power to appoint any person, other than a person who fails to get appointed as
a director in a general meeting, as an additional director at any time who
shall hold office up to the date of the next annual general meeting or the last
date on which the annual general meeting should have been held, whichever is
earlier
Section
196: No company shall appoint or re-appoint any person as its managing
director, whole-time director or manager for a term exceeding five years at a
time
Section
197: Overall Maximum Remuneration and Managerial Remuneration.
EARLIER WAS SECTION 197A, 267, 311, 317, 384, 385, 388 OF THE COMPANIES ACT, 1956
Quick Question
i.
Whether a private Limited Company required to file MGT- 14 in case of
variation in term of appointment of Managing Director?
As per provision of Section 117(3)(C) All Companies
are required to file resolution in e-form MGT-14 within 30 days of passing of
resolution for variation in term of MD. Ex. That variation can be increase or
decrease in remuneration.
ii.
Whether an additional Director can be appoint as Managing Director?
As per
section 161 Board of Director can appoint a person as additional Director. As
per section 196 a director can be appoint as MD/ WTD. However, an additional
director can be appointing as Managing Director.
Now many questions Arise
a.
What shall be Term of
additional Director as MD?
b.
Whether company need to
hold General meeting for appointment of additional director as MD?
c.
Whether Company need to
file 2 DIR-12 one for appointment as additional director and second for
appointment as MD.
d.
If Company appoint
additional Director as MD and file form as his designation MD whether company
need to file DIR-12 again at the time of regularization in AGM?
e.
Whether Company can file
single Board resolution for both altogether appointment as additional director
and managing director?
Author shall try to answer the
above mentioned queries in the upcoming articles.
RULES INVOLVED:
Rule
3 of the Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014
Rules
17 of the Companies (Appointment and Qualification of Directors) Rules, 2014-
Register of directors and key managerial personnel
Rule
18 of the Companies (Appointment and Qualification of Directors) Rules, 2014-
Return containing the particulars of directors and the key managerial personnel
Rule
8 of the Companies (Appointment and Qualification of Directors) Rules, 2014-
Consent to act as director.
CIRCULARS INVOLVED:
Notification
No. G.S.R. 464(E) dated 5th June 2015
[2]Notification
dated 04th June, 2017
FORMS INVOLVED:
DIR-
12 - Particulars
of appointment of Directors and the key managerial personnel and the changes
among them.
MR-1
- Return of appointment of MD/WTD/Manager.
MGT–
14 -Filing of Resolutions and agreements to the Registrar
DIR-
11 – Filing of resignation with ROC by the Director.
NON APPLICABILITY:
Government
Company: As per NOTIFICATION NO. GSR
463(E)[F.NO.1/2/2014-CL-V], DATED 5-6-2015
:
Section 196 Sub Section 2, 4 & 5 not applicable on
Government Company.
Section
197 not applicable on Government Company.
Private
Company: As per NOTIFICATION NO. GSR 464(E)
[F.NO.1/1/2014-CL-V], DATED 5-6-2015
Section 196 Sub Section 4 & 5 Not applicable on
Private Company.
Section
197 not applicable on Private Company (Literal Interpretation).
Quick Notes
iii.
Benefits of Exemptions to Government Companies?
§ No need to take approval
of Shareholders for appointment of MD/ WTD.
§ Provision of Section
197, remuneration to MD/ WTD not applicable on such companies.
§ Schedule V not
applicable on such Companies
§ Term of MD can be more
than 5 years
§ Reappointment can be
made any time before expiry of term.
§ No need to file e-form
MR-1
iv.
Benefits of Exemptions to Private Limited Companies?
§ No need to take approval
of Shareholders for appointment of MD/ WTD.
§ Provision of Section
197, remuneration to MD/ WTD not applicable on such companies.
§ Schedule V not
applicable on such Companies
§ No need to file e-form
MR-1
DEFINITION:
Managing Director: - As per Section 2 clause 54 of Companies Act, 2013
A director who, by virtue of the articles of a
company or anagreement with the company or a resolution passed in its general
meeting, or by its Boardof Directors, is entrusted with substantial powers of
management of the affairs of thecompany and includes a director occupying the
position of managing director, by whatevername called.
MD means a Director.
As a MD or WTD must also be a director, the Board can appoint to the office of
MD / WTD only a person who is already a director.
Situation:
If, for any reason such as the need of possessing professional or technical
qualification, an outsider has to be appointed, the course to be followed is
first to get him appointed as director either by the Board itself as an
additional director under section 161 or by the Company in general meeting u/s
152 for such period as the company may determine.
Manager:-As per Section 2 clause
53 of Companies Act, 2013
An individual who, subject to the
superintendence, control and directionof 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.
Whole-Time
Director: - As
per Section 2 clause 54 of Companies Act, 2013
A
director in the whole-time employment of the company.In
other words, a director employed to devote the whole of his time and attention
in the carrying on of the affairs of the Company.
Whether a WTD can be
director in other Companies:
That is to say he cannot
also be an employee of another Company or elsewhere, or be engaged in any other
business pursuit, though he may be an ordinary director of one or more other
Companies also.
Executive
Director: - Companies
(Specification of definitions details) Rules, 2014, 2(K)Executive Director means
a Whole Time Directoras defined in clause (94) of section 2 of the Act.
A separate article on
Executive and non-executive directors are available on below mentioned link:
http://www.csdiveshgoyal.info/2018/02/difference-between-executive-non.html
PURPOSE OF FILING OF FORMS:
MGT-14: This form required to file within 30
days of passing of resolution and required to file for below mentioned purposes
for All The Companies including
Private Limited Company {Section 117(3)(c)}.
·
Appointment
of Managing Director
·
Re-appointment
of Managing Director
·
Renewal
of Appointment of Managing Director
·
Variation
of the Term of Appointment of Managing Director (it includes simple things like
increase or decrease in remuneration also)
MR-1: This form is required to be filed
within 60 days of appointment of Managerial Personnel and required to file for
the Company OTHER THAN Private
Company and Government Company.
DIR-12:- This form is required to be filed within 30 days of passing
of resolution and required to file for the company OTHER THAN Government Company in which the entire paid up share
capital is held by the Central Government, or by any State Government or
Governments or by the Central Government and one or more State Governments
RESOLUTION REQUIREMENT:
For appointment or reappointment of Managerial Personnel
(MD/WTD/Manager) following resolution required to be filed in case of;
PRIVATE COMPANY:
§ In case of appointment of MD/WTD/Manager Private Company
required passing Board Resolution.
§ Board resolution can be passed by Circular Resolution or in the Meeting of Board of Directors.
Quick Question
v.
Whether MD/ WTD can be appoint by passing of Circular resolution in
Private Limited Company and Government Company?
Due to exemption notification dated 05th
June, 2015 provision of section 194(4) not applicable on these both companies.
Therefore requirement to pass board resolution in the meeting of Board of
Directors are not applicable on these companies.
PUBLIC COMPANY:
§ Passing of Board
Resolution required passing subject to approval
of Shareholders in Next General Meeting.
§ Passing of Ordinary
Resolution required passing in subsequent General
Meeting.
§ Board resolution CAN NOT be pass by Circular Resolution.
Note: Approval of
Central Government in case such appointment is at variance tothe conditions
specified in that Schedule.
MATTER COVERED IN RESOLUTIONOF
APPOINTMENT:
§ Terms and conditions of appointment
§ Remuneration
MATTER COVERED IN NOTICE OF
APPOINTMENT: Notice of Board Meeting and General
Meeting shall includes; (Private Company and Government Companies are exempted
from the same)
§ Terms and conditions of appointment
§ Proposed Remuneration
§ Interest of Director & Directors in such appointment if
any.
TENURE OFMANAGERIAL PERSONNEL:
Maximum
tenure for appointment of Managing Director, Whole Time Director or Manager is
5 (Five) Year at a time. {Section 196(2)}.
Re-appointment:
The
company may re-appointment them for next term but not earlier than one year before expiry of the current term. This means, company may re-appoint them
for next term in last one year of current term. Section 196(2)
proviso
Quick Question
vi.
Whether a Company can appoint MD/ WTD for a term more than 5 year at a
time?
Except Government Company, A company can’t appoint
MD/ WTD for term more than 5 year at a time.
Exemption is given to only government companies by
exemption notification dated 05th June, 2015.
vii.
Whether a Company can reappoint Managing Director after expiry of his
Tenure?
As per provision of
Section 196(2) “no re-appointment shall be made earlier than one year before
the expiry of his term”. It is
clear that act allow to re-appoint MD with in 1 year before expiry of term.
There are two schools of thought:
First: As per this no
director can be appoint from the back date or retrospective effect. Therefore,
appointment of MD also can’t be done from back date. If his appointment will be
made after expiry of term that should be considered as fresh appointment, not
in continuation of earlier appointment.
Second: A MD is
continuing the operations of the Company. Therefore a company without breaking
the continuation of MD can reappoint from back date.
AGE FOR APPOINTMENT OFMD/WTD/Manager:
MINIMUM AGE: Minimum age for appointment as MD/ WTD/ Manager is 21
(Twenty) of year. There is an absolute prohibition on appointment of a person
below the age of 21 year.
MAXIMUM AGE: Maximum
age for appointment as MD/ WTD/ Manager is 70 (Seventy) of year. But subject to
approval of Shareholders in General Meeting a person can be appoint as
MD/WTD/Manager even after obtaining age of 70 years.
CESSATIONOF CONTINUATION OF APPOINTMENT OF MD
/ WTD / MANAGER:
A person can’t continue as MD / WTD / Manager who-
·
Is below the age of 21 year or has
attained the age of 70 years
·
is an undischarged insolvent or has at
any time been adjudged as an insolvent
·
has at any time suspended payment to
his creditors or makes, or has at any time made, a composition with them; or
·
has at any time been convicted by a
court of an offence and sentenced for aperiod of more than six months
Food for Thought
i.
What is the meaning of undercharged insolvent or adjudged as an
insolvent?
ii.
The term “has any time suspended payment to his creditors”; whether
nonpayment of Rs. 100/- to creditors makes a person disqualified to get
appointment as MD?
iii.
If a person “sentenced for a period more than 6 month”, whether such
person can’t get appointment as MD/ WTD for his/ her whole life?
Below chart is given to describe the disqualification for MD/ WTD
INFORMATION REQUIRED TO BE PROVIDE BY PERSON TO BE APPOINTED:
Documents Required to be Provide:
·
A declaration that he is not
disqualified to become a director under this Act, 2013 (DIR-8)
·
Consent on or before appointment
(DIR-2)
·
Self attested copy of Residential Proof
·
Self attested copy of PAN
Information Required to be Provide:
Every director is required to disclose the following details
to Company:
i. Director Identification Number
(optional for key managerial personnel);
ii.
present
name and surname in full;
iii.
any
former name or surname in full;
iv.
father’s
name, mother’s name and spouse’s name(if married) and surnames in full;
v.
date
of birth;
vi.
residential
address (present as well as permanent);
vii.
nationality
(including the nationality of origin, if different);
viii.
occupation;
ix.
office
of director or key managerial personnel held or relinquished in any other body
corporate;
x.
The details of securities held by them in the company, its
holding company, subsidiaries, subsidiaries of the company’s holding company
and associate companies relating to-
·
the
number, description and nominal value of securities;
·
the
date of acquisition and the price or other consideration paid;
·
date
of disposal and price and other consideration received;
·
cumulative
balance and number of securities held after each transaction;
·
mode
of acquisition of securities ;
·
mode
of holding – physical or in dematerialized form; and
·
whether
securities have been pledged or any encumbrance has been created on the
securities.
Disclosure of Interest of Directors:
Section-184(1)
Appointment: Every Director shall
disclose his interest in any company or body corporate, firms, or other association
of individuals at the first Board Meeting in which he participates as director
and thereafter at the first Board Meeting in every financial year or whenever
there is any change in the disclosures already made, then at the first Board
meeting held after such change. The details shall include:
- Name of company or companies
or bodies corporate, firms or other association of individuals,
- Nature of interest
- Whether interest is held
directly or through relatives
- Shareholding , if any
- Date of acquisition
Relinquishment: Every director or key managerial personnel shall, within a period
of 30 days of his appointment, or relinquishment of his office, as the case may
be, disclose to the company the particulars specified in sub-section (1) of
section 184 relating to his concern or interest in the other associations which
are required to be included in the register under that sub-section or such
other information relating to himself as may be prescribed
NOTES:|
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A.
|
196(1)
|
There
can be only Managing Director or Manager. Both positions can’t be filed at
same time.
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B.
|
196(3)(d)
|
A person can’t be appointed as
Managerial Personnel if he is convicted by a court of an offence and
sentenced for a period of more than 6 (Six)
month. This phrasing includes conviction of all kinds of
offences
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C.
|
196(4)
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Remuneration
should be approved by Board of Director subject to approval of Shareholders
in General meeting in case of public Company.
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D.
|
Schedule-V/ Part-I
|
No person shall be eligible for
appointment as a MD or WTD or Manager of Public Company unless he “[3]IS RESIDENT IN INDIA”
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E.
|
|
A
person attained age 70 can be appoint as Managerial personnel subject to
approval of shareholders by passing of Special Resolution.
|
Quick Question
viii.
Whether a non- resident can be appointed as MD/ WTD in case of Private
/ Public / Government Company?
Private / Government Company: Yes a non- resident can be appoint as MD/ WTD
in private / Government Company without any approval of Central Government.
Because schedule V not applicable on Private / Government Companies.
Public Company:
Yes a non- resident can be appoint as MD/ WTD in Public limited Company only
with approval of Central Government. Because it is requirement under Schedule V
Part I.
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I.
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Whether
a person can be appointed as Managing Director in more than one Company.
|
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As per 203(3) third proviso, Yes a person can be appoint as MD
even he is already MD/Manager in one other Company and not more than one
subject to condition.
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II.
|
What
is the provision to appoint a person as MD in second Company?
|
|
|
Such appointment or employment is made or approved by a
resolution passed at at meeting of the Board with the consent of all the
directors present at the meeting and of which meeting, and of the resolution
to be moved thereat, specific notice has been given to all the directors then
in India.
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III.
|
What
is the time period for appointment of MD/WTD/Manager If the office of any
whole-time key managerial personnel is vacated.
|
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The resulting vacancy shall be filled-up by the Board at a
meeting of the Board within a period of six months from the date of such
vacancy
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IV.
|
Whether
casual vacancy of appointment MD/WTD/Manager can be filed by passing of
Circular Resolution.
|
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|
No, Casual Vacancy can’t be filed by Circular Resolution. It
can be filed only in the Meeting of Board of Directors in case of public
limited company. Section 203(4)
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V.
|
Whether
MD/WTD/Manager can appoint as Director in any other Company.
|
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Yes,
MD/WTD/Manager can appoint as director in other company with the permission
of the Board of another Company.
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VI.
|
Whether
Schedule V applicable on Private Limited Companies.
|
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Schedule V NOT applicable on Private Limited
Company w.e.f. 05.06.2015 because of Exemption notification on Private
Limited Company.
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VII.
|
Whether
there is any restriction on payment of Remuneration to Managerial Personnel
in case of private limited Company?
|
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|
In
case of private limited Company Section 197 not applicable, therefore there
is no restriction on remuneration to Managerial Personnel.
|
(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
[1]
Applicable on All Companies.
[2]
http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3ks3gwg9KmdTHOB/K5jVGhQ==
[3]Resident
of India Include a person who has been staying in India for a continuous period
of less than 12 immediately preceding the date of his appointment as a
Managerial Person and who has come to stay in India,-
·
For taking up employment in India; or
·
For carrying on a business or vacation in India.
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