Let's discuss the provisions of Whole Time Director: Whenever we discuss about the term Whole Time Director many questions come to our mind.
- Whether WTD is executive Director or non-executive Director?
- Whether a director in employment will be considered as Whole Time Director?
- 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 vice 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 is required to fix his term of appointment?
As stated in 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'
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 a person treated as WTD, his term of appointment will be maximum 5 years. Term of appointment is required to be mentioned 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 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, after becoming WTD, he will be in limit of rotational director only when 2/3 of total directors include the WTD also.
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