Section 196 and 197 of the Companies Act, 2013 and rules made thereunder read with the Schedule V provides for the appointment and remuneration of Managing Director, Whole-time Director or Manager respectively. This article discusses the provisions of appointment of such managerial personnel.
Who is Managing Director, Whole-time Director or Manager?
Section 2(53): "Manager" means an individual who, subject to the superintendence, control and direction of 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;
• It implies that the person does not have to be a director to be appointed as manager of the company.
• The essential element is that a manager is a person who possesses control over substantial affairs of the company under the directions of the Board of directors.
• He may be appointed in pursuant to a mutual agreement or contract of service.
Section 2(54): "Managing Director" means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
• A person has to be director of the company to be appointed as managing director.
• He has the substantial amount of control over affairs of the company either by way of Articles of Association of the Company, or an agreement with the company, or by a resolution passed in the general meeting or by Board of Directors.
Section 2(94): "whole-time director" includes a director in the whole-time employment of the company;
• The person has to be a director to be appointed as whole time director of the company.
• He has to be appointed on whole-time basis.
Provisions relating to appointment of Managing Director, Whole-time Director or Manager:
1. A company shall have either a Managing Director or a Manager at a time. Both the Managing Director and the Manager cannot be appointed in a company simultaneously.
2. The longest single tenure of a Managing Director, Whole-time Director or Manager can be of 5 years. A company cannot appoint managerial personnel for tenure of more than 5 years at a time.
3. The reappointment can be made in the last year of the tenure and not earlier than that. However, the person can be appointed again after the expiry of his term and that shall be considered as his fresh appointment and not the re-appointment.
4. Qualification of Managing Director, Whole-time Director or Manager:
a) The minimum eligible age for appointment is 21 years and the maximum eligible age is less than 70 years. However, a person having age of 70 years can be appointed by passing a Special resolution. In case an Ordinary resolution is passed, an application has to be served to Central Government for approval.
b) The person should not have been adjudged as an insolvent or bankrupt.
c) The person has not suspended payment to his creditors at any time or made composition with them.
d) The person has not any time been convicted for more than 6 months by a court for an offence.
5. Appointment of a Managing Director, Whole-time Director or Manager shall be made by the Board of Directors in their meeting subject to approval by a resolution at the next General Meeting and by the Central Government in case of any variance in the terms of appointment and remuneration with the prescribed rules.
6. The notice convening such Board Meeting or General Meeting shall include all the terms and conditions of such appointment and remuneration payable.
7. A company shall file a return of appointment in MR-1 within 60 days of the appointment.
Procedure for appointment of Managing Director, Whole-time Director or Manager:
a) Send a seven days notice to all the directors for conducting a meeting of Board of Directors along with the agenda stating matter of discussion i.e. terms and conditions of appointment of Managing Director, Whole-time Director or Manager and remuneration payable.
b) Conduct the meeting of the Board of Directors and resolve the appointment and remuneration of the managerial personnel subject to approval of members in the next general meeting to be conducted. In case of private companies, no approval of members is required for appointment.
c) File DIR-12 within 30 days of appointment pursuant to Section 170(2).
d) File MGT-14 within 30 days of appointment pursuant to Section 117(3)(c).
e) File MR-1 within 60 days of appointment pursuant to Section 196(4). No requirement to file this form in case of private companies.
f) Get approval of the shareholders by passing an ordinary resolution in the next ensuing annual general meeting. It is to be noted that there is no need to take approval of members in the general meeting in case of Private Companies.
g) It is to be noted that as per Section 196(5), in case the appointment of the managerial personnel is not approved by the members in the general meeting, it will not nullify any act done by such managerial personnel on account of performing his duties.
Note: In case of Private Companies, no need to take approval of members in the general meeting and further there is no requirement to file MR-1 as both the exemptions have been provided in the exemption notification dated 05.06.2015.
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