Executive Director of the Company

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 December 2010 HI All

Had a query pertaining to Executive Director. My Company is a unlisted public limited company. Can a Employee of the company be appointed as Executive Director of the Company as the company law nowhere mentions the definition of Executive Director.

udit sharma

udit sharma (Expert)
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30 December 2010 Hi..

You are correct that the term 'Executive Director' has nowehere been defined under the Companies Act, 1956 . But on careful interpretation of section 309 of the Companies Act, 1956 one can find that the term has term Executive Director means a Director of the Company who is either a Managing Director or a Whole time Director of the Company.

In my opinion,an employee of the Company can be appointed as a Non - Executive Director of the Company.

As per section 2(26) of the Companies Act, 1956 only an existing Director can be appointed as Managing Director of the Company. Hence, if an employee of the Company is to be apppointed as MD of the Company, then first he has to be appointed as a Director of the Company.

Secondly, an employee of the Company can not be appointed as WTD of the Company as a WTD is one who devotes his entire time and energy in managing the affairs of the Company and effectively discharging his duties as Director of the Company which may not be possible when he is also serving as an employee of the Company.

Cutting short, an employee of the Company can be appointed as MD of the Company but not as WTD of the Company.

Moreover, when an employee of the Company is appointed as MD of the Company and he also receives remuneration as employee of the Company then the Company will have to comply with the provisions of section 314 of the Companies Act, 1956 and will be said to be holding an office or place of profit in the Company .

As per section 309 of the Companies Act, 1956 the remuneration payable to such Director shall be inclusive of the services rendered by him any other capacity ( remuneration paid for professonal services shall not be included subject to specified conditions).
This section is not applicable to an Independent Private Company.

Regards

CS Udit Sharma

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udit sharma

udit sharma (Expert)
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30 December 2010 In view of the above reasons and since the MD of the Company is involved in the day to day working of the Company and is entrusted with substantial powers of the management of the Company which is subject to the superintendence, control and supervision of the Board, any Director of the Company proposed to be appointed as MD should be in a position to devote his entire time and energy in discharging his duties and responsibilities as MD of the Company.

I opine that an employee of the Company should be and can be appointed as NED but should not be appointed as ED of the Company.

Regards

CS Udit Sharma

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