Section 196 of ca 2013

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 July 2014 According to Section 196 of Companies Act, 2013 Managing Director of all companies can be appointed only for a term of five years. Earlier this [provision was not applicable to private companies. in that case the period of managing director for five years will counted from 1 April 2014 ( Applicability of THIS SECTION) or before that ?

In case of our company MD was appointed in year 1984 and his term was not fixed as it was as per discretion of BOD. Now as section 196 of CA 2013 has now become applicable for private companies we can appoint MD only for five years. Shall we have to pass a Board resolution stating his term for five years starting from 1 April 2014 or will it be counted earlier from 1st April 2013. Please guide.

Ankur Garg

Ankur Garg (Expert)
Follow

12 July 2014 There is no doubt about the fact that you have to pass a board resolution u/s 196 to fix the term of your MD. You can do the same in first board meeting held after April 01, 2014.

This resolution is specifically for fixation of term of the MD and not for changing other terms and conditions of appointment. You can simply start the new term from April 01, 2014 to next 5 years.

Revert if there is any doubt.

Thanks

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

12 July 2014 Thanks alot sir. My doubt has been cleared .
thanks.

Ankur Garg

Ankur Garg (Expert)
Follow

12 July 2014 You are always welcome and keep sharing your doubts with us through this platform as this is the only way out for unlocking the provisions of new Companies act, 2013.

Thanks

Querist : Anonymous

Querist : Anonymous (Querist)

25 July 2014 Hello Sir,
1. One more thing Section 196(4) states that terms and conditions of Appointment of MD and remuneration payable shall be approved by Board of Directors firstly and then shall be approved by members in their meeting.
So, in case where we are only fixing term of MD for five years for compliance of section 196 (2) of CA 2013, only Board approval is sufficient or that Members approval is also required.
And here in this section word appointment includes reappointment also?

Kindly advice
Thanks

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
Follow

23 July 2025 Understanding Section 196 of the Companies Act, 2013 regarding the Appointment and Reappointment of Managing Director (MD)
Your queries regarding the appointment and reappointment of a Managing Director (MD) under Section 196(4), specifically concerning the Board's approval and members' approval, are valid. Let’s break down the provisions and answer your doubts clearly.

Key Provisions under Section 196(4):
Approval by the Board and Shareholders:

Section 196(4) specifies that the terms and conditions of the appointment of the Managing Director (MD) must first be approved by the Board of Directors and then by the members (shareholders) in a general meeting.

This process applies not only to initial appointments but also to reappointments of the MD. Therefore, the word "appointment" does indeed cover both initial appointments and reappointments.

When Only Fixing the Term (Not Changing the Remuneration):

In case you are only fixing the term of the MD (e.g., to comply with the five-year term as per Section 196(2)), and no change in the remuneration is involved, you still need to follow the approval process outlined in Section 196(4).

Board Approval: The term must first be approved by the Board of Directors.

Members' Approval: Following that, the members' approval in a general meeting (usually an Annual General Meeting or Extraordinary General Meeting if a special resolution is required) must also be obtained.

What is the Procedure When Only Fixing the Term?
Board Resolution: In your case, where you are only fixing the term of the MD (without altering the other terms like remuneration), you still need to pass a Board Resolution. The resolution will specify the term of the MD as per the new requirements under Section 196, i.e., 5 years from the date of the resolution.

Members’ Approval: Even though you are not changing the remuneration, you still need members’ approval for the fixed term of the MD. This is because Section 196(4) requires both Board approval and shareholder approval for the terms and conditions of the appointment (which includes the fixed term).

Is the Process Different for Reappointments?
Yes, the same process applies to reappointments as well. When the term of the MD is being reappointed (after the initial five years), the term must be fixed by the Board and then approved by the shareholders in the general meeting.

Thus, reappointment falls under the same framework as the initial appointment, with the Board and members' approval being required for fixing the term.

Summary of Process:
Pass Board Resolution: The Board of Directors needs to pass a resolution fixing the term of the MD for five years. This term is applicable after April 1, 2014, as per the new Companies Act, 2013, provisions.

Members’ Approval: After the Board resolution, you must call a general meeting of shareholders (usually AGM), where the members will need to approve the term of the MD by special resolution.

Reappointment: If you are reappointing the MD, you need to follow the same process: Board resolution followed by members' approval for the term of five years.

Conclusion:
Even if only the term is being fixed and there are no changes in the remuneration, both Board approval and members' approval are required under Section 196(4) of the Companies Act, 2013.

The word "appointment" includes both initial appointment and reappointment of the MD.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now