Can anyone tell me the limit, for appointment of MD in a public company and its rules and regulation please
1. Is the appointment of MD in a public company is compulsory?
2. if it is compulsory please tellme the capital limit and section
Josmin Jose (CS ) (47 Points)
22 August 2012Can anyone tell me the limit, for appointment of MD in a public company and its rules and regulation please
1. Is the appointment of MD in a public company is compulsory?
2. if it is compulsory please tellme the capital limit and section
CS Rajveer Rai, Gurgaon
(CS)
(646 Points)
Replied 22 August 2012
5 crore paid up capital, plz go to section 269
CA Ashish Pathak
(Employed at Cipla Ltd.)
(2779 Points)
Replied 22 August 2012
Dear Josmin,
As per Section 269(1), “ every public company, or a private company which is a subsidiary of a public company, having a paid up share capital of such sum as may be prescribed [Rs 5 crores or more], shall have a managing or whole-time director or a manager.”
Thus, appointment of ‘Managing Director’ is not compulsory. Even a ‘Whole time director’ or a ‘manager’ will suffice, if MD is not to be appointed by the company.
Procedure of Appointment [S. 269]
Section 269 has been recast by the amendment of 1988. In the case of public companies or their subsidiary private companies, reaching a figure of paid-up share capital which may be prescribed [Rs 5 crores or more] the appointment of a managing director, whole-time director or manager has been made compulsory.
The appointment has to correspond with the conditions specified in Parts I and II of Schedule XIII, which parts are subject to the provisions of Part III. The appointment and remuneration require approval of shareholders in general meeting. The auditor of the company or company secretary has to certify that requirements have been complied with. A return of the appointment in a prescribed form must be filed with the Government within 90 days. Approval of the Central Government is not necessary in such cases. But if the appointment does not comply with the schedule, the approval becomes necessary. Application for approval must be made within 90 days.
The Central Government may not accord the approval if it is satisfied that the candidate is not a fit and proper person for the post and his appointment is not in public interest and the terms and conditions of the appointment are not fair. The Government may accord the approval for a shorter period than proposed. If there is no approval, the appointee should vacate the office from the date of the communication of the refusal to the company, failing which he incurs a penalty of Rs 500 for every day of usurpation of the office. Where the Government suo motu or on information received is prima facie of opinion that an appointment has been made without approval in contravention of the requirements of the schedule, the Government shall be competent to refer the matter to the Company Law Board for a decision.The Board has to give notice to the company, the appointee and any other officer of the company who was responsible for compliance of Schedule XIII to show cause why the appointment should not be terminated and the penalty of sub-section (10) imposed. The Board should give appropriate opportunity and then may make an order declaring that there has been a contravention. The declaration will have the following effects: (1) the company is liable to a fine extending upto Rs 5000 ; (2) every officer of the company who is in default is liable to a fine of Rs 10,000 ; (3) the appointment comes to an end and the appointee is liable to a fine of Rs 10,000 and is also liable to refund the entire amount of salaries, commissions and perquisites received by him upto the date of the order.
Any violation of the order of the Board or any default in meeting its consequences is further punishable under sub-section (II). Every officer of the company who is in default and the managing or whole-time director or the manager, shall be punishable with imprisonment extending upto three years and also fine extending upto Rs 50 for every day of default. Whether such a double penalty amounts to a violation of the doctrine of double jeopardy, only time will decide. Sub-section (12) provides that the acts of such a person done by him upto the date of the finding that his appointment was void would be valid provided that they were otherwise valid.
The section concludes with an Explanation that the word "appointment" includes reappointment and "whole-time director" includes a director in the wholetime employment of the company. The Government examines whether the proposed candidate is a fit and proper person. The Government may refuse the proposal where there is a pending prosecution against the person concerned. Further, the Government may sanction the appointment subject to any condition that it considers necessary. Thus where the person proposed to be appointed was a promoter of the company and had in that capacity made a secret profit of three lakh rupees, the Government approved his appointment subject to the condition that he restored the profit to the company.
Disqualifications [S. 267]
The following cannot be appointed managing or whole-time directors: (1) A person who is an undischarged insolvent or has at any time been adjudged insolvent. (2) A person who suspends or has at any time suspended, payment to his creditors or makes or has made a composition with them. (3) A person who is or has been convicted by a court of an offence involving moral turpitude. The first Part of Schedule XIII gives the list of statutes and provides that any person convicted for violating them and sentenced to imprisonment or fine up to Rs 1000 shall not be appointed without the approval of the Central Government. Where a person is already a managing director of another company he can be appointed only with the unanimous resolution of the board of directors. 16 The Central Government may permit Any person to be appointed managing director of more than two companies if the Government is satisfied that it is necessary that the companies should, for their proper working, function as a single unit and have a common managing director [S 316(2), proviso] The maximum term of appointment can be five years at a time and a new term cannot be sanctioned earlier than two years from the date on which it is to come into force. The terms of appointment can be changed, when they are to be different from those prescribed by Schedule XIII, only with the approval of the Central Government. The remuneration of a managing director cannot exceed five per cent of the net profits and if there are more than one managing directors, ten per cent for all of them together, [S. 309] Where a managerial personnel is working in more than one company, he can draw remuneration from one or both companies provided that the total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one of the companies of which he is a managerial personnel.
In case, you want any further information, please ask.
Regards,
Veeral Gandhi
Tanveer Md Masood
(Indispensable)
(361 Points)
Replied 22 August 2012
DEAR MR.VEERAL GANDHI,
THAT WOULD BE ALL..THE NEXT PBLICATION OF CORPORATE LAW MIGHT COME FROM YOUR SIDE..
REGARDS
TANVEER MD MASOOD
CS PROFESSIONAL STAGE
Tanveer Md Masood
(Indispensable)
(361 Points)
Replied 22 August 2012
DEAR MR.VEERAL GANDHI,
THAT WOULD BE ALL..THE NEXT PBLICATION OF CORPORATE LAW MIGHT COME FROM YOUR SIDE..
REGARDS
TANVEER MD MASOOD
CS PROFESSIONAL STAGE
Josmin Jose
(CS )
(47 Points)
Replied 06 October 2012
i have a doubt
Issue of shares in DEMAT Form - In the case of Listed Companies, is it mandatory or not.
Please clarify my doubt with proof
pleasr give me a proof, like any circular notification etc....
reply asap
Dear Josmin,
Nice to see you again...
As per SEBI (ICDR) Regulations, 2009’s Schedule VIII (Part A) (XII) (B) (2) (a) :
“If the issue size, in case of a public issue is equal to Rs. 10 crores or more, the specified securities issued in the public issue shall be only in dematerialized form in compliance with Section 68B of the Companies Act, 1956.”
Regards,
Veeral Gandhi
SEBI (ICDR) Regulations 2009 :
(Please refer Page no. 120 of the pdf file)
Josmin Jose
(CS )
(47 Points)
Replied 08 October 2012
Dear Veeral Sir,
Thanks for your response. you said about the new issue
i want to clarify that, is it mandatory for existing share holders, including promoters (listed company)
can keep their shares in physical form??, is any mandatory conversion needed?
hope you will reply soon
Regards
Josmin
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Dear Josmin,
According to the Depositories Act, 1996, an investor has the option to hold securities either in physical or electronic form. However, SEBI has vide circular no. Cir.- 21/99 dated July 08, 1999 said that settlement of trades in listed securities should take place only in the demat mode. Although, trades upto 500 shares can be settled in physical form, physical settlement is virtually not taking place for the apprehension of bad delivery on account of mismatch of signatures, forgery of signatures, fake certificates, etc. |
|
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As per SEBI circular no. Cir/ISD/ 3/2011dated June 17, 2011, the promoters of listed companies should convert their entire equity holding in the dematerialized form by September 2011, failing which it will ban trading of such shares in the normal segment of the market. Many companies have complied with the regulation by achieving 100% dematerialisation of promoter holding. But, many others, mostly smaller, fundamentally weak companies, have not yet followed the regulatory diktat. Brokers suspect that some of them may have a malafide intention in keeping the shares in physical form, though many may have taken refuge under Sebi's recent exemptions from compliance of the demat requirement.
Regards,
Veeral Gandhi
CS Ankur Srivastava
(Company Secretary & Compliance Officer)
(17848 Points)
Replied 09 October 2012
Nicely explained by our learned member Mr. Veeral Gandhi....
CS Ankur Srivastava
(Company Secretary & Compliance Officer)
(17848 Points)
Replied 09 October 2012
Managing Director
In terms of section 2(26), a managing director means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or by virtue of its Memorandum or Articles, is entrusted with substantial powers of management which would not be otherwise exercisable by him, and includes a director occupying the position of managing director, by whatever name called. The definition of the Managing Director may be analysed as under:—
(a) he must be a director of the company;
(b) he must be entrusted with substantial powers of management, which would not otherwise be exercisable by a director;
(c) the general powers to do administrative acts are not to be deemed to be the substantial powers of management;
(d) the powers of management may be entrusted with the managing director by an agreement or by a resolution passed at a general meeting by the members or a Board meeting or by the Memorandum or the Articles of Association of the company;
(e) the powers of management entrusted with a managing director must be exercised by him subject to the superintendence, control and directions of the Board;
(f) a person who occupies the position of the managing director even without being designated as such would also be deemed to be a managing director.
A person does not acquire the status of a manager or managing director only on being appointed as a director.
[Deen Deyalu, T. v Sri Bezwada Papi Reddy (1984) 2 Comp LJ 396 (AP)]
A managing director who is not a director is contradiction in terms. [Shirlaw v Southern Foundaries Ltd., (1940) 10 Com Cases I I (CA) affirmed on appeal Southern Foundaries Ltd. v Shirlaw, (1940) 10 Com Cases 255 :(1940) 2 All ER 445 (HL); Balchand C v Devashola (Nilgiri) Tea Estates Co. Ltd., (1972) 42 Com Cases 623 (Mad)]
Meaning of "Whole-time Director"
As per section 269 of the Act, a whole-time director means a director in the whole-time employment of the company. In other words, a director who devotes his whole time to
the affairs of a company is called a whole-time director of the company.
In terms of above definitions of MD and WTD, it is quite clear that for appointment as MD the basic requirement is that the person must be the director of the Company but the same does not apply in the case of WTD.
CS Ankur Srivastava
(Company Secretary & Compliance Officer)
(17848 Points)
Replied 09 October 2012
Appointment of managing director in case of private limited companies
The appointment of managing or whole-time director or manager is not mandatory in the case of independent private companies. However, an independent private company can appoint them in accordance with the provisions contained in the Articles of Association.
If Articles of the concerned independent private company do not provide for such office then the Articles will have to be first altered by following the procedure laid down under section 31 of the Companies Act, 1956.
APPOINTMENT OF MANAGING DIRECTOR, WHOLE-TIME DIRECTOR & MANAGER WITHOUT APPROVAL OF THE CENTRAL GOVERNMENT
in case of a public company or a private company which is a subsidiary of public company.
The appointment of managing or whole-time director or manager in a public company or a private limited company which is a subsidiary of a public company shall be made by the Board of directors and depending upon the remineration, subject to the approval of members at the general meeting by way of ordinary or special resolution as may be required subject to the conditions of Schedule XIII of the Act and/or with the approval of the Central Government.
Directors cannot appoint a managing director in the absence of provisions in the articles empowering them to do so. [Horn v Henery Faulder & Co (1908) 99 LT 914] Articles normally confer power on the directors to appoint "one or more of their number" as managing director(s). If the articles have given the power of appointing a managing director to the Board of directors, the company in general meeting cannot make the appointment. [Thomas Lagan Ltd. v Davies (1911) 104 LT 914] However, the remuneration of a managing director has to be approved at a general meeting.
Under Section 269 a MD or WTD may be appointed without the approval of Central Govenment if the conditions as laid down under part I and II of schedule XIII have been complied with and form 25C has been filed withing 90 days of the date of appointment.
Relevant forms
For the appointment of MD/ WTD following forms are to be filed:
1. Form 32 withing 30 days of the date of appointment.
2. Form 23 withing 30 days from the date of resolution (In case of Special Resolution or appointment of MD)
3. Form 25C withing 90 days from the date of appointment
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