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Managing Director Liable to Retire by rotation

CS Pooja (Company Secretary) (305 Points)

19 October 2010

Dear All,

Please clarify the folowing:

Articles of Private Company is having provision that '' all the Directors except 1st Directors shall retire by rotaion''.

Company is having 5 Directors including one MD whoes term of appointment is fixed till 2014 and who is not one of 1st Director's. There are two 1st Directors.

Now, please clarify how many Directors should retire at 2010 AGM. Whether MD will retire in this case?

Regards,

Pooja Sawant

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19 Replies

Ajay Mishra (Company Secretary) (74332 Points)
Replied 19 October 2010

I will suggest you to check the provisions of articles regarding appointment of MD and also check the resolution for appointment of MD that you are appointing as rotational director.

Following directors, subject to the provisions in this regard in the articles, are not liable to retire by rotation:

1. Nominee Directors

2. Special Director appointed by BIFR

3. Director appointed by CG under section 408, and

4. MD/WTD

Regards

CS Pooja (Company Secretary) (305 Points)
Replied 19 October 2010

Thank You. Article and the resolution is silent about the Rotation of Managing Director. Only the case is articles contains the provision that ' All the DIrectors Except First Directors should retire by rotation.' now what will be your suggession in this case?

Arvind Sharma (ACA) (1432 Points)
Replied 19 October 2010

Dear Pooja..,

As far I know, in your case only 1 Director need to be retire by rotation...

As per Sec 256 2/3rd of total Director (excluding Additional, Alternative & Nominee Director who ever appoint them, viz. CG, SSHs, FI etc) are counted as Rotation Director, out of which 1/3 shall be retire by rotation on FIFO basis (i.e. who has appointed earlier, shall be retire first)...

These provision also applicable to MD & WTD because they are also Director...

So in your case, if Director being MD has served longest then other Director, then he is liable to retire by rotation, and automatically, he shall be cease to be MD...

Further, AOA may exempt any Director not to be retire by rotation.. So 1st Director, as your mentioned, not liable to retire in any case...

CS Pooja (Company Secretary) (305 Points)
Replied 19 October 2010

but Section 256 and Section 257 is not applicable to private companies. Private companies will be governed by its Articles which says ' All the DIrecotors shall retire by rotation except 1st Directors' and MD is not one of them. So according to my perception i need not check who has served long to the company..all the remaining 3 Directors shall authomatically retire.But on of these Directors is MD then whether he will retire? Whether MD whose term of office is fixed by resolutions retires at AGM?

Arvind Sharma (ACA) (1432 Points)
Replied 19 October 2010

Ok....

No,

MD shall be retire only after expiry of his term as per Agreement/resolution made/passed at the time of his appointment (which can't exceed 5year)...

As your AOA is specially excluding him, so not liable to retire by rotation....

CS Pooja (Company Secretary) (305 Points)
Replied 19 October 2010

No..I think i hacve confused you..My Articeles only exempt ' 1st Directors' and MD is not one of 1st Directors. so my qery is : what is the impact of articles provision that 'All the DIrecotors shall retire by rotation except 1st Directors' on MD who is appointed for fixed term of 5 years by reslotion.

Arvind Sharma (ACA) (1432 Points)
Replied 19 October 2010

then MD shall also be liable to retire by rotation as per AOA because MD also is a Director..,

and he is not exempted by AOA...

To avoid this, amend AOA and give exemption to MD.... :)

CS Pooja (Company Secretary) (305 Points)
Replied 19 October 2010

ok. Now its clear to me but if i reappoint him then he will continue as a MD for the term for which he was appointed. Right?

Arvind Sharma (ACA) (1432 Points)
Replied 19 October 2010

absolutely.... :)

CS Pooja (Company Secretary) (305 Points)
Replied 19 October 2010

thank you

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 19 October 2010

Hi,

Just to add on to the discussion,

It is open for a private company to provide in AOA that certain portion of directors alone shall retire by rotation. In such case, the directors shall retire in accordance with provisions contained in AOA. Instead of amending the AOA, it would be advisable that the directors other than 1st directors retire by rotation and anyways those directors will be eligible for re appointment. Then such MD can re appointed as director first and then as MD. Even term of office of MD which is 5 yrs is also not applicable to private companies.

CS Pooja (Company Secretary) (305 Points)
Replied 19 October 2010

Dear Mr. Sandeep,

As per my knowledge if persin is re-appointed as Director then he will be automatically reappointed as MD and there is no need to pass seperate resolution for reguarisation of MD. Please correct me if am wrong

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 19 October 2010

Ya perfect.

An MD's office as MD does not suffer any break if he retired u/s 255 and is re elected as a director in the same meeting u/s 256. Sorry for wrong posting. Thanks for correting me pooja!

CS Md. Zaffar Rizwani (Service) (264 Points)
Replied 03 December 2010

Hi

1. MD - First he should be a Director to be a MD. Section 255 does not mention anywhere the term MD and it refers to term Director. In that sense since MD is a Director he can be liable to rotate provided the reappt happens in the same meeting. Also there is no provision in the Articles that he will be a non-rotational Director.

If you also read Section 317 a person cannot be a MD for more than 5 years at a time. Here also they have not mentioned anything that he cannot be a rotational director.

2. ED / Whole time Director - Virtually he is also in a position of MD. But the above term of 5 years is not applicable to him. He can be WTD for any defined period which can be even more than 5 years as Section 317 does not apply to him. Also the event of WTD happens in the instance a full time employee becomes a Director. Therefore Section 255 applies to him also unless in the AOA you have specific provision that he shall be non rotational.

Hope this clarifies.