Managing Director of the Company Registration in Coimbatore

Managing Director

The Companies Act, 1956 is well established Act and it declares and defines the concept of managing director in Section 2 (26). Managing Director means a person 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 of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called.

managing director

The sub-section further states that a managing director shall exercise his powers subject to the superintendence, control and directions of the Board of directors. The sub-section excludes from the sphere of substantial powers to be exercised by the managing director the administrative acts of a routine nature when so authorized by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share. A managing director must hold and continue to hold the office of director. A managing director is first a director and then a managing director with certain additional powers. A managing director is an ordinary director entrusted with special powers. If a company wants to appoint a person as managing director, who is not a director of the company, he has first to be appointed as an additional director in accordance with the provisions of Section 260 of the Act. Before his appointment, he has to sign and file his consent to act as director of the company pursuant to the provisions of Section 264 of the Act. He shall also be bound in accordance with provisions of section 270 of the Act to obtain his qualification shares. A managing director of a limited company may have a dual capacity. He may both be a director as well as an employee. A director entrusted with managerial functions will be a managing director even though he may be called as ‘technical director’ or ‘technical advisor’.

Appointment

A managing director is generally appointed by the company’s Board of directors, which is, generally authorized by the articles. Unless there is a power given to the directors by the articles to appoint a managing director, it is not competent for them to make such an appointment. The articles may give a power to the directors to appoint one of their members to be managing director. Where the power to appoint a managing director is vested in the Board, the members cannot exercise it.

The Department of company affairs has clarified that a managing director may be appointed in any one of the five ways, namely,

  1. By virtue of an agreement with the company.
  2. By virtue of a resolution passed by the company.
  3. By virtue of a resolution passed by the Board of directors.
  4. By virtue of the memorandum of association.
  5. By virtue of the articles of association.

Sub-section (2) of Section 269 provides that no appointment of a person as a managing director (or whole-time director or manager) in a public company or a private company which is a subsidiary of a public company shall be made except with the approval of the central Government. However, approval of the Government is not necessary if the appointment is made in accordance with the conditions specified in Parts 1 and 2 of Schedule 13 and a return in the prescribed form Viz.

Appointment with Approval of Central Government

In case the provisions of Schedule XIII cannot be fulfilled by company, an application seeking approval to the appointment of a managing director (Whole-time director or manager) shall be made to the Central Government, in revised Form No. 25-A. While according its approval the Central Government should be satisfied that:

(i) The managing (or whole-time director or manager) is in its opinion a fit and proper person to be appointed, or such appointment is in the public interest; or

(ii) The term and conditions of the appointment of managing director (or whole time director or manager) are fair and reasonable [Section 269 (4)].

The powers under Sections 269, 198, 637AA is a quasi-judicial function and not an administrative one. The Central Government while performing the duty, has to take into account the objective and facts and to determine those facts in a quasi-judicial manner. Granting or withholding of approval is the function of the Central Government and it is for the government to come to a conclusion keeping in view the statutory provisions. If such a conclusion has been arrived at by taking into consideration, matters which are relevant, it will be not for the court to upset that conclusion. The Central Government may also while according its approval, approve appointment of a person for a period lesser than the period for which the appointment is proposed to be made. If the appointment a person as managing director or whole-time director or manager as the case may be, is not approved by the Central Government, the person appointed shall vacate his office on the date on which the decision of the Central Government is communicated to the company, and if he omits or fails to do so, he will be punishable with a fine which may extend to five thousand rupees for every day during which he omits or fails to vacate such office [Sub-section (6) of Section 269].

managing director

Where a person acts as managing director without approval of the Central Government and in contravention of the requirements of Schedule XIII, provisions of Sub-section (7) to Sub-section (11) of Section 269 become attracted. All acts done by a managing or whole-time director or a manager, as the case may be, purporting to act in such capacity and whose appointment has been found to be in contravention of Schedule XII, shall, if the acts so done are valid otherwise, be valid notwithstanding any order made by the CLB/Tribunal under Section 269(9) of the Act.

Where the Central Government suo moto or on any information received by it is, prima facie, of the opinion that any appointment made without the approval of the Central Government has been made in contravention of the requirements of Schedule XIIl, it shall be competent for the Central Government to refer the matter to the CLB’/Tribunal for decision. The CLB’/Tribunal shall on receipt of a reference hereunder, issue a notice to the company, the managing director or whole-time director or manager, as the case may be and the director or other officer responsible for complying with the requirements of Schedule XIII, to show cause as to why such appointment shall not be terminated and the penalties provided in Sub-section (10) should not be imposed.

Reappointment of Managing Director

In terms of explanation to Section 269 of the Companies Act, 1956, appointment includes reappointment. Reappointment of a managing director of a company must be taken for consideration before the expiry of his term of office. If the reappointment of the managing director is approved and if it is not in accordance with the conditions specified in Parts I and l of Schedule XIII then the approval of the Central Government must be obtained for such reappointment. Rest of the provisions for reappointment of a managing director are same as in the case of appointment of a managing director.

Retirement by Rotation of Managing Director

Section 255 of the Act states that unless the articles of association of a company provide for the retirement of ail directors at every annual general meeting not less than two-thirds of the total number of directors of a public company or of a private company which is a subsidiary of a public company, shall be liable to retirement by rotation. Articles of most of the public companies provide that a person shall not be liable to retire by rotation so long as he continues to hold the office of the managing or whole-time director.

In terms of Section 268 of the Act, any amendment of any provision in the memorandum or articles of a public company or of a private company which is subsidiary of a public company or any agreement or resolution relating to appointment or re-appointment of a managing or whole-time director or other director not liable to retire by rotation in such a company requires approval of the Central Government. But the approval of the Central Government is not required for making a new provision in this regard, such approval is required only when an existing provision in the Articles of Association etc. is amended.

Resignation by Managing Director

managing director

It is a general view that a managing director combines two capacities, namely, manager and director. The capacity as managing director cannot be terminated by merely sending two resignations. It becomes effective only when the company accepts the resignation and relieves him from his duties. On the other hand, it is viewed that a managing director does not hold two offices namely that of manager and of a director. The concept of a ‘manager’ as defined by the Act is different from that of a managing director. A managing director as defined by the Act is a director who is entrusted with substantial powers of management. It is, however true that a managing director may resign his office and continue to be an ordinary director. His resignation as managing director becomes effective only when accepted by the Board.

Removal of a Managing Director

No approval of the Central Government is required to remove a person from managing directorship. The articles of association of most companies empower the Board of directors to remove or dismiss a managing director from his office as such. The removal of a managing director in accordance with the provisions in the articles or in pursuance of the terms of the contract; if any, between the company and the managing director would not amount to an amendment within the meaning of Section 268 requiring the approval of the Central Government under that section.

A managing director can be removed as a director pursuant to Section 284 of the Act, which would result in the termination of the office of the managing director. However, this section presumes the right to claim compensation or damages if such removal results in a breach of contract.

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