Companies Act Section 196 — Appointment of managing director, whole-time director or manager
CHAPTER XIII APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
Commercial / Corporate
Summary
Sub-section (1) prohibits a company from appointing or employing both a managing director and a manager at the same time.
Sub-section (2) limits the term of appointment or re-appointment of a managing director, whole-time director, or manager to no more than five years at a time. It also states that a re-appointment cannot be made earlier than one year before the current term expires.
Sub-section (3) lists the conditions under which a company cannot appoint or continue employing a person as managing director, whole-time director, or manager. Under clause (a), the person must not be below twenty-one years of age or have reached seventy years of age, but a person who has reached seventy may be appointed if a special resolution is passed, and the explanatory statement attached to the notice for that resolution must state the justification for the appointment. Additionally, if no such special resolution is passed but the votes in favour of the motion exceed those against it, and the Central Government is satisfied on an application by the Board that the appointment is most beneficial to the company, the appointment of a person who has reached seventy may still be made. Under clause (b), the person must not be an undischarged insolvent or have ever been adjudged as an insolvent. Under clause (c), the person must not have suspended payment to creditors or made a composition with them at any time. Under clause (d), the person must not have been convicted by a court of an offence and sentenced to more than six months.
Sub-section (4) states that, subject to section 197 and Schedule V, the appointment of a managing director, whole-time director, or manager, along with the terms and conditions of appointment and remuneration, must be approved by the Board of Directors at a meeting, and this approval is subject to a resolution at the next general meeting of the company. If the appointment is at variance with the conditions specified in Part I of that Schedule, it also requires approval by the Central Government. The first proviso requires that the notice convening the Board or general meeting for considering such appointment must include the terms and conditions, remuneration, and other matters, including any interest of a director or directors in the appointment. The second proviso requires that a return in the prescribed form be filed with the Registrar within sixty days of such appointment.
Sub-section (5) provides that, subject to the provisions of this Act, if an appointment of a managing director, whole-time director, or manager is not approved by the company at a general meeting, any act done by that person before such approval is not deemed to be invalid.
Official Text
(1) No company shall appoint or employ at the same time a managing director and a manager.
(2) No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time:
Provided that no re-appointment shall be made earlier than one year before the expiry of his term.
(3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who —
(a) is below the age of twenty-one years or has attained the age of seventy years:
Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person; 1[Provided further that where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made.]”;
(b) is an undischarged insolvent or has at any time been adjudged as an insolvent;
(c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.
(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions 2[specified in Part I of that Schedule]:
Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any:
Provided further that a return in the prescribed form shall be filed within sixty days of such appointment with the Registrar.
(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.