(12.14.4) Managing Director

Section 2(26) defines ‘managing director’ as 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 of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him. The expression includes a director occupying the position of a managing director, by whatever name called.

However, the power to do administrative acts of routine nature when so authorised 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, shall not be deemed to be included within substantial powers of management. Further, a managing director of a company shall exercise his powers subject to the superintendence, control and direction of its Board of Directors.

Some of the more important legal provisions about managing directors are summarised as follows: (i) He, being a director, must be an individual. (ii) He is appointed, usually to perform such functions and carry out such duties as may be assigned to him by the Board of directors to whom he is responsible or subject. The Board can revoke the authority of the managing director. (iii) He must be entrusted with substantial powers of management. (iv) There can be two or more than two managing directors in a company. (v) A person cannot be appointed as managing director of more than two companies unless so permitted by the Central Government.

His appointment is subject to the approval by the Central Government. The Central Government upon application for permission to appoint a person as managing director of the company has power to impose conditions. Ss. 268,269,316 and 317 are applicable to a public company or a private company which is subsidiary of a public company.

Section 268 states that an amendment of any provision relating to appointrnent or reappointment of a managing director (or a wholetime director) shall not be effective unless approved by the Central Government and shall be become void if and in so far as, it is disapproved by the Central Government.

Appointment of managing or whole-time director or manager to require government approval only in certain cases(s.269). Every public company and/or private company which is subsidiary of a public company having a paid-up share capital of not less than Rs 5 crore must appoint either a managing or a whole-time director or Manager. Also no approval of the Central Government to the appointment of managerial personnel is required on fulfillment of certain conditions laid down in Schedule XIII [including the minimum remuneration under s.198(4) as also increase in the remuneration under Ss. 310 and 311].

For appointment of a managing, wholetime director or a manager, approval of the Central Government would not be required if the following conditions were satisfied:

  (i) he had not been sentenced to imprisonment for any period or to fine exceeding Rs 1,000 for conviction of an offence under any of the fourteen acts mentioned in Schedule XIII;

  (ii) he had not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act 1974;

  (iii) he has completed the age of 25 years but has not attained the age of 70 years;

  (iv) he is not a managing or wholetime director or manager or in any way in wholetime employment elsewhere;

  (v) he is citizen of India and is resident in India;

  (vi) the company had neither suffered loss nor had inadequate profits: (a) during the preceding financial year immediate to the financial year in which appointment is made, or (b) in any of the three financial years out of the four financial years immediately preceding.

In case any of the above conditions are not complied with, an application must be made to the Central Government within 90 days of the appointment. If the appointment is not approved by the Central Government the appointee shall vacate the office immediately on communication of the decision by the Central Government.

Section 316 states that a person, who is either the managing director or the manager of any other company (including a pure private company), cannot be appointed a managing director of a public company or a private company which is a subsidiary of a public company. But such an appointment can be made if the board of such company approves of the appointment by a unanimous resolution passed at the Board meeting specific notice of which had been given to all the directors then in India. Also the Central Government is empowered to permit, by order, the same person to be managing director of more than one companies, if it is satisfied and it is necessary for their proper working that the companies should function as a single unit and have a common managing director.

Section 317 states that the term of office of a managing director cannot exceed five years at a time. Also re-appointments or extension can be made on the basis of 5 years tenure on each occasion, provided each time the re-appointment or extension is made by the company during two years of the existing term.

It may be emphasised that Ss.268, 269 and 317 relating to restrictions on appointment of managing directors (as noted above) do not apply to pure private companies.

Disqualification of a managing director. Section 267 prohibits the appointment or employment or the continuance of the appointment or employment of any person by a company as its managing director or wholetime director, if the said Person: (i) is an undischarged insolvent or has at any time been adjudged an insolvent; (ii) suspends, or has at any time suspended payment to his creditors, or makes or has at any time made a composition with them; or (iii) is or has at any time, been convicted by a court of an offence involving moral turpitude.

It may be noted that these disqualifications are in addition to the ones mentioned in s.272(i.e., disqualifications of a director).