Appointment of MD, Whole-Time Director Or Manager as per Section 196

A high-level management team plays an important role in the smooth functioning of any company.  It is only under the leadership of high-level management that the organization becomes successful in achieving its objectives. 

Therefore, for the appointment of members of the high-level management team of any company, such as managing director, whole-time director, or manager, a systematic procedure and rules have been established under section 196 of the Companies Act 2013 passed by the Indian Parliament.  So that it is possible to have uniformity and compliance with fixed arrangements in different companies in the country. 

In this article, we will try to understand the various dimensions concerning the appointment of the Managing Director, Whole Time Director, and Manager.

 Table of Contents:

1. What is the Companies Act 2013?

2. What is section 196?

3. What is a manager in a company?

4. What is a Managing Director in a company?

5. What is a whole-time director in a company?

6. What are the provisions of section 196 under the Companies Act 2013?

7. What is the procedure for the appointment of the Managing Director, Whole Time Director, or Manager?

8. Conclusion

1. What is the Companies Act 2013?

The Companies Act 2013 is an act passed by the Indian Parliament, which regulates the formation of companies, their responsibilities, their directors, their termination, etc.  There are 29 chapters and 470 sections in this Act whereas the 1956 Act had 658 sections.  The Companies Act 1956 has been partially replaced by this Act.  This Act came into force on 12 September 2013.

2. What is section 196?

The provisions of section 196 under the Companies Act 2013 have clarified the provisions and conditions for the appointment of high-level management i.e., managing director, whole-time director, or manager of the company so that the same can be properly complied with by the companies. 

This will also bring about uniformity in corporate management in the country and create a level playing field in terms of the appointment of top-level management.

3. Who is the manager of the company?

A manager in any company is a person who acts under the superintendence, control, and direction of the board of directors, which has the overall or substantially complete management of the company.  A person need not be a director to be appointed as a manager of a company.  He may be appointed by mutual agreement or by the contract of service.

4. Who is the Managing Director of the company?

Managing director in any company means a director who has been assigned the articles of a company or an agreement with the company or a resolution passed at its general meeting, or with sufficient powers by its board of directors.  To be appointed as a Managing Director, a person must be a director of the company.

5. What is a whole-time director in a company?

A whole-time director in any company is a director engaged in full-time employment.

6. What are the provisions of section 196 under the Companies Act 2013?

Section 196 under the Companies Act 2013 has made the following provisions concerning the appointment of a managing director, whole-time director, or manager:

1. No company shall appoint a Managing Director and a Manager simultaneously.

2. No company shall appoint any person as its managing director, whole-time director, or manager for more than five years at one time.  In case of reappointment also, this period will be a maximum of five years.  Provided that no reappointment shall be made earlier than one year after the expiry of his term.

3. No company shall appoint as managing director, whole-time director, or manager any person who-

(a) whose age is less than 21 years or more than 70 years although a person who has attained the age of 70 years can be appointed by passing a special resolution.  In such a case, the notice of offer shall be accompanied by an explanatory statement justifying the appointment.

(b) is a discharged insolvent or has at any time been declared insolvent.

(c) has at any time suspended payments to its creditors or

(d) has at any time been found guilty by a court of law for any offense and has been sentenced to a term exceeding six months.

4. Subject to the provisions of section 197 and Schedule 5, a managing director, whole-time director, or manager shall be appointed, and the terms and conditions of such appointment and the remuneration payable shall be permitted by the board of directors at a meeting which shall be the next general meeting of the company.  And be subject to approval by a resolution by the Central Government, if such appointment differs from conditions 2 (specified in Part I of that Schedule):

• Provided that the notice of the Board or the general meeting convening to consider such appointment shall include the terms and conditions of such appointment, the remuneration payable, and the interest of the director or directors in such appointments including such other matters if any:
• Provided further that the return in the prescribed form shall be filed with the Registrar within sixty days of such appointment.

5. Subject to the provisions of this Act, where the appointment of a managing director, whole-time director, or manager is not approved by the company at a general meeting, nothing is done by him before such approval shall be deemed to be invalid.

7. What is the procedure for the appointment of the Managing Director, Whole Time Director, or Manager?

According to Section 196 under the Companies Act 2013, the procedure for appointment of Managing Director, Whole Time Director and Manager is as follows:

Seven days' notice is sent to all the directors for holding the meeting of the Board of Directors.

To hold meetings of the Board of Directors and to settle the appointment and remuneration of managerial personnel subject to the approval of the members at the next general meeting to be held.  In the case of private companies, the approval of the members is not required for appointment.

DIR-12 must be filed within 30 days of appointment as per section 170(2).

As per section 117(3)(c), MGT-14 must be filed within 30 days of appointment.  As per section 196(4), MR-1 must be filed within 60 days of the appointment.  There is no requirement to file this form in the case of private companies.

The approval of the shareholders must be obtained by passing a simple resolution in the next ensuing Annual General Meeting.  It is to be noted that in the case of private companies the approval of the members is not required to be taken in the general meeting.

It is to be noted that as per section 196(5) if the appointment of managerial personnel is not approved by the members in the general meeting, it shall not nullify any act done by such managerial personnel on account of performance.

Note: In the case of private companies, there is no need to take the approval of the members in the general meeting, and no further filing of MR-1 is required as both exemptions have been provided in the exemption notification dated 05.06.2015.

8. Conclusion:

To create a level playing field in terms of appointment of high-level management of companies and to bring uniformity in the management of companies across the country, the procedure for appointment of Managing Director, Whole Time Director, or Manager has been established under Section 196 of the Companies Act, 2013.  These systems have proved their usefulness over time in the smooth running of the management of companies in India.