Dear Members,
This Article is in continuation of my previous article on the same subject which is available at the below mentioned link:
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Appointment of a person as a MD who is already MD or Manager of another company
If the appointment is made or approved by a resolution passed at a meeting of the Board with the unanimous consent of all the directors present at the meeting, a public company or a private company which is a subsidiary of a public company may appoint a person as its managing director, even if he is already the managing director or manager of one, and of not more than one, other company (including a private company which is not a subsidiary of a public company). Specific notice must be required to be given of such board meeting to all the directors then in
In such case the provisions of section 190 shall apply as regards to the giving of special notice of the meeting and of resolution to be moved thereat in case. The notice must specifically mention the business to be transacted at the meeting and contain proposed resolution to be passed at the meeting.
Drawal of remuneration from more than one company by a Managing Director
Part I of Schedule XIII of the Act, provides that a person can be managing director in more than one company, without the approval of the Central Government, provided he draws remuneration from one or more companies subject to the ceiling provided in Section III of Part II of Schedule XIII of the Act. Accordingly, subject to the provisions of Sections I and II, a managerial person shall draw remuneration from one or both companies, provided that the total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one of the companies of which he is a managerial person.
Whole-time director cannot be appointed in more than one company
Since whole-time director means a director of a company who is in whole-time employment with the company, therefore an individual cannot be appointed as a whole-time director of more than one company.
Appointment of MD in more than 2 private companies
A person may be appointed as a managing director of more than two private companies as Section 316 does not apply to a private company. Hence, no permission of the Central Government is required to be obtained in this regard. [DCA Notification No. GSR 577(E), dated 16-7-1985].
APPOINTMENT OF MANAGING DIRECTOR OR WHOLE-TIME DIRECTOR OR MANAGER WITH THE APPROVAL OF THE CENTRAL GOVERNMENT
A public company or a private company which is a subsidiary of a public company shall obtain the approval of the CG in order to appoint a MD or WTD or Manager when the said company is not complying with the requirements of Schedule XIII of the Act.
Time limit for making an application to the Central Government for its approval
Every application seeking approval to the appointment of a MD or WTD or Manager shall be made in e-Form 25A to the Central Government within a period of 90 days from the date of such appointment.
Procedure to be followed for making an application before the C.G.
(a) As desired by Section 640B(2) Publish a general notice to the members of the company indicating the nature of the application proposed to be made and that any person having any objection to the proposal should, if he desires, communicate his objection in writing duly substantiated to the Secretary, Ministry of Company Affairs, New Delhi, within 30 days of the publication of the notice. Such notice shall be published at least once in a newspaper in the principal language of the district in which the registered office of the company is situate and circulating in that district and at least once in English in an English newspaper circulating in that district. [Section 640B(2)]
(b) Application in the e-Form 25A shall be made to the Ministry of Company Affairs, Shashtri Bhawan,
(i) Certified true copy of Memorandum and Articles of Association;
(ii) Certified true copies of the annual accounts together with directors' and auditor's report for the latest 5 financial years;
(iii) Certified copies of the resolutions of Board/General meeting including resolution under section 316(2), if applicable;
(iv) Certified true copies of newspaper clippings of notices published under section 640B in original.
(c) Copy of application together with all enclosures shall be simultaneously forwarded to Registrar of Companies.
Central Government may reject application submitted for approval
The Central Government may not accord its approval to an application made under section 269(3), in the following cases:
(a) if the appointee is, in its opinion, not a fit and proper person to be appointed as such or such appointment is not in the public interest; or
(b) the terms and conditions of the appointment are not fair and reasonable.
Approval from CG for a period lesser than the period for which the appointment is proposed to be made is possible. [Refer Section 269(5)]
FINE
If the appointment is not approved by the Central Government under section 269(4), the appointee shall vacate his office as managing or whole-time director or manager, on the date on which the decision of the CG is communicated to the company, failing which the appointee shall be punishable with fine which may extend to 5,000 for every day during which he omits or fails to vacate such office.
Duty of Company after receipt of Central Government approval
A Board meeting is to be called to consider the approval of the Central Government in case the terms approved by the Government are different from those mentioned in the application and take suitable action. E-Form 23 is required to be filed within 30 days of the appointment with particulars of the appointment with the Registrar.
TENURE OF MANAGING DIRECTOR OR WHOLE-TIME DIRECTOR OR MANAGER
Managing Director not to be appointed for more than 5 years at a time
Section 317 provides that managing director is not to be appointed for more than five years at a time and vide Notification No. GSR 36(E), dated 16th January, 2002, the remuneration payable to the Managing Director or Whole-time Director or Manager cannot be approved for more than three years at a time. Further re-appointment of managing director cannot be made for more than five years at a time
Position in a Private Company and a Government Company
A private company may appoint its managing director for a longer period than five years
as Section 317 shall not apply to a private company unless it is a subsidiary of a public company. This section shall also not apply to a wholly owned Government Company. Therefore, there are no restrictions on such company for the tenure of appointment of managing director, it may appoint for more than five years at a time without any restrictions.
Non-applicability of Section 317 on Whole-time director
Section 317 does not apply to the appointment of a whole-time director. Therefore, there are no restrictions on any types of company for the tenure of the appointment of their whole-time director, they may be appointed for more than five years at a time without any restrictions.
VACATION OF THE OFFICE OF THE M.D. OR W.T.D. OR MANAGER
A MD, WTD or manager cannot resign merely by giving a notice to this effect and can’t consider themselves relived from the respective office. Acceptance of their resignation by the company is necessary for their resignation to be effective. Since the Act is silent in this regard provisions of articles will have to be used along with Terms and conditions of the appointment.
Managing or Whole-Time Directorship comes to an end with the end directorship
A managing or whole-time director must also be a director of the company. If first he is appointed as an additional director and then he is appointed as a MD or WTD then the latter office of MD or WTD will automatically come to an end at the next AGM. The office of MD or WTD will come to an end simultaneously with the cessation of office of director unless re-appointed as a simple director in the next AGM.
Approval of the Central Government not required for removal of a managerial personnel
Approval of the Central Government is required for appointment of a managerial person by a public company or a private company, which is a subsidiary of a public company. However, the same is not required for removal of a managerial person by a company.
Comparison of managing director with whole-time director
The basic difference between a managing director and a whole-time director is that, a managing director cannot be appointed for more than five years at a time, but this is not applicable to a whole-time director. Further, an individual can be a managing director of two companies, but an individual cannot be a whole-time director of more than one company.
CLARIFICATION ISSUED BY THE DCA
Clarification issued by DCA on appointment of managerial personnel and payment of managerial remuneration in case of Companies having no profit or inadequate profit-rationalization thereof. (Circular No. CL.VII, dated 27-12-2000)
1. Where a particular company intends to pay a remuneration higher than that prescribed in the Companies Act read with the necessary Schedule, an application may be made to the Department of Company Affairs giving in detail the justification along with a copy of the resolution passed by the Board/general meeting as the case may be.
2. In order to bring greater transparency and objectivity, the company which submits an application for a remuneration, [which is higher than the prescribed limit] must take into consideration the following factors and give a detailed justification along with observation of below mentioned points:—
(i) Reasons for loss/inadequacy of profit.
(ii) Steps taken to improve the performance of the company.
(iii)Financial health/performance of the company as may be reflected by effective capital, net worth, turnover, profit/loss, dividend declared, etc.
(iv) Nature of industry — high technology area, core sector, infrastructure field, etc.
(v) Export performance and net foreign exchange earned.
(vi) Performance of the company in socio-economic activities.
(vii) General performance of industry in the relevant sector.
(viii) Foreign investment and foreign collaborations.
(ix) Expansion/Diversification/Modernisation/Technology upgradation.
(x) Qualification, experience, period of association and contribution of the proposed appointee.
(xi) Requirement of personal skill and challenges ahead.
(xii) Past remuneration of the proposed appointee.
(xiii) Creativity/innovativeness of the proposed appointee/company.
(xiv) Recognition/Award obtained by the proposed appointee/company.
(xv) The amount of remuneration proposed to be paid including salary, allowances, perquisites and whether it will have any effect on the overall financial health of the company.
(xvi) Any other factors relevant to the proposal, which the company may like to bring to the notice of the Government justifying their proposal.
3. The applicant companies should ensure that the prescribed forms are completely and properly filled in regard to all the details so that the applications submitted are complete and proper at the time of submission itself. This will result in quicker and faster disposal.
In this regard find below a checklist to facilitate proper filing of the application. It is hoped that this checklist would be off some help w.r.t. filing of complete application.
CHECK LIST
Please ensure before submitting the application that the following information/documents have been furnished:—
(i) Proper application fee in the manner provided vide GSR No. 501(E), dated 6-7-1999.
(ii) Copies of public notices in English and in local newspaper in local language.
(iii) Monetary value of each of the perquisites and allowances and total remuneration package (in the form of statement annexed) valued as per actual cost.
(iv) Appropriate and clear resolution in support of the proposal.
(v) In case of appointment as managerial personnel in two or more companies the manner in which compliance of section 316(2)/(4) has been made.
(vi) Reasons for loss/inadequacy of profit, steps taken to improve the financial performance and future projections.
(vii) Full and proper justification for proposed appointment/remuneration.
(viii) The manner in which compliance of section 269(2) of the Companies Act was met at the time of appointment/reappointment of the managerial person where mid term increase in remuneration is proposed.
(ix) Application for condonation of delay under section 637B along with justification and requisite application fee where the application was not submitted within 90 days of the date of appointment/re-appointment,
(x) Monetary value of total remuneration in Rupees or Rupees equivalent drawn by the proposed appointee during last three years from the applicant company or any other company.
(xi) Copy of the directors' report and the audited accounts of the company for each of the last five financial years of the company.
(xii) Each column of the application is filled up.
(xiii) Copies of FIPB approvals, in case of foreign collaboration/investment.
(xiv) Each page of application and documents attached is authenticated under the seal of the applicant company.
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