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Appointment of MD in private company

Hetal Kudecha (Company Secretary) (46 Points)

27 May 2011

If the articles permit for appointment of MD by the Board, then should this proposed MD first be appointed as additional director and then as MD, or can he directly be appointed as MD?

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3 Replies

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 27 May 2011

Managing Director

In terms of section 2(26), a managing director means 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, is entrusted with substantial powers of management which would not be otherwise exercisable by him, and includes a director occupying the position of managing director, by whatever name called. The definition of the Managing Director may be analysed as under:—

(a) he must be a director of the company;

(b) he must be entrusted with substantial powers of management, which would not otherwise be exercisable by a director;

(d) the powers of management may be entrusted with the managing director by an agreement or by a resolution passed at a general meeting by the members or a Board meeting or by the Memorandum or the Articles of Association of the company;

(e) the powers of management entrusted with a managing director must be exercised by him subject to the superintendence, control and directions of the Board;

(f) a person who occupies the position of the managing director even without being designated as such would also be deemed to be a managing director.

A person does not acquire the status of a manager or managing director only on being appointed as a director.

[Deen Deyalu, T. v Sri Bezwada Papi Reddy (1984) 2 Comp LJ 396 (AP)]

A managing director who is not a director is contradiction in terms. [Shirlaw v Southern Foundaries Ltd., (1940) 10 Com Cases I I (CA) affirmed on appeal Southern Foundaries Ltd. v Shirlaw, (1940) 10 Com Cases 255 :(1940) 2 All ER 445 (HL); Balchand C v Devashola (Nilgiri) Tea Estates Co. Ltd., (1972) 42 Com Cases 623 (Mad)]

Appointment of managing director in case of private limited companies

The appointment of managing or whole-time director or manager is not mandatory in the case of independent private companies. However, an independent private company can appoint them in accordance with the provisions contained in the Articles of Association.

If Articles of the concerned independent private company do not provide for such office then the Articles will have to be first altered by following the procedure laid down under section 31 of the Companies Act, 1956.

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Hetal Kudecha (Company Secretary) (46 Points)
Replied 27 May 2011

Thanks for the response Ankur. By contradiction in terms does it mean that the appointment is void? Would it not be safe to infer that by virtue of being appointed as a MD, the person is also automatically being appointed as Director?

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 28 May 2011

The person must be appointed as Director then only he is eligible to be appointed as Managing Director. So not being a director on one can be appointed as Managing Director First.