Refer the case below case, especially highlighted portion. When Whole-time Director or MD ceased to be holding such position, he ceased to be a Director as well. Hence re-appointment requries filing of Form 32 (as an addtional director cum WTD) and later on in AGM appointment u/s 257 is also requried.
Bear in mind while reading the case that extension of original term and re-appoinment are different. When a term of MD/WTD is expired he ceased to be a Director as such.
Sishu Ranjan Dutta And Anr. vs Bhola Nath Paper House Ltd. on 18 December, 1980
Equivalent citations: 1983 53 Comp Cas 883 Cal
Bench: S K Chowdhury
Sishu Ranjan Dutta And Anr. vs Bhola Nath Paper House Ltd. on 18/12/1980
JUDGMENT
Salil K. Roy Chowdhury, J.
16. In this case, a question of law has been raised whether the managing directors of a public limited company after the expiry of the approval period by the Central Govt. under Section 269 of the Companies Act, can continue as mere directors on the principle that managing directors are also directors. Therefore, if the capacity and character of managing directors expire, they continue as directors. In my view that proposition seems to militate against the very spirit, object and purpose of the provisions of Sections 268 and 269 of the Companies Act, 1956. The decisions cited by Mr. P.C. Sen on behalf of the respondents, in my view, do not answer the problem which has arisen in this case as those are decisions on the question of offence committed by the managing directors for non-compliance with the provisions of the Companies Act, and also, the interpretation of the agreement between the managing directors and the company as an employee of the company, as I have already referred to earlier while dealing with the said decisions. The provisions of Sections 267, 268 and 269 of the Companies Act, specifically deal with the appointment, reappointment, etc., and the conditions to be satisfied for such appointment are clearly set out, and, it is also admitted as a fact that the said four managing directors of the respondent-company, which is a public limited company under Section 43A of the Companies Act, continue to be so, until it is reverted on the application on behalf of the company as a private limited company under Sub-section (4) of Section 43A, and no such application has been made. It is admitted that the terms of the said managing directors being respondents Nos. 2, 3, 6 and 7 have expired on June 30, 1979, and they are also carrying on as managing directors of the respondent-company without applying for the approval of the Central Govt. Therefore, it cannot be contended that their terms can be extended without a specific approval in compliance with Section 269 of the Companies Act. The contention of Mr. Sen is that, admitting that the said four managing directors have ceased to be managing directors, as no approval has been obtained for their re-appointment as managing directors of the respondent-company, they can continue as directors, and, as such, the respondent-company has a valid board of directors. He drew my attention to Sub-section (5) of Section 269 and submitted that unless rejection is communicated to the respondent company, the appointment as managing directors will continue but in my view the provisions of Sub-section (5) make it quite clear that there must be an application for the reappointment of the managing directors for a further period after the expiry of the period for which approval was accorded by the Central Govt. for appointment or reappointment as managing directors of a public limited company and then, and then only, the question of communication of the decision of the Central Govt. would arise. As, here, it is admitted that no such application for reappointment of the said respondents Nos. 2, 3, 5 and 6 as managing directors has been made to the Central Govt. under Section 269, the said Sub-section (5) of Section 269 has no application in this case. Section 317 which deals with the maximum period for which a managing director can be appointed is subject to Sections 268-269 of the Companies Act, 1956, that is, such appointment must be with the approval of the Central Govt. under Section 269 of the Companies Act, 1956. Otherwise, the provisions of Section 269 will become meaningless and render infructuous, as if once managing directors are appointed and approval is obtained they will continue forever without obtaining the sanction of the Central Govt. as specifically required under Section 269 of the Companies Act, 1956, and in this connection the definition of a managing director in Section 2(26) of the Companies Act, includes a director occupying the position of a managing director, by whatever name he is called, who by virtue of the memorandum of association or the articles of association is entrusted with the substantial power of management which would not be exercisable by him. In this case, it is admitted that the said four directors, being respondents Nos. 2, 3, 5 and 6, acted as managing directors initially with the approval of the Central Govt. as required under Section 269 of the Companies Act, 1956, (the company) being a public limited company under Section 43A of the Companies Act, 1956, and which continues to be so even after the expiry. Further, it is made clear from the intention and object of the Companies Act, as laid down in the said Sections 267-269 and 317 and 320 that the managing director and whole-time or non-rotational directors and ordinary directors of a company are entirely separate officers having definite rights and obligations under the Companies Act, 1956, as for example, the appointment, reappointment and amendment of the terms of the managing director and whole-time director or non-rotational director requires the approval of the Central Govt. as provided under Sections 267-269 and their terms of years, remuneration and compensation for loss of office are provided in Sections 317 and 318 of the Companies Act, 1956, whereas the directors are treated separately and it has been specifically provided that no compensation can be payable to directors. Further, the definitions of a director in Section 2(13) and managing director in Section 2(26) of the Companies Act, 1956, clearly define the two and having separate and specific provisions they cannot be mixed up and treated alike. Therefore, it necessarily follows from the said provisions that if the terms of the managing directors expire, they cease to be managing directors and cannot continue as directors without being validly appointed by the company according to the relative provisions of the company law and the articles of association of the company. Otherwise, it will become that once a managing director is always a managing director which is not the purpose, object and intention of the said Sections 267 and 269 of the Companies Act, 1956. The Act must be given an efficacy and a meaning so that the intention is carried out and the object is attained and as the managing directors have got special powers and obligations they cannot occupy the dual capacity of both managing director and director. On their ceasing to be managing directors, they cease to be any officer of the company and unless their terms are extended and approved according to the said provisions of the Companies Act, they cease to be managing directors and there is no question of their continuing as ordinary directors. Any other interpretation will nullify the said specific provisions regarding a managing director referred to above. Therefore, under the specific statutory provisions they may be deemed to have vacated the office of the managing directors and, consequently, the respondent-company is without any valid board as admittedly no meeting of the respondent-company has been held to elect the directors of the company and constitute a valid board. This is an illegality which is on the face of it is being continued and, in the facts and circumstances of this case, will amount to mismanagement and prejudicial to public interest and, therefore, comes within the purview of Sections 397-398 of the Companies Article 3956.