SUBJECT : Companies Act 2013
Corresponding Section : Section 196
CASE LAW :Sridhar Sundararajan Vs. Ultramarine & Pigments Limited and Ors.
Judicial Authority :Bombay H.C
Decided On: 16.07.2015
Legal Provisions
Section 196 provides for appointment of MD/WTD/MANAGER
(1) No company shall appoint or employ at the same time a managing director and a manager.
(2) No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time:
Provided that no re-appointment shall be made earlier than one year before the expiry of his term.
(3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who
(a) is below the age of twenty-one years or has attained the age of seventy years:
Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;
(b) is an undischarged insolvent or has at any time been adjudged as an insolvent;
(c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.
Contention:
Whether managing director appointed for the tenure of 5 years on attaining age of 70 during his tenure has to vacate the office , as literal interpretation of section “No company shall continue the employment of any person as managing director, whole-time director or manager who has attained the age of seventy years” provides for vacation and proviso “Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person” only provides exemption for Appointment and does not discuss continuation.
Prevailing Practices
If a Person to be appointed is less than 70 years of age but will attain the age of 70 years during continuation of his term in this case special resolution is taken at the time of such appointment to validate subsequent term OR on attaining 70 initially vacate and then reappoint by passing special resolution
Judgment in Brief
Term continuation shall be construed to be read in context of clause (B) (C) (D) only that is , a person shall not continue its term and shall immediately vacate on being declared as undischarged insolvent, on susupension of payment or who has at any time been convicted as prescribed and shall not be read for the purpose of tenure of MD. Also imparting the repealed provisions of companies act 1956, intent of statute has not changed and its main purpose is to bring in the notice of shareholders about AGE only at the time of appointment and just because MD on attaining the age of 70 during his tenure will vacate the office cannot be the sound interpretation.
Conclusion
MD/WTD/MANAGER need not to vacate the office if they attain the age of 70 during their tenure nor they require Special Resolution for validation of such tenure.
It’s to be strictly checked only at the time of Appointment(includes reappointment).
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