pls tell me the rights ,power,and duties of managing director....pls its urgent.
pls tell me the rights ,power,and duties of managing directo
Ranita Ghosh (student) (35 Points)
10 June 2009
Ranita Ghosh (student) (35 Points)
10 June 2009pls tell me the rights ,power,and duties of managing director....pls its urgent.
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 10 June 2009
Sourabh Sharma
(CS CA (Final) M.com NCFM Derivative Capital Market Mutual Funds)
(771 Points)
Replied 10 June 2009
"Managing Director" [Clause (26)]
Managing Or Wholetime Director Or Manager
A managing director, as defined in Section 2(26), means a director who is encrusted with substantial powers of management which would not otherwise be exercisable by him. The "substantial powers" of management may be conferred upon him by virtue of an agreement with the company, or by a resolution of the company or the Board or by virtue of its memorandum and articles. The powers so conferred are alterable by the company. He is also removable the same way as he was appointed
irrespective of the fact that his appointment has been approved by the Central Government. But if he is prematurely removed from office he is entitled to compensation. A managing director is an employee of the company, but not to the extent so as to be entitled to preferential payments.(News Papers Proprietary Syndicate Ltd,Re, [1990]2Ch349).
It is an essential requirement of his office as "managing director" that he should hold the office of a director. 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).
A managing director occupies the dual capacity of being a director as well as employee of the company. Thus for example, the Supreme Court observed that he can be regarded as a principal employer for the purposes of the ESI Act, 1948. Employees State Insurance Corpn. v. Appex Engineering P. Ltd., (1998) 1 Comp LJ 10: [19981 1 LLJ 274 (SC). He is
not a mere servant, he is an agent of the company with capacity to bind the company within the sphere of management authorised to him. Happy Home Builders (Karnataka) P. Lid. v. Delite Enterprises, (1994) 13 Corpt LA 405 (Kar).
The day to day management is entrusted to the managing director who can exercise powers of management without referring to the Board. It is necessary that the articles must provide for such an appointment being made. Boschoek Proprietary Co. Ltd. v. Fuke, (1906) 1 Ch 148.
A managing director who was prosecuted for default under S. 220 contended that he was not liable as he had resigned before the last date for filing accounts. The court held that a managing director combines in himself two capacities, namely, manager and director. The capacity as manager cannot be terminated by merely sending up resignations. It becomes effective only when the company accepts the resignation and relieves him from his duties (on facts held that despite resignation, he
continued to be managing director). Achutha Pai v. ROC, (1966) 36 Com Cases 598 (Ker). In our view the observation that a managing director holds two offices namely that of manager and of a director is not correct. The concept of a 'manager' as defined by the Act is different from that of managing director. A managing director as defined by the Act is a director who is entrusted with substantial powers of management. It is, however, true that a managing director may resign his office and
continue! to be an ordinary director. His resignation as managing director becomes effective only when accepted by the company.
A managing director cannot be equated with an ordinary director. Section 2(26) and S. 2(13) show the intention of the legislature to treat the two as separate categories. Therefore, when the term of a managing director expires, he cannot continue as a managing director without being reappointed. Sishu Ranjan Dutta v. Bhola Nath Paper House Ltd., (1983)
53 Com Cases 883, 898 (Cal). 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).
The question whether a managing director, inasmuch as he is both a 'director' and 'employee' should in his capacity of employee be considered a 'servant' or agent of the company is unimportant for purposes of the Companies Act, though it may be relevant for determining whether his remuneration is salary or business income for purposes of theincome-tax Act. For a discussion of his position as 'servant or 'agent' see Rant Prasad v. CIT (1972) 42 Corn Cases 544 : AIR 1973 SC 637; CIT v. M.S.P. Rajes, (1993) 77 Com Cases 402 (Kar). See also Hindustan Vacuum Glass Lid. v. Union of India, 1981 Tax LR 2438 (Del); Southern Foundries (1926) Ltd. v. Shirlaw, (1940) 10 Corn Cases 255 : (1940) 2 All ER 445 (HL); Union India Sugar Mills Co. Ltd., Re, (1933) 3 Corn Cases 424 : AIR 1933 All 607, managing director regarded an agent and therefore his knowledge as the knowledge of the company; CIT v. L. Armstrong Smith, (1946) 16 Corn Cases 172 (Born), remuneration of managing director taxed! as salary and not as income from business. CIT v. B.P. Dalmia (1994) 3 Comp LJ 268 (Ca!) where also the managing director was viewed as a servant and his remuneration taxable as salary. CIT v. M.S.P. Rajes, (1993) 77 Com Cases 402 (Kant).
The Civil Court will not grant an injunction to restrain the company from interfering with a managing director carrying out the duties of managing director who is removed from his office. Joginder Singh Palta v.Time Travels (P.). Ltd., (1984) 56 Corn Cases 103 (Cal).
Where, for recovery of dues from the company, a decree was passed against the company as well as its managing director, it was held that the managing director was not the judgment-debtor in his individual capacity and, therefore, he was not liable to be arrested and detained in civil prison for enforcement of the decree. Maruti Lid. v. Pan India Plastic P, Ltd., (1995) 83 Com Cases 888 (P&H).
Managing Or Wholetime Director, Link With Nature Of Duties, Not Designations
Department's Clarification.-Whether a director is to be regarded as a whole-time director or as a managing director of the company would depend on the nature and extent of the duties entrusted to him and that the designation under which the appointment is made would no! make any difference in this regard. Thus, if a director is entrusted with managerial functions, he would be in the position of a Managing Director notwithstanding the fact that he may be designated as a technical
adviser or as a technical director of the company. [Fourth Annual Report Year ended 31 st March, 19601.
Company May Have More Than One Managing Director
Department's Clarification-"Section 2(26) defines "Managing director" as a director who is entrusted with substantial powers of management which term refers to the nature of the powers and not the quantum thereof. Section 2(24) of the Companies Act, 1956, on the other hand has defined the word manager' as an individual who has the management of the whole or substantially the whole of the affairs of a company. Thus the managing director of a company may be entrusted with substantial power of management but not necessarily of the whole or substantially the whole of the affairs of a company. A company may, therefore, have more than one managing director. [Department's Clarification F. No. 8/16/(1)/61-PR].
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