Quick reference note on compliance requirements for Appointment of a Managing Director by a Private Company

CS Anubhav Singla

The subject of discussion being touched here is a not a new but commonly searched topic by the young professionals, both in employment or practice, who are looking for quick solutions as to the position of law and compliance requirements on date due to confusion on account of plethora of clarifications/ circulars and exemptions to private companies.

We are referring to the appointment of a Managing Director in a Private Company which is, however, not mandated under the Companies Act, 2013, but is at times a part of hierarchal strategy in family owned businesses where other Key Managerial Positions are held by people from outside the family. Hence, some promotor or his/her affiliate is appointed as a Managing Director to oversee and control the business operations from the highest position even in Private Companies.

Relevant Sections of the Companies Act, 2013

2(51): Definition of a Key Managerial Personnel (KMP);

2(54): Definition of Managing Director;

117 (3) (c): Filing of resolutions with the Registrar of Companies (RoC);

152: Appointment of directors;

196: Appointment of managing director, whole-time director or manager.

Note: Sub-sections (4) and (5) of Section 196 do not apply to Private companies in terms of MCA circular dated June 5, 2015.

As per my understanding, it infers that the approval of the Company in the next General Meeting i.e. passing of a shareholders’ resolution is not required to be taken by a private company towards the appointment. This is reaffirmed by exemption from Sub-section (5) as well.

Secondly, Section 197 read with Schedule V talking about the remuneration of Managerial positions does not apply as it is also discussed only in sub-section (4).

Thirdly, the Return of appointment required to be furnished with the Registrar within 60 days in Form MR-1 shall also not be required.

In nutshell, following are the things to be kept in mind at the time of Appointment of an M.D. in a private Company:

Though, the above said inferences can be taken from the exemptions granted by the MCA to the private companies, but the general applicability of Section 117 shall not be ignored. Section 117 (3) provides a list of resolutions which shall have to be mandatorily filed with the Registrar of Companies.

Clause (c) states that,” any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director;”

Such filing in Form MGT-14 shall act as an intimation of appointment/ re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director.

Further, Form DIR-12 shall be filed to notify the fresh appointment or change in designation of the Director, if already appointed, as the case may be.

This is the state of law as on date. Clarifications/ feedback, if any, is welcome.

(The writer, Anubhav Singla, is the designated Company Secretary & Compliance Officer at Amann Group, a German MNC, based in Gurugram, Haryana.)