Process of Appointment of Additional Director (AD) as well as Managing Director (AD)

In this editorial author shall discuss the process and provision of appointment of a person as Additional Director as well as Managing Director in Board Meeting. For this purpose Companies have to comply with Following Sections:

1. 161(1) Appointment of Additional Director

2. 196 Appointment of Managing Director

3. 170(2) Filing of Form for Appointment of Director

Many times professionals asked questions about “Whether an additional director can appoint as MD?” If yes, what shall be term of appointment of such MD etc.

As per Companies Act, 2013 Section 152, Power of appointment of Director vested with Shareholder of Company by passing of resolution in General Meeting. However, as per Section 161(1), if power is given in AOA then Board of Directors can appoint director of the Company with some conditions.

There are three concepts for Director:

  • Director [Section 152]
  • Additional Director [Section 161(1)]
  • Managing Director [Section 192]

Additional Director:

As per 161(1), additional Director has all the liabilities, responsibilities, powers etc same as director appointed in Section 152. Only difference between director appointed in 152 & 161(1) is that;

  • Additional Director appointed in 161(1), shall hold office only up to upcoming Annual General Meeting of Company. His term of appointment shall be up to upcoming Annual General Meeting.
  • Director appointed u/s 152 doesn’t have any such term of appointment. Person appointed as director in 152 his term doesn’t expire on Annual General Meeting.

Provisions in relation to Additional Director Appointment:

  • Additional Director can be appointing by Board of Directors.
  • Additional Director can be appointed in Physical or Video Conferencing Board Meeting as well as Circular Resolution.
  • Term of additional Director shall be up to next Annual General Meeting
  • Additional Director can be regularized in any general Meeting after appointment in Board Meeting.
  • Company shall file DIR-12 within 30 days of passing of Board Resolution.
  • If additional director not regularized in AGM his tenure cease on the date of AGM.
  • After cessation company is required to file e-form DIR-125

Managing Director:

To become Managing Director a person should be Director (whether additional or normal Director). As per 196(4), MD shall be appoint by Board of Director in their Meeting subject to approval of shareholder resolution in at the next general meeting.

  • MD appointment can be done by General Meeting. But till general meeting from board meeting a person can continue as MD without approval of General Meeting.

Therefore, one can opine that additional Director can be appoint as MD also in same board meeting subject to approval of General Meeting.

Provisions in relation to Managing Director Appointment:

  • Managing Director shall be appointed by Board of Directors in their meeting only.
  • MD can’t appoint by Circular Resolution.
  • AD appointed as MD in same board meeting required to regularize in upcoming Annual General Meeting and required approval of Shareholder to continue as MD.
  • If AD not regularized in upcoming AGM then tenure of person as MD shall also ceased.
  • Company need to file MGT-14 within 30 days of Board Meeting as Managing Director and executive Director.

Process Appointment of Additional Director as well as MD in Board Meeting:

I. The person going to appoint as AD as well as MD must having DIN.

II. Hold Board Meeting and pass two resolutions:

    • Appointment of person as Additional Director
    • Designate such AD as Managing Director.

III. File e-form DIR-12 within 30 days of passing of Board Resolution for appointment as Managing Director.

IV. In the Notice of Annual General Meeting, mention a resolution regularizing of such person and continue such person as Managing Director.

V. Pass ordinary resolution in AGM to continue appointment of such person as Managing Director.

VI. MCA site shall not allow to file DIR-12 for the resolution passed in general Meeting as DIR-12 as designation MD has already beenfiled.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected])

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April 2021