Voluntary Appointment of Managing /Whole-Time Director or Manager by Private Companies procedure and issues

Suneeta Mane

I. Introduction

The Ministry of Corporate Affairs vide notification dated 5th June, 2015 exempted Private Companies from obtaining shareholders’ approval, complying with Schedule V, filing of Returns for appointment of Managing Director/Whole-Time Director or Manager. These exemptions were eagerly awaited by the Private Companies. As it had practically became difficult and time consuming to comply with numerous regulations for appointing of Managing Director by the private companies whereas Private Companies had enjoyed complete exemption under Companies Act, 1956.

As its predecessor, the Companies Act, 2013 does not mandates a Private Company to appoint Managing director, Whole-Time Director or Manager. It also does not prohibits voluntary appointment of Managing Director, Whole-Time Director or Manager by the Private Companies for efficient management of their businesses.

II. Criteria for appointment (Section 196)

1. A company cannot appoint or employ at the same time a Managing Director and a Manager.

2. A company cannot appoint or re-appoint any person as Managing Director or Whole Time Director or Manager for a term exceeding five years at a time.

3. A re-appointment cannot be made earlier than one year before the expiry of the term.

4. A person is ineligible for appointment as Managing Director or Whole Time Director or Manager:

(a) is below the age of twenty-one years or has attained the age of seventy years:

> A person can be appointed as Managing Director or Whole Time Director or Manager if he has attained the age of seventy years on passing of a special resolution, with the justification in explanatory statement accompanying the Notice of General Meeting.

(b) If he or she is an undischarged insolvent or has at any time been adjudged as an insolvent;

(c) Who has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or

(d) Who has at any time been convicted by a court of an offence and sentenced for a period of more than six months.

III. Procedure for appointment

A private Company desires to appoint a MD/WTD/Manager need to comply with following:

1. Articles of Association

2. Hold a Board Meeting

3. Execute Agreement with MD/WTD/Manager

4. Filing of particulars of MD/WTD/Manager in Form DIR- 12

5. In case of Appointment of Managing Director then filing of Board Resolution or agreement executed by a company, relating to the appointment, re­appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director in Form MGT-14 as per Section 1 17(3)(c).

IV. Matters requires clarification

1. There is complete ambiguity over approval of Shareholders in general meeting for appointment of Managing Director by Private Companies, although the provisions of section 196 have been partly exempted.

2.The Companies Act, 2013 is silent whether a MD/WTD/Manager of a Private Company can be appointed as a MD/WTD/Manager in more than one private company. The provisions of section 203 which prohibits a whole-time key managerial personnel from holding office in more than one company except in its subsidiary company at the same time. It also prohibits a company to appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one Company. However The Section 203 is not applicable for Private Company. So it remains unanswered if a MD/WTD/Manager of a Private Company can be appointed as a Managing Director of more than one Private Company.

*Presented to ICSI with reference to suggestions on various chapters of Companies Act, 2013 for consideration by the Research Group on Company Law.