Section 196 of Companies Act, 2013 – Appointment of managing director, whole-time director or manager

Section 196. Appointment of Managing Director,

Whole-Time Director or Manager

[Effective from 1st April, 2014]

(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;

[Provided further that where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made.][2]

(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.

(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions [specified in Part I of that Schedule][3]:

Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any:

Provided further that a return in the prescribed form shall be filed within sixty days of such appointment with the Registrar.

EXEMPTIONS

Section 196(4) shall not apply to Specified public Company, vide Notification No. 08 dated 04th January, 2017.

(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.

EXEMPTIONS

Section 196(4) and (5) shall not apply to a Government Company, vide Notification No. GSR 463(E) dated 5th June, 2015 and to a private company, vide Notification No. 464(E) dated 5th June, 2015.

The above mentioned exception shall be applicable to a private company and a government company which has not committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the Registrar, vide amendment notification F. No. 1/1/2014- CL-V and F. No. 1/2/2014- CL-V respectively dated 13th June 2017. 

                                                                                          Applicable Rules

Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

[Effective from 1st April, 2014]

Rule 3. Filing of return of appointment.—A company shall file a return of appointment of a Managing Director, Whole Time Director or Manager, [***][1] within sixty days of the appointment, with the Registrar in Form No. MR.1 along with such fee as may be specified for this purpose.

[1] Omitted words “Chief Executive Officer (CEO), Company Secretary and Chief Financial Officer (CFO)” by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016 vide Notification No. 1/5/2013 CL-V dated 30th June, 2016.

[2] Inserted by  Companies (Amendment) Act, 2017 notified vide notification no. File no. 1/5/2013 Part -I-CL-V dated 12th September, 2018

[3] Substituted for the words “specified in that Schedule” by  Companies (Amendment) Act, 2017 notified vide notification no. File no. 1/5/2013 Part -I-CL-V dated 12th September, 2018