Appointment Of Managing Director

Appointment Of Managing Director

Section 269 in The Companies Act, 1956. 269. Appointment of managing or whole- time director or manager to require Government approval only in certain cases. ... (b) the terms and conditions of the appointment of managing or whole time director or the manager are not fair and: reasonable.

269. Appointment of managing or whole- time director or manager to require Government approval only in certain cases.

(1) On and from the commencement of the Companies (Amendment) Act, 1988 , every public company, or a private company which is a subsidiary of a public company, having a paid up share capital of such sum as may be prescribed, shall have a managing or whole- time director or a manager.
(2) On and from the commencement of the Companies (Amendment) Act, 1988 , no appointment of a person as a managing or whole- time director or a manager in a public company or a private company which is a subsidiary of a public company shall be made except with the approval of the Central Government unless such appointment is made in accordance with the conditions specified in Parts I and II of Schedule XIII (the said Parts being subject to the provisions of Part III of that Schedule) and a return in the prescribed form is filed within ninety days from the date of such appointment.
(3) Every application seeking approval to the appointment of a managing or whole- time director or a manager shall be made to the CentralGovernment within a period of ninety days from the date of such appointment.
(4) The Central Government shall not accord its approval to an application made under sub- section (3), if it is satisfied that-
(a) the managing or whole- time director or the manager appointed is, in its opinion, not a fit and proper person to be appointed as such or such appointment is not in the public interest; or
(b) the terms and conditions of the appointment of managing or whole time director or the manager are not fair and: reasonable.
(5) It shall be competent for the Central Government while according approval to an appointment under sub- section (3) to accord approval for a period lesser than the period for which the appointment is proposed to be made.
(6) If the appointment of a person as a managing or wholetime director or a manager is not approved by the Central Government under sub- section (4), the person so appointed shall vacate his office as such managing or whole- time director or manager on the date on which the decision of the Central Government is communicated to the company, and if he omits or fails to do so, he shall be punishable with fine which may extend to five hundred rupees for every day during which he omits or fails to vacate such office.
(7) Where the Central Government suo motu or on any information received by it is, prima facie, of the opinion that any appointment made under sub- section (2) without the approval of the Central Government has been made in contravention of the requirements of Schedule XIII, it shall be competent for the Central Government to refer the matter to the Company Law Board for decision.
(8) The Company Law Board shall, on receipt of a reference under sub- section (7), issue a notice to the company, the managing or whole- time director or the manager, as the case may be, and the director or other officer responsible for complying with the requirements of Schedule XIII, to show cause as to why such appointment shall not be terminated and the penalties provided under sub- section (10) shall not be imposed.
(9) The Company Law Board shall, if, after giving a reasonable opportunity to the company, the managing or whole- time director or the manager, or the officer who is in default, as the case may be, comes to the conclusion that the appointment has been made in contravention of the requirements of Schedule XIII, make an order declaring that a contravention of the requirements of Schedule XIII has taken place.
(10) On the making of an order by the Company Law Board under sub- section (9),- (a) the company shall be liable to a fine which may extend to five thousand rupees;
(b) every officer of the company who is in default shall be liable to a fine of ten thousand rupees; and
(c) the appointment of the managing or whole- time director or manager, as the case may be, shall be deemed to have come to an end and the person so appointed shall, in addition to being liable to pay a fine of ten thousand rupees, refund to the company the entire amount of salaries, commissions and perquisites received or enjoyed by him between the date of his appointment and the passing of such order.
(11) If a company contravenes the provisions of sub- section (10) or any direction given by the Company Law Board under that sub- section, every officer of the company who is in default and the managing or whole- time director or the manager, as the case may be, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine which may extend to fifty rupees for every day of default.
(12) All acts, done by a managing or whole- time director or a manager, as the case may be, purporting to act in such capacity and whose appointment has been found to be in contravention of Schedule XIII, shall, if the acts so done are valid otherwise be valid notwithstanding any order made by the Company Law Board under sub- section (9). Explanation.- In this section" appointment" includes reappointment and" whole- time director" includes a director in the' whole- time employment of the company]


Meaning of Managing Director:

It is a common practice that the Board of Di­rectors appoints one of its members to manage the affairs of the company as a whole time officer and calls him the Managing Director.

He acts as the chief executive. He occupies a position of dual authority and responsibility. As a director, he attends the Board meetings and, as a manager, he performs the managerial functions.

Managing Director—as defined by the Com­panies Act—means a director who—by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors or by virtue of its Memoran­dum or Articles of Association—is entrusted with substantial powers of management which would not otherwise be exercisable by him and includes a director occupying the position of a Managing Di­rector, by whatever name called.

An analysis of the definition shows that:

(i) The managing director must be an indi­vidual,

(ii) He must be a member of the Board of Directors,

 (iii) He must be appointed by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Di­rectors or by virtue of its Memorandum or Articles of Association,

(iv) He is entrusted with substantial power of management,

(v) He is not entrusted with powers of rou­tine nature, and

(vi) He shall exercise his powers subject to superintendence, control and direction of its Board of Directors.

Appointment of Managing Director:

A man­aging director is appointed by the Board of Directors subject to the approval of the Central govt. He is appointed at the first instance for the period of five years which can extend for a period of another five years.

The appointment of a person as manag­ing director in a public or its subsidiary private company shall not have effect unless it is approved by the Central Govt. In case of a new company, the approval must be made within three months of his appointment.

The Central Govt. shall not accord its approval unless it is satisfied that:

(i) It is the interest of the company to have a managing director,

(ii) The proposed incumbent is a fit and proper person for such appointment,

 (iii) His appointment is not against public in­terest,

(iv) The terms and conditions of the appoint­ment of the proposed managing direc­tor is not against public interest.

If his appointment is not approved by the Cen­tral Govt., the incumbent must vacate his office from the date of receipt of the disapproval of the Govt.

 

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