SECTION 196 OF COMPANIES ACT
SECTION 196 OF COMPANIES ACT
SECTION 196: APPOINTMENT OF MANAGING DIRECTOR, WHOLE TIME DIRECTOR OR MANAGER
Section 196 of the Act contains the provisions for the appointment of managing director, whole-time director or manager. According to this section:
Appointment [Section 196(1)]:
A company shall appoint or employ managing director, whole-time director or manager. But a company shall not appoint or employ a managing director and a manager at the same time. In other words, no company is permitted to appoint a manager if a managing director is already appointed and vice-versa. However, there can be both MD and whole-time director in a company.
Tenure [Section 196(2)]:
(a) 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.
(b) It is further provided that no re-appointment shall be made earlier than one year before the expiry of his term.
Eligibility Conditions for Appointment [Section 196(3)]:
As per section 196(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 21 years or has attained the age of 70 years.
Requirement of Special Resolution for appointment of a person above the age of 70 years: There is a relaxation in case of a person above the age of 70 years. Accordingly, where a person has attained the age of seventy years, he may still be appointed to such office if a special resolution is passed in this respect. In such a case, the explanatory statement annexed to the notice for such motion shall indicate the
justification for appointing such person.
Government approval required if no Special Resolution is passed: Further, 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.
In other words, approval of the Central Government is required if special resolution could not be passed. The significance of this provision lies in the fact that because majority of the members were in favour of such appointment, their wish should not be turned down simply due to non-passing of special resolution. Thus, the appointment can be regularized by seeking approval of the Central Government, which, if satisfied, can accord such approval.
(b) is an undischarged insolvent or has at any time been adjudged as an insolvent; or
(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.
(e) Additional eligibility conditions for appointment as per Schedule V: Part I of Schedule V' to the Companies Act, 2013, has prescribed additional eligibility conditions for appointment as managing director or whole-time director or a manager without seeking approval from the Central Government. They are stated as under:
(1) he had not been sentenced to imprisonment for any period, or to a fine
exceeding one thousand rupees, for the conviction of an offence under 19 Acts as specified under Part I of Schedule V.
(2) he had not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA).
However, where the Central Government has given its approval to the appointment of a person convicted or detained under para (1) or para (2), as the case may be, no further approval of the Central Government shall be necessary for the subsequent appointment of that person if he had not been so convicted or detained subsequent to such approval.
(3) he has completed the age of twenty-one years and has not attained the age of seventy years.
However, where he has attained the age of seventy years; and where his appointment is approved by a special resolution passed by the company in general meeting, no further approval of the Central Government shall be necessary for such appointment.
(4) he is resident of India.
Explanation I clarifies that resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India, -
(a) for taking up employment in India; or
(b) for carrying on a business or vacation in India.
Explanation II clarifies that the condition above shall not apply to the companies in Special Economic Zones (SEZ).
However, a person, being a non-resident in India shall enter India only after obtaining a proper Employment Visa from the concerned Indian mission abroad. For this purpose, such person shall be required to furnish, along with the visa application form:
. profile of the company,
. the principal employer, and
. terms and conditions of such person’s appointment.
Procedure of Appointment [Section 196(4)]:
Validity of the Act [Section 196(5)]
Subject to the provision of this Act, where an appointment of a managing director, whole time-director or manager is not covered is not approved by the company at a general meeting, any act done by him before such approval shall be deemed to be valid.
EXEMPTION:
(i) In case of a Government Company, Section 196(2), (4) and (5) shall not apply. However, for availing the exemption, such Government Company must not have committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar. (Notification No. G.S.R. 463(E) dated 5th June, 2015 as amended by Notification No. G.S.R. 582 (E), dated 13-06-2017).
(ii) In case of Private Company, Section 196(4) and (5) shall not apply provided such private company has not committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar. (Notification No. G.S.R. 464(E) dated 5th June, 2015 as amended by Notification No. G.S.R. 583(E) dated 5th June, 2015).
