Brief note on the Managing director of a company in India

Section 269 of the companies act, 1956 provides that in the case of a public company including a private company which is a subsidiary of the public company, the appointment of a managing director shall not have effect unless approved by the central government. In the case of a company formed after the commencement of companies’ act 1960, the first appointment of the managing director may be made without such approval, but it will cease to have effect if the approval of the central government is not obtained within three months of the incorporation of the company.

The central government shall not grant its approval unless it is satisfied that:

(1) It is in the interests of the company to have a managing director.

(2) The proposed managing director is a fit and proper person and the appointment is not against public interest.

(3) The terms and conditions of appointment are fair and reasonable.

The central government may, if it is of the opinion that it is in the interests of the company, reduce the period of appointment proposed by the company.

In the case of a public company or a private company which is a subsidiary of a public company, an amendment of any provision relating to the appointment or re-appointment of a managing or whole time director or of a director not liable to retire by rotation, shall not have any effect unless approved by the central government. If the amendment is not approved by the central government, it will become void.

Disqualification of a managing director:

A person cannot be appointed as the managing director or whole time director of a company if he suffers from any of the following disqualification:

i) He is an undischarged insolvent or has at any time been adjudged an insolvent;

ii) He suspends or has at any time suspended payment to its creditors or has made a composition with them;

iii) He is or has been convicted by the court of an offence involving moral turpitude.

Number of managing directorships:

Section 316 of the companies act provides restriction on the number of companies of which one person may be appointed managing director. These restrictions apply only to public company and such private companies which are subsidiaries of public companies. A public company and a private company which is subsidiary to a public company shall not appoint a person as its managing director if he is a manager of managing director of another public or private company. However a person holding such office in one other company may be appointed managing director. But such appointment can be made with the approval of unanimous resolution of the board. Section 316 does not affect an individual holding the office of managing director or manager in any number of private companies which are not subsidiaries of public companies.

The central government may, however, permit any person to be appointed as a managing director of more than two companies if it is necessary that the companies should, for their proper working, function as a single unit and have a common managing director.

Term of office:

No individual can be appointed as a managing director of more than five years at a time. He may be re-appointed or the term of office may be extended by successive periods of five years each. The appointment or extension shall not be sanctioned earlier than two years from the date on which it is to take effect.

This provision does not apply to a private company which is not subsidiary of a public company.