Topic 7

Company Management

Flow Chart :-

1.Appointment & Reappointment of Directors

2. Modes of Appointment3.Proportional Representation

Directors Director :- Definition

Need for Directors

Only Individuals as Directors Ref :- Oriental Metal Pressings Vs B K Thakur (1961)

First Directors

Subscribers to the MOA or named by them in the AOA. Hold office till next AGM. Subsequent appointment by Section 255 No share qualification necessary to be deemed. Subscribers : Bodies Corporate

Appointment at AGM

Section 255 – Appointment at AGM Every AGM 1/ 3 rd directors retire by rotation, however

may be reappointed. Prolongment of AGM – No extension in office. Ref :- Hon Delhi High Court Kundra Vs Motion Pictures

Association (1976) Reappointment at the same AGM. AGM may decide not to resolve vacancies. None of

above happens then meeting adjourned for one week. At the re-meetings still no fresh appointment then

retiring directors deemed to be reappointed with some conditions

Private Companies can have permanent directors clause should be included in the AOA.

If not then they have to have rotational directors. In absence of any provision in the AOA, then the directors

continue until removed under section 284 ( General Body Resolution )

Fresh Appointment :- Section 257 Consent for contesting for Directorship Consent with ROC ( exception) Non filing a consent utmost an irregularity and cant lead to

vacation of office. Ref :- Lalji Bhai Kapadia vs Lalji Bhai Desai (1973)

Modes of Appointment

Appointment to be voted on individually – AGM All appointments by no single resolution unless first one

passed without any opposition. Private companies exempted. Appointment by Board of Directors :-1. Additional Directors2. Casual Vacancies3. Alternate Directors

Additional Directors (Section 260)

AOA has to authorize the board for such appointment. Number should not exceed as fixed by the AOA. Applies to public as well as private companies. Powers similar to regular directors. Competent people who cant make it through voting . Tenure till the next AGM. Can be made regular director through appointment

under section 255.

Casual Vacancies (Section 262) Vacancies caused by death, resignation, insolvency or

disqualification. Section 262 empowers the board to fill such vacancies. Public companies tenure till the original director would have

held the office. Private companies exempted from section 262. They fill in as

per their AOA. Procedure almost same as under section 255.

Alternate Directors ( Section 313) Appointment by the board as authorized by the AOA. Period for not less than 3 months . Fair interest of the company and shareholders Ref :- Ross Porter Vs Pioneer Seed ( 1989) Temporary office No new office created. The appointment not counted towards increase in strength of

the board. Exempted from the maximum directorships a person can hold. Death of original director- alternate one vacates- wishes to

continue – section 255 applies. Original director resigns – alternate vacates office.

Appointment by Central Government ( Section 408)

Application from not less than 100 members. Appointments made when the government finds that the affairs

of the company are oppressive. Tenure not more than three years. Such directors need not have qualification shares or retire by

rotation. Applies to both public and private companies.

SICA 1985

Nominee Directors Has become a common phenomenon of Indian Corporate

Scene. Government, Collaborators, Banks etc. Usually contained in the contract itself. Provision has exist in the AOA. Ref : Perrins & Jeffers

Proportional Representation ( Section 265 ) Example

Cumulative Voting.

Qualifications of a Director

Section 270 provides : Each director must take his Qualification share mentioned in the article within 2months from his appointment. Provisions of the section 270 do not apply to the private company.

Disqualifications of DirectorsSection 274 of the Act provides that :- 1.person found by a competent court to be of unsound

mind.2. an undischarged insolvent or applied to be adjudged an insolvent.3. Not paid any call of shares. 4. Not file the annual account or annual returns for continuous three fiscal years person found by a competent court to be of unsound mind.

Power of Directors

Section 291 of the Companies Act 1956 provides that :- exercise all powers of the company. But the exercise powers be in the

conformity with the provisions of Act or MOA of the company and resolutions passed in a general meeting.

‘In Nibro Ltd. V National Insurance Company Ltd (1991)the Hon. Court stated that “It is well settle that except where express provisions are made that the powers of the company in respect of a particular matter are to be exercised by the company in general meeting, in all other cases, the board of directors is entitled to exercise its powers”.

Sec. 291 (2) :- BoD can exercise following power behalf of company by passing resolution.

Banking company can borrow from other banking Companies or from RBI, SBI or any other bank established by or under any Act.

Vacation of Office of a Director When he fails to submit the qualification shares within

2 months of his date of appointment When he is found to be of unsound mind by the court. When he has been sentenced to 6 months of

imprisonment for an offence involving moral turpitude.

When he applies to be adjudicated as insolvent. When he is declared as an insolvent by a tribunal. When he is absent of 3 consecutive board meetings or

from all board meeting for a period of 3 months, whichever is longer is considered.

When he fails to pay any calls in respect of company shares within 6 months from the due date.

Removal of a Director By Shareholders sec 284 By Central Government sec 388 By Company Law Board sec 402

Managerial Personnel includes

Managing director

Whole time director

An Executive or even a General Manager is not included in managerial personnel according to the Act.

Section dealing with Remuneration to Directors

No Act says that Remuneration has to be paid. But there are Act which limit it, they are

Section 309(3) & 309(4) Section 198 Section 349 and 350

Tata Sons an Unlisted Company - the holding company for all Tata Group 's investments

Tata Sons:  Directors

Ratan TataIshaat HussainArun GandhiN SoonawalaJ J IraniKrishna KumarSyamal GuptaR GopalakrishnanR A RoslingF K KavaranaCyrus Mistry

Remuneration  as Director - Rs 25 crore  

Position of the Directors Directors as Agents

Directors as managing Partners

Directors as Trustees Directors as employees of the

company

MANAGING DIRECTOR

Def’ :- Sec 2(26) -By virtue of an agreement with the co. or- By a resolution passed by the company in general meeting or- By resolution passed by its board of directors or- By virtue of its MOA or AOAIs entrusted with substantial power of management which would not otherwise be exercisable by him. Appointment- Managing Director – whether an employee- Obligation (sec 269(1)- Approval of Central Govt. – exemption under amendment act 1988

Conditions of Schedule XIII

a) He had not been sentenced to imprisonment for any period or to fine exceeding Rs.1000/- for conviction of an offence under any of specified 15 acts under schedule XIII

b) He had not been detained for period under the conservation of Foreign Exchange and Prevention of Smuggling Act, 1974.

c) He has completed the age of 25 years and has not attained the age of 75 years or the age of retirement, specified by the co., whichever is earlier.

d) He is not a managing director or manager in more than one company.e) He is resident in India.

- Exception to point (c) as per amendment to Schedule XIII w.e.f. 12-09-1996

- In case any of the above conditions of Schedule XII is not compiled with, an application must be made to central govt within ninety days of the appointment.

- Central govt may or may not accord its approval to an application.- Central Govt may accord its approval for a lesser period- ----------

Number of companies of which one person may be appointed Managing Director. (Sec 316)

Section 316 (1) – Cannot be appointed in more than one co Section 316 (2) – such appointment can be made by unanimous

resolution Section 316 (3) – Puts ceiling on the number of co. i.e. two Section 316 (4) – Can be appointed in more than two co if central

govt satisfied.

Exemption : Section 316 do not apply to,

a) Private co which is not a subsidiary of public cob) Wholly owned Government co.

Tenure of Appointment (Sec 317)

- Can not exceed 5 years at a time- May be re-appointed, re-employed or extended- Re-appointment or extension shall not exceed 5 years on each

occasion- Such reappointment or extension shall not be sanctioned earlier than

two years from the date on which it is to come into force.

Exemption : Section 317 do not apply to,

a) Private co which is not a subsidiary of public cob) Wholly owned Government co.

.

Remuneration (Sec 309)

A Managing Director may be remunerated either by way of- A monthly payment or- As a percentage of the net profit of the company- Partly by one way & partly by the other.

In any of the above case, such remuneration,- Should not exceed five percentage (5%) of the net profits without

the sanction of the Central Government.

- Where there are more than one Managing Director / Whole-time director (s) the total remuneration payable to all of then must not exceed ten percent (10%) of the net profit of the company without the sanction of the Central Government.

Disqualification (Sec 267)

The section provides that no company shall appoint or employ, any person as its managing or whole time director who –

a) Is an undircharged insolvent, or has at any time been adjudged an insolvent ;

b) Suspends, or as at any time suspended, payment to his creditors, or makes or has at any time made, a composition with them ; or

c) Is , or has at any time been convicted by a court of an offence involving moral turpitude.

- A person disqualified to be appointed as a director can nor be appointed as Managing director / Whole time director.

- A person who does not satisfy the conditions of schedule XIII cannot be appointed as a managing director of a company without the approval of the Central Government.

ManagerMeaning – Section 2(24) defines Manages as

Manager means an individual who, subject to the superintendence, control and directions of the Board of directors, has the management of the whole or substantially the whole of the affairs of the company, and includes a director or any other person occupying the position of a manager, by whatever name called and whether under a contract of service or not,

- Only individual can be appointed a Manager of a company.

Disqualification of a Manager (Sec 385)

No company shall appoint or employ any person as its manager, who –

a) Is an undischarged insolvent ; orb) Has at any time within the preceding five years been adjudged as

insolvent ; orc) Suspends or has suspended within the previous five years

payment to his creditors, ord) Makes, or has at any time, within the preceding five years made a

composition with his creditors, ore) Is, or has at any time within preceding five years been convicted

of an offence involving moral turpitude.

The central government may, however by notification in the official Gazette, remove any of the aforesaid disqualifications.

-

No. of companies a Manager can be appointed as a Manager[ Sec 386 Sub sec (1), (2) & (4) ]

Remuneration of Manager (Sec 387)

Application of sections 269, 310, 311, 312, & 317 to Manager

Prohibition of simultaneous appointment of different catagories of managerial personnel (Sec 197A)

Distinction between Managing Director and Manager

1 A managing director is entrusted with substantial power of management. A Manager on the other hand, has the management of the whole or substantially the whole of the affairs of a company.

2 A company may have more than one managing Director but it cannot have more than one Manager.

3 A managing director is appointed either by four ways explained in the definition. A manager on the other hand is usually appointed either under contract of service or by the board of directors though th Articles may alos provide for his appointment.

4 A managing director must be director whereas a manager may or may not be a director.

5 The grounds of disqualifications of managing director remain effective for whole life and cannot be waived by the central government, whereas Most of the grounds of disqualification of a manager are only for five years and can also be waived by the central government.

Distinction between Managing Director & Whole time Director

1 A Managing director may be appointed in two or more companies at the same time but a whole time director, by virtue of his whole time employment cannot act as such in more than one company.

2 The tenure of managing director of a public company or a private company which is the subsidiary of public company cannot be more than five years at a time. There is no such restriction in case of whole time director.