Provisions of section 196 of Companies Act 2013

Provisions of section 196 of Companies Act 2013

Provisions of section 196 of Companies Act 2013

(a). A Company can appoint either a Managing Director or a Manager.

Interpretation: No Company shall appoint or employ at the same time a Managing Director and a Manager.

(b).  Appointment of a Managing Director shall be for a term which must be less than or equal to 5 years

Important Note: The Company may re- appoint them for next term in one year of current term.

Interpretation: No reappointment shall be done earlier than 1 year before the expiry of his term.

For Example: Mr. X was appointed as a Managing Director in May 2011 for a period of 5 years. Now if the Company wants to reappoint him for another term of 5 years, Company cannot appoint Mr. X before May 2015.

(c). Minimum age for appointment of Managing Director is 21 Years and maximum age is 70 years.

Important Note:   Appointment of a person having an age of 70 years can be made by passing Special Resolution in which explanatory statement shall be annexed to the notice as per section 102 of the Companies Act 2013.

(d). Appointee should not be an undischarged insolvent nor has any time been adjudged insolvent

(e). Appointee should not be a convict of any offence and sentenced for a period of more than six months.

Important Note: According to Rule 8 of Companies (Appointment & Remuneration of Managerial Personnel) Rules 2014,

Every listed Company and every other Public Company having paid up share capital of 10 Crores Rupees and above shall have whole Time KMP.

Can a Government Company appoint Managing Director for a period of more than 5 years?

YES, Government Company may appoint Managing Director for a period of 5 years because provisions of section 196(2) shall not apply to Government Company via Notification dated 5^th June 2015.

 Procedure for appointment of Managing Director.

(i). Convene and hold the Board Meeting to approve the decision on appointment of Managing Director

(ii). Hold the General Meeting and get the resolution passed approving appointment of Managing Director

(iii). Company shall file a Return of Appointment of Managing Director with ROC in Form MR 1 within 60 days of appointment of Managing Director.

Important Note: Return shall be certified by the Auditors of the Company or by the Company Secretary or by Company in whole Time Practice.

Attachments under Form MR 1 are as follows:

·         Copy of Board Resolution

·         Copy of Shareholder resolution

·         Copy of letter of Consent to act as Managing Director

·    Copy of Central Government approval if Managing Director is not appointed as per schedule V of Companies Act 2013

·       Copy of certificate by Nomination & Remuneration Committee.

(i). File Form no DIR 12 within 30 days of appointment

(ii). File MGT 14 for special resolution within 30 days of appointment.

Can a person be appointed as a Managing Director, if he is the Managing Director of the Another Company?

·         According to section 203(3) of the Companies ACT 2013, Whole Time managerial personnel shall not hold the office in more than one Company except in its Subsidiary Company at the same Time.

·         A company may appoint or employee a person as its Managing Director, if he is the Managing Director of one and not more than one Company by passing board resolution at the Board Meeting with the consent of all Directors present at the meeting.

Weather Provisions of Section 196 shall apply to a Private Limited Company?

·         Yes, provisions of Section 196 Shall apply to a Private Limited Company but provisions of Section 197 shall not apply relating to remuneration.