Directors & Managerial Personnel - Apointment, Revomal & Remuneration
Introduction:
The success or failure of a company potentiality totally depends on the capability and performance of its directors. According to Sec – 2(13) explains about the position of director and says that a person cannot be called as director by its name but depends basing on the powers and functions which he discharge determines whether he is a director or not. Whereas according to Section – 253 only an individual can be appointed as a director, in case of corporate body or firm is a member then it can appoint its representatives to discharge the same. But a person cannot be appointed as director unless he obtained the DIN – Directors Identification Number as per Sec – 266B of the Companies Act, 1956.
Whereas in case of Public Listed Companies, the scope has been further extended through the Clause 49 of listing agreement and the proposed Companies Bill, 2009, by introducing the provisions relating to Corporate Governance, like Independent Directors, Audit Committee, Whistle Blower Policy and making the duties of directors a clear provision, tried to further enhance the boom of investors to make better investments in corporate field.
In this changed scenario the provisions dealing with appointment, removal and remuneration of directors is having a significance which are narrated as follows, they are
APPOINTMENT OF DIRECTORS:
• First directors – In case if the articles are silent about the names of the directors then it shall be deemed that the subscribers to the memorandum shall be the first directors of the company, until the directors are appointed at the Annual General Meeting of the Company U/S – 254.
• Appointment at AGM – The directors must be elected at the first annual general meeting of the company, where at least 2/3 of the directors are subject to retire by rotation at every annual general meeting and are eligible for re-appointment unless they are restricted by articles or disqualified or expressed their unwillingness or resigned etc U/S – 255. The vacancies created must be filled in the same general meeting or in its adjourned meeting U/S – 256.
Generally the directors for retirement are chosen basing on having long term of holding office or by mutual consent or by lot in case of conflict arise.
• Independent Directors – Under the existing act there is no such clear provision but as per the Clause – 49 of Listing agreement and the Companies Bill, 2009 in case if the Chairman is an executive than half of the Board should be of independent directors, whereas if the Chairman is an non-executive than 1/3 of the Board should be an independent directors. Here the directors should not have any pecuniary or monetary relations with the company. Their tenure is 6 years and the maximum companies he can hold is 7 companies and not more than that.
• Nominee Directors - Its main object is to protect the investment made by the institutions and to safeguard the same, but in Subhkam Ventures Ltd case, 2010, the court has held that acquisition of certain affirmative rights with a view to protect their interest and investment does not constitute change in control, and the control is a positive control but not a negative control.
• Casual Vacancies – In case of any casual vacancy is occurred due to death or resign or removed for not attending the meeting for three consecutive months or for 3 continuous meetings in such a case the vacancy can be filled by passing a resolution at the Board U/S – 262.
• Additional Directors – The Board of directors is having power as per Section – 260 to appoint additional directors but is subject to the maximum limit fixed by the Articles of the Company.
• If share qualification is required as per the articles of company he has to acquire the same within a period of 2 months from the date of his appointment as director U/S – 270.
• Validity of acts – Acts done by a person as a director without discovering that his appointment was not valid in such case those acts can be validate not the other acts done after coming to aware the disqualification or defect of his appointment U/S – 290.
• Maximum limit - The maximum limit to hold the office of directors is 15 companies at a time, in case if it exceeds then choice can be given to director to chose which we want to left U/S/ - 275 & 276.
REMOVAL OF DIRECTORS:
According to Section – 284 a director can be removed by the company by passing a ordinary resolution and before passing it, sent a notice to the director and also intimate the same to all members if not possible give an advertisement in newspaper along with that it has to give a chance to make his representation and sent the same to its members. But the provision of Section – 284 does not apply in case if the directors are appointed by the Central Government basing on the order passed by the Company Law Board to prevent oppression and mismanagement. U/S – 408.
MANAGERIAL PERSONAL:
The following are the persons which comes within the meaning of the term Managerial Personal, they are
A. Managing Director – it is defined under Section - 2(26), and he should be a director of a company and Enjoys the substantial powers conferred by a MoA/AoA/Resolution (Special/Ordinary – as per their restriction).
B. Whole Time Director – the meaning the term has been provided under Explanation to Section – 269. Further, made it clear that an individual can be a managing director of two companies, but an individual cannot be a whole-time director of more than one company and the restriction of tenure of 5 years limit does not apply to a Whole-Time Director.
C. Manager – explained the same under Section – 2(24) and in Part – 1 – Schedule XIII of the Companies Act, 1956.
Appointment of MD/WTD/Manager – Schedule – XIII
• According to Section – 269(1) in case if a public company or its subsidiary having more than 5 Crores of paid up share capital shall have a MD/WTD/Manager.
• Completed Age of 25 yrs and not attained 70 yrs.
• If approved by a special resolution in AGM (Annual General Meeting) by the shareholders then no further approval of Central Government is required.
• Not convicted and even not fined more than Rs 1000/-.
• According to Section – 269 an E- Form. No – 25A must be filed within 90 days from the date of his appointment to the Central Government as per the Companies (Central Government's) General Rules and Forms, 1956.
• Under Section – 269 the term appointment also includes reappointment.
• Section – 388 makes the further reference to the above stated provisions.
Special Provision
• If he is a MD in one company to become the MD of another company then consent of all directors in both companies is required.
• If MD in two companies wants to become MD in third company then consent of all directors in three companies plus the approval of Central Government is required.
• The maximum limit to become a director of companies is not more than 15 companies.
• According to Section – 267 a person who is an undischarge insolvent or an adjudged insolvent or convicted by a court for moral turpitude cannot be appointed as a Managing director.
Remuneration to Directors and Managerial Personnel
• Sections – 198, 309, 349, 350 and Schedule - XIII deals with remuneration and the limitations thereof.
• Total Remuneration should not exceed 11% of the company total net profits. – Net profits are calculated as per Sec – 349 & 350 of the Companies Act, 1956.
• Remuneration to single full time Director – limit is 5% on total net profits
• Remuneration to all full time Directors – limit is 10%.
• In case of one Part time Director – limit is 1%
• In case of all part time directors – limit is 3%.
• But all the above total remunerations should not exceed 11%.
Additional Remuneration
• In case if service rendered is of professional nature in opinion of Central Government U/S- 309(1)(a).
Increase in Remuneration
In case if there is any provision relating to increase in remuneration to any director including a managing director or whole time director and if such increase is in accordance with the provisions of Schedule – XIII of the act then the approval of the central government is not required but in other cases it requires the approval of the central government.
Restriction
If receiving remuneration or commission as a Whole Time Director from the Holding company, such person not allowed getting any commission from its subsidiary company U/S – 309(6).
In case if no profits in any financial year then with previous approval of central government only can pay a minimum remuneration. U/S-198(4).
Exception
These provisions do not apply to private company which is not a subsidiary company of a public company.
Restrictions on Tenure and Removal of Managing Director:
According to Section – 317 the Managing Director cannot be appointed more that 5 years at a time and the further re-appointment of the Managing Director cannot be made for more than 5 years at a time. But this provision does not apply to a private company and also further does not apply to a Whole -Time Director of any type of company. On the other hand a MD, WTD or manager cannot resign simply by giving a notice to this effect and can’t consider themselves relived from the respective office, the acceptance of their resignation by the company is necessary for their resignation to be effective.
Disclosure of interest
To enhance the system of Corporate Governance as per clause 49 of listing agreement it shall be the duty of a director to disclosure their interest. The provisions of SEBI insider trading regulations with apply in case of their non-disclosure of interest.
Conclusion:
Hence by observing the provisions we can make it clear that either the clause 49 of listing agreement or the corporate governance committees or the provisions dealing with the corporate provisions in different legislations is not a root to meet the needs of the investors, the only thing need to them is to chose a fit person who can put the tract of the company in right way to foreseen the disasters and to meet the needs of investors through the corporate role played by the directors or managerial personnel by learning experiences from their duties and to foreseen the future needs.
About the Author
L.Naga Srinivas, LL.M.2nd Year, Corporate Law, NALSAR University of Law, Email-lnagasrinivas@gamil.com, Contact-09705405471
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