Page 229 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes For appointment of a managing, wholetime director or a manager, approval of the Central
Government would not be required if the following conditions were satisfi ed:
(i) he had not been sentenced to imprisonment for any period or to fi ne exceeding ` 1,000 for
conviction of an offence under any of the fourteen acts mentioned in Schedule XIII;
(ii) he had not been detained for any period under the Conservation of Foreign Exchange and
Prevention of Smuggling Activities Act 1974;
(iii) he has completed the age of 25 years but has not attained the age of 70 years;
(iv) he is not a managing or wholetime director or manager or in any way in wholetime
employment elsewhere;
(v) he is citizen of India and is resident in India;

(vi) the company had neither suffered loss nor had inadequate profits: (a) during the preceding

financial year immediate to the financial year in which appointment is made, or (b) in any
of the three financial years out of the four financial years immediately preceding.

In case any of the above conditions are not complied with, an application must be made to the
Central Government within 90 days of the appointment. If the appointment is not approved by
the Central Government the appointee shall vacate the office immediately on communication of

the decision by the Central Government.
Section 316 states that a person, who is either the managing director or the manager of any
other company (including a pure private company), cannot be appointed a managing director
of a public company or a private company which is a subsidiary of a public company. But such
an appointment can be made if the board of such company approves of the appointment by a

unanimous resolution passed at the Board meeting specific notice of which had been given to
all the directors then in India. Also the Central Government is empowered to permit, by order,
the same person to be managing director of more than one companies, if it is satisfi ed and it is
necessary for their proper working that the companies should function as a single unit and have
a common managing director.
Section 317 states that the term of office of a managing director cannot exceed five years at a time.

Also re-appointments or extension can be made on the basis of 5 years tenure on each occasion,
provided each time the re-appointment or extension is made by the company during two years
of the existing term.
It may be emphasised that Ss.268, 269 and 317 relating to restrictions on appointment of managing
directors (as noted above) do not apply to pure private companies.

Disqualification of a Managing Director
Section 267 prohibits the appointment or employment or the continuance of the appointment or
employment of any person by a company as its managing director or wholetime director, if the
said person: (i) is an undischarged insolvent or has at any time been adjudged an insolvent; (ii)
suspends, or has at any time suspended payment to his creditors, or makes or has at any time
made a composition with them; or (iii) is or has at any time, been convicted by a court of an
offence involving moral turpitude.

It may be noted that these disqualifications are in addition to the ones mentioned in s.272 (i.e.,
disqualifications of a director).

Whole Time Director

In many sections of the Companies Act, the term ‘Whole time director’ has been used side by
side with that of the ‘managing director’. Confusion is, therefore, likely to arise in respect of their
respective position and role.

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