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Corporate Legal Framework

Notes (b) Ss. 310-311: Provisions for increase in remuneration requires Government approval;

(c) S.312: Prohibition of assignment of office by a director;

(d) S. 317: Term of appointment to be not more than five years at a time.

Distinction between a Managing Director and a Manager

The following points of distinction between the two are worth noting:
1. A managing director is entrusted with substantial powers 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 under an agreement or by a resolution of the Board
or general meeting or under the provisions of the Memorandum or Articles. A manager, on
the other hand, is usually appointed either under a contract of service of by the Board of
directors though the Articles may also provide for his appointment.
4. A managing director must be a director whereas a manager may or may not be a director.

5. A managing director, on his ceasing to be a director, shall automatically cease to be the
managing director as well. A manager-director, however, can continue as a manager even
though he ceases to be a director.

6. The grounds of disqualifications of a managing director as given in Section 267 remain

effective for whole life and cannot be waived by the Central Government. Most of the
grounds of disqualification of a manager as given in section 385 are only for five years and

can also be waived by the Central Government.
10.8 Compensation to Directors for Loss of Offi ce

Section 318 provides that no compensation for loss of office may be paid by a company to any

director other than the managing director, or wholetime director, or a director holding the offi ce
of manager. Even in their cases, no such payment must be made: (i) when he resigns his offi ce on
reconstruction or amalgamation of the company; (ii) where the office is vacated under s.203 or

s.283; (iii) where he has to give up directorship beyond 20 directorships; (iv) where the winding
up of the company takes place due to his negligence and mismanagement; (v) where he has been
guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement
of the conduct of the affairs of the company or any subsidiary or holding company thereof;
(vi) where he has instigated or has taken part directly or indirectly in bringing about the
termination of his offi ce.

Where, however, the compensation is payable, it must not exceed the remuneration which would
have been earned by the director for the unexpired residue of the term or for three years whichever
is shorter. The calculation of this amount should be based on the average remuneration actually
earned by him during a period of three years immediately prior to the date on which he ceased

to hold the office, or where he held the office for a shorter period than three years, during such

period. No such payment can be made to him if the winding up has commenced either before
or at any time within 12 months after the date of his ceasing to hold office, if the assets of the

company are not sufficient to repay to the shareholders the share capital including the premium,
if any, contributed by them.

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