COMPANY

MANAGEMENT
Topic 1
Company Law II
Ms. Pallavi Mishra 
 Company Management

various stakeholders

directors, officers, managers and shareholders

               guide a company towards the fulfilment of its business objectives

•Management has been defined as “the process of planning, organizing, leading
and controlling the efforts of company members and of using all company resources
to achieve stated company goals.” Hence, the occupation of management is to
maintain control over the company’s actions and performance, and simultaneously
to lead, inspire and direct the people working in the company. 
 The shareholders, who provide the funds for the company,
are generally regarded as the owner of the company and its
business and property. 
 But in practice, shareholders do not and cannot exercise
control and carry out management of the business because COMPANY
they are diffused and scattered and live in different parts of
the country, sometimes different parts of the globe.  MANAGEME
 They delegate their powers and authority to their elected
NT
representatives—the Board of Directors. So, the
management of a company is actually vested in the Board
of Directors.
 With the election of directors, the function of the
shareholder is over. The directors are selected by
shareholders but in reality, the shareholders elect the
directors. The shareholders have nothing to do with day-to-
day management of the company.
STRUCTURE OF COMPANY MANAGEMENT
 1. The company as a legal entity is completely separate from its
shareholders. 
 2. The number of shareholders is so large and widely diffused that it is
not possible for them to carry on day-to-day management of the
company. 
 3. The shareholders are a heterogeneous body of men belonging to COMPANY
different walks of life and may not be competent or interested to
manage the difficult problems of management.  MANAGEMENT
 4. The position of a shareholder is that of an entrepreneur who bears
the risks and supply the funds but delegates the management to the
directors or managing director. In theory, the shareholder is the
master but in practice, he is a sleeping master.
 The directors collectively constitute the Board of Directors which is the
supreme policy-making body of the company. It assumes the powers
and duties given in the Articles and carry on all those affairs of the
company which are not done in general meetings of the shareholders.
 The Indian Companies Act, 2013, is the primary
legislation governing the incorporation,
management, and dissolution of companies in India.
The act lays out the legal framework for the
formation, registration, and regulation of companies
in India, and covers a wide range of topics, including
the rights and duties of shareholders, directors, and INTRODUCTION
other stakeholders, as well as the responsibilities of
companies to comply with relevant laws and
regulations.
 From a legal perspective, companies are required to
comply with various provisions of the Companies
Act, 2013, and other related laws and regulations.
These include:
 Incorporation: Companies must be incorporated in INTRODUCTION
accordance with the provisions of the Companies
Act, 2013, and must follow the prescribed
procedures for registration with the Registrar of
Companies.
 Shareholders: Shareholders have the right to vote on
important matters such as the appointment of directors
and the approval of financial statements. Shareholders
also have the right to receive dividends and the right to
inspect company records.
 Directors: Directors have the responsibility to manage the INTRODUCTION
company in the best interests of the shareholders and to
ensure compliance with relevant laws and regulations.
Directors are also required to disclose any potential
conflicts of interest and to avoid insider trading.
 Annual General Meeting (AGM): Companies are required
to hold an AGM every year, at which shareholders can
discuss and vote on important matters such as the
approval of financial statements and the appointment of
directors.
 A corporation is an artificial person which is intangible and
invisible. For making any decision and to have knowledge and
intention, a living person has a mind and hands by which he
carries out his actions. But a corporate body being an
artificial person has none of these. So it needs to act through
a living person. The company’s business is entrusted in the
hands of directors.
 The directors of a company are like its brain. They have a
DIRECTORS
major contribution to a company’s growth and development Board of Directors in the Companies
and their position is very important for the company. They Act, 2013
are given certain powers under the Companies Act 2013 so
that they can contribute their best to the company. Along
with powers, certain restrictions are also imposed on its
exercise to avoid any misuse of such powers.
 2(34) ―director‖ means a director appointed to the Board of
a company; 
 Company to have Board of Directors

 Every company is required to have a Board of directors and it should

be consisting of individuals as directors and not an artificial person. 
Section 149 lays down the minimum number of directors required in a
company as follows:
 Public Company– At least 3 directors BOARD
 Private company- At least 2 directors OF DIRECTORS
 One person company– Minimum 1 director

 There can be a maximum of 15 directors. A company may appoint

more than 15 directors after passing a special resolution.
 The Central Government may prescribe a class or classes of a company
have a minimum one women director.
 Every company is also required to have a minimum of one director
who has stayed in India in the previous year for a period of 182 days or
more.
 There are several types of directors under the Indian
Companies Act 2013, each with their own roles and
responsibilities. These include:
1. Executive Directors (Section 2(51)): These are
directors who are also employees of the company and
are responsible for managing the day-to-day DIRECTORS
operations of the company.
Companies Act, 2013
2. Non-Executive Directors (Section 2(94)): These are
directors who are not involved in the day-to-day
operations of the company and are appointed to
provide expert advice and independent judgment.
 Executive directors are full-time members of a
company's management team, and are typically DIFFERENCE
involved in the day-to-day management and decision- BETWEEN
making of the company. They may also hold other EXECUTIVE AND
positions within the company, such as CEO or COO.
Non-executive directors, on the other hand, are not NON-EXECUTIVE
involved in the day-to-day management of the DIRECTORS
company and typically hold other full-time positions
outside of the company. They may be appointed to
provide specific expertise or to provide a balance of
power within the company. The main role of the non-
executive director is to provide independent oversight
of the management and performance of the company,
which is an important principle of good corporate
governance.
 Non-executive directors (NEDs) are individuals who hold
non-executive positions on the board of a company. They
are appointed to provide independent oversight, bring
specialized expertise and provide constructive challenge
to the executive team. They are not involved in the day- EXAMPLES OF
to-day management of the company and are not typically NON-EXECUTIVE
involved in the company's operations. Examples of non-
executive directors include: DIRECTORS
• Chairman of the board
• Lead independent director
• Independent directors
• Non-executive chairman
• Non-executive director.
 CEOs are typically considered whole-time directors
because they are responsible for the overall
management and direction of the company. They
have the authority to make strategic decisions,
manage day-to-day operations, and ensure that the
company's goals and objectives are met. They are WHOLE TIME
typically considered to be full-time employees and DIRECTORS/CEO
may be compensated with a salary, benefits, and The Companies Act, 2013
equity in the company. They are also expected to be
involved in the company's governance and decision-
making processes and to serve as representatives of
the company to shareholders and other stakeholders.
 Independent Directors (Section 149): These are non-
executive directors who are not associated with the
management or control of the company and are
appointed to provide independent judgment on the
Board's activities. They must meet certain criteria,
such as not having any material pecuniary
relationships with the company. DIRECTORS
 Nominee Directors (Section 161): These are directors The Companies Act, 2013

nominated by a government, financial institution, or

other specified body to represent their interests on the
Board.
 Nominee directors are individuals who are appointed
to the board of a company by a third party, such as a
financial institution, government agency, or other
external entity. They are typically appointed to
represent the interests of the third party that
nominated them and may have specific NOMINEE
responsibilities or obligations related to that role. DIRECTOR
Under the Indian Companies Act 2013, nominee The Companies Act, 2013
directors are defined in Section 151 and are required
to disclose any interests or relationships they have
with the company or its management. They are also
subject to the same duties and liabilities as other
directors under the Act.
 One example of a nominee director can be found in
the case of Securities and Exchange Board of India v.
Saurabh S. Shrimali
(WTM/CFD/RR/MISC/66/2017), where the CASE LAW ON
Securities and Exchange Board of India (SEBI)
found that the nominee director, Mr. Saurabh S. NOMINEE
Shrimali, had failed to discharge his duties as a DIRECTOR
director in accordance with the provisions of the Company Law
Companies Act, 2013 and SEBI (Listing Obligations
and Disclosure Requirements) Regulations, 2015.
 The SEBI found that Mr. Shrimali had failed to
exercise his independent judgment, failed to act in
the best interests of the company, and failed to
disclose his interest in transactions with the company. CASE LAW ON
The SEBI imposed a monetary penalty on Mr.
Shrimali for his failure to discharge his duties as a NOMINEE
nominee director. DIRECTOR
Company Law
1. Additional Directors (Section 161): These are
directors appointed by the Board to fill a casual
vacancy or to increase the number of directors. DIRECTORS/
2. Alternate Directors (Section 313): These are directors
THE COMPANIES
appointed to act on behalf of another director in their ACT, 2013
absence.
3. Women Directors (Section 149(1)): The Companies
Act 2013 provides for at least one woman director on
the board of companies which meet certain criteria.
1. Whole-time Directors: These directors are
responsible for the day-to-day management of the
company and are considered employees of the
company. They are appointed by the Board of
Directors and report to them. They are also known as
Managing Directors or Chief Executive Officers.
 Indian Supreme Court Judgments such as
DIRECTORS
The Companies Act, 2013
1. M. L. Sethi v. Union of India, (2018) 7 SCC 524

2. A.K.N. Suresh v. Union of India (2019) 12 SCC 671

3. Dhirendra Kumar v. Union of India, (2019) 4 SCC 1

4. Union of India v. R. Gandhi, (2015) 10 SCC 1

 Executive director under the Indian Companies Act
2013 would be a person who is appointed by the
Board of Directors to be responsible for the day-to-
day management of the company and who is
considered an employee of the company.
EXECUTIVE
 According to Section 2(34) of the Indian Companies
Act 2013, an executive director is defined as a
DIRECTORS
director who is in whole-time employment of the The Companies Act, 2013

company. Section 196(1) of the Act lays down the

provisions for appointment of the executive directors,
stating that the Board of Directors can appoint a
person as an executive director.
 In addition, Section 197 of the Act lays out the
qualifications, disqualifications and the remuneration
of the executive directors. The Act also provides for
the appointment of managing director or whole-time
director as defined under Section 2(54) and also lays
out the tenure of the executive directors under section EXECUTIVE
196(3) DIRECTORS
 The responsibilities of executive directors to act in
the best interest of the company and to disclose any
interest in a contract or arrangement with the
company are outlined in Section 166 of the Indian
Companies Act 2013.
 Section 166(1) states that the directors of a company
shall act in good faith in the best interests of the
company and for the promotion of its objects.
 Section 184(1) states that a director shall disclose his
interest in any contract or arrangement proposed to EXECUTIVE
be entered into by the company and shall not DIRECTORS
participate in the discussion or voting on such
contract or arrangement, if any, in which he is
interested.
 It is also important to note that the Act provides for
penalties for non-compliance of these provisions
under section 167 and 185 respectively.
 There are several case laws that have been
established under the Companies Act 2013, which
pertain to the responsibilities of executive directors to
act in the best interest of the company and to disclose
any interest in a contract or arrangement with the
company. Some examples include:
 In the case of Re: Satyam Computer Services Ltd.
CASE LAWS
[2010] 142 Comp Cas 617 (CLB), the Company Law
Board held that the responsibility of the directors to
act in the best interest of the company is a statutory
duty, and that any breach of this duty would make the
directors liable for wrongful gain or advantage to
themselves or any other person.
1. In the case of Wockhardt Limited v. Jaslok Hospital
& Research Centre & Ors. [2015] 215 Comp Cas 657
(Bom), the Bombay High Court held that the
directors of a company have a fiduciary duty to act in
the best interest of the company and that any interest
in a contract or arrangement entered into by the
company must be disclosed to the board. CASE LAWS
2. In the case of In Re: V.B. Rajendra Prasad [2015] 216
Comp Cas 677 (CLB), the Company Law Board held
that a director has a duty to act in the best interest of
the company and to disclose any interest in a contract
or arrangement proposed to be entered into by the
company, and that any breach of this duty would
make the director liable to the company.
 In the case of In Re: J.P. Associates Ltd. [2016] 230
Comp Cas 724 (CLB), the Company Law Board held
that the directors have a duty to act in the best
interest of the company and to disclose any interest in
a contract or arrangement entered into by the
company and that any breach of this duty would
make the directors liable for wrongful gain or CASE LAWS
advantage to themselves or any other person.
 The concept of independent directors was introduced
in the United States under the Sarbanes-Oxley Act of
2002, which was passed in response to the corporate
and accounting scandals of the early 2000s. The Act
requires publicly traded companies to have a board of
directors composed of a majority of independent INDEPENDENT
directors, and also sets strict rules on the DIRECTORS
independence of audit committee members. Other The Companies Act, 2013
countries such as the UK, Canada, and Australia have
also implemented similar laws and regulations
regarding independent directors.
 The concept of independent directors was introduced
in the Indian corporate sector in the year 2000, with
the introduction of Clause 49 of the Listing
Agreement by the Securities and Exchange Board of
India (SEBI). This clause made it mandatory for
listed companies to have at least one independent INDEPENDENT
director on their board. The Companies Act 2013 DIRECTORS
further strengthened this concept and made it The Companies Act, 2013
mandatory for certain companies to have a specified
number of independent directors on their board.
 The Indian Companies Act 2013 lays out the rules
and responsibilities for independent directors in
Section 149, which states that a company must have
at least one-third of the total number of directors as
independent directors. It also states the qualifications
and disqualifications for independent directors in INDEPENDENT
Section 149(6) and (7). Additionally, the Act lays out DIRECTORS
the duties and responsibilities of independent The Companies Act, 2013
directors in Section 166.
 Furthermore, The Companies (Appointment and
Qualification of Directors) Rules, 2014 also lays out
the detailed provisions for appointment and
appointment of independent directors, including the
requirement for a formal letter of appointment and a
statement of independence. It also lays out the INDEPENDENT
requirement for independent directors to disclose DIRECTORS
their interest in the company and attend at least one The Companies (Appointment and
meeting of the independent directors in a financial Qualification of Directors) Rules, 2014
year.
 The latest amendment to the Companies
(Appointment and Qualification of Directors) Rules,
2014 was made on June 1, 2017. The amendment THE COMPANIES
stipulated that independent directors are now required (APPOINTMENT AND
to hold at least one board meeting in a financial year QUALIFICATION OF
without the attendance of non-independent directors DIRECTORS) RULES,
and members of management. Additionally, the 2014
amendment also requires independent directors to
furnish a declaration of independence to the company
on an annual basis.
 Under the Indian Companies Act 2013, independent
directors are defined in Section 149(6) as individuals
who are not promoters or key managerial personnel
of the company and do not have any material
pecuniary relationships or transactions with the
company, its holding, subsidiary or associate INDEPENDENT
company, or its promoters or directors, amounting to DIRECTORS
2% or more of its gross turnover or total income, or The Companies Act, 2013
fifty lakh rupees or such higher amount as may be
prescribed, whichever is lower, in the immediately
preceding two financial years.
 In addition, Section 149(10) states that an independent
director should not be a relative of any director or key
managerial personnel in the company, and should not hold
any directorship or pecuniary relationship in the company
or its holding, subsidiary or associate company for a period
of five years before his appointment as an independent
director.
INDEPENDENT
DIRECTORS
 The definition of independent directors under the Indian
The Companies Act, 2013
Companies Act 2013 is intended to ensure that independent
directors are truly independent, and free from any conflicts
of interest that may affect their ability to act in the best
interests of the company and its shareholders. The Act also
lays out specific responsibilities of independent directors,
such as attending board meetings and participating in
decision-making, and ensuring that the company complies
with laws and regulations.
 Under the Indian Companies Act 2013, independent
directors are defined as those who are not
"promoters" or "relatives of promoters" of the
company, and who have no "pecuniary relationship"
with the company or its promoters, during the two
preceding financial years or during the current INDEPENDENT
financial year. Independent directors are appointed to DIRECTORS
provide an independent perspective on the The Companies Act, 2013
functioning and decision-making of the company,
and to act as a check on the actions of the
management and other directors.
 An undischarged insolvent refers to a person who has
not been released from their debts through the process of
insolvency. This means that they have not yet completed
the requirements set out in the insolvency laws, such as
paying off their creditors or reaching a debt repayment
plan. INDEPENDENT
 An example of an undischarged insolvent would be an DIRECTORS
individual who has filed for bankruptcy, but has not yet Undischarged Directors
completed the requirements set out in the bankruptcy
process. They would still be considered an undischarged
insolvent until their debts have been fully discharged or
they have completed the requirements of the bankruptcy
process. Another example would be an individual who
has been declared insolvent by a court, but has not yet
completed the process of paying off their creditors.
 One important judgment that lays out the
responsibilities of independent directors is the
judgement of the Securities Appellate Tribunal (SAT)
in the case of SEBI vs. Saurabh Mittal & Ors.
(Appeal No. 52 of 2015). In this case, the SAT held
that independent directors are required to "act in a INDEPENDENT
bona-fide manner, to protect the interest of the DIRECTORS
company and its shareholders, and to ensure The Companies Act, 2013
compliance with laws and regulations." The
judgement also noted that independent directors are
expected to bring "expertise, skill and knowledge" to
the board, and to act as a "watchdog" for the
shareholders.
 Another important judgement that deals with the role
of independent directors is the judgement of the
Supreme Court of India in the case of Securities and
Exchange Board of India (SEBI) vs. Satyam
Computer Services Limited & Ors. (Civil Appeal No.
12295 of 2014). In this case, the court held that INDEPENDENT
independent directors are expected to "discharge their DIRECTORS
duties in an independent and unbiased manner" and The Companies Act, 2013
to "act in the best interest of the company and its
shareholders." The judgement also noted that
independent directors are expected to "ensure
compliance with laws and regulations" and to "bring
an independent and objective view to the decision-
making of the board."
 Overall, the Indian Companies Act 2013 and relevant
judgments emphasize the important role that
independent directors play in ensuring the proper
functioning and governance of companies. They are
expected to bring an independent perspective and to
act in the best interest of the company and its INDEPENDENT
shareholders. They are also expected to ensure DIRECTORS
compliance with laws and regulations, and to bring The Companies Act, 2013
expertise, skill, and knowledge to the board.
 The Satyam scandal, also known as the "India's Enron" case,
was a corporate scandal that occurred in India in 2009. The
case was heard by the Supreme Court of India and the
judgment was delivered in the case of Securities and Exchange
Board of India (SEBI) vs. Satyam Computer Services Limited
& Ors. (Civil Appeal No. 12295 of 2014) on 7 February 2018.
The judgment can be accessed on the official website of the SATYAM
Supreme Court of India. JUDGEMNET
 The Satyam judgment by the Supreme Court of India, also SEBI v Satyam
known as the Satyam Computer Services Limited (SCSL)
case, was a corporate fraud case that came to light in 2009.
The case involved the former chairman of SCSL, Ramalinga
Raju, and several other executives who were found guilty of
falsifying the company's financial statements and inflating its
profits and assets. The judgment was delivered by a three-
judge bench of the Supreme Court of India on 7th April, 2018.
 The Satyam scandal, also known as the "Indian
Enron," was a major corporate scandal that came to
light in 2009. The Indian multinational IT services
company, Satyam Computer Services, was found to
have inflated its revenues and profits for several
years. The company's founder and chairman, B.
Ramalinga Raju, admitted to falsifying the company's BACKGROUND
accounts to the tune of over $1 billion.
 The scandal led to the resignation of the company's board of directors and a
criminal investigation against Raju and other executives. It also resulted in
a significant drop in the company's stock price, causing major losses for
investors. The Securities and Exchange Board of India (SEBI) and the
Serious Fraud Investigation Office (SFIO) were among the agencies that
investigated the case. Raju and other executives were subsequently
convicted and sentenced to prison.
 Issue: The main issue in the Satyam judgment was
whether the defendants (Ramalinga Raju and others)
were guilty of committing fraud and falsifying the
company's financial statements.
 The issue in this case is the fraudulent accounting
practices committed by the then-chairman of Satyam ISSUE-
Computer Services Limited, Ramalinga Raju, and the
role of independent directors in the company. SEBI v Satyam

 Whether the actions of the Satyam Computer

Services Limited and its directors in the fraudulent
accounting scandal constitute a violation of securities
laws under the Securities and Exchange Board of
India (SEBI) Act, 1992.
 Rule: The legal provisions relevant to this case
include Section 217(2A) of the Companies Act, 1956,
which lays out the duties of independent directors,
and Section 447 of the Companies Act, 2013, which
deals with fraud and penalties for the same.
RULE
 Section 11B and 11(1) of the SEBI Act, 1992, which
prohibit fraudulent and unfair trade practices in the
securities market.
 Analysis: The Court analyzed the actions of the independent
directors of Satyam and found that they had not fulfilled their
statutory duties under Section 217(2A) of the Companies Act,
1956. They had also not taken appropriate action to prevent or
report the fraud committed by Raju.
 The Supreme Court analyzed the evidence presented in the case
and found that the defendants had deliberately falsified the
ANALYSIS/
company's financial statements and inflated its profits and assets. APPLICATION
They also found that the defendants had committed fraud and had
violated the legal provisions under Companies Act, SEBI Act and
IPC.
 Application: The Satyam Computer Services Limited and its
directors were found to have manipulated the company's financial
statements by inflating its assets and understating its liabilities.
This led to a misrepresentation of the company's financial
performance, which affected the decision-making of investors.
 Conclusion: The Supreme Court found the independent
directors guilty of failing to discharge their statutory
responsibilities and imposed penalties on them. The
Court also ordered the disgorgement of illegal gains
made by Raju and directed the Serious Fraud
Investigation Office to investigate the matter further.
 The Supreme Court found the defendants guilty of CONCLUSION
committing fraud and falsifying the company's
financial statements. They imposed severe penalties on
the defendants, including imprisonment and fines, and
ordered them to pay restitution to the company's
shareholders. The judgment emphasized the need for
stricter corporate governance and compliance with the
law to prevent such frauds in the future.
 The Supreme Court found the independent directors
guilty of failing to discharge their statutory
responsibilities and imposed penalties on them. The
Court also ordered the disgorgement of illegal gains
made by Raju and directed the Serious Fraud
Investigation Office to investigate the matter further.
 The actions of the Satyam Computer Services
Limited and its directors constitute a violation of
securities laws under the SEBI Act, 1992. The
Supreme Court, therefore, imposed penalties on the
company and its directors and directed them to return
illegal gains made as a result of the fraud.
 In the case of Securities and Exchange Board of India
(SEBI) vs. Satyam Computer Services Limited & Ors.
(Civil Appeal No. 12295 of 2014), the Supreme Court of
India upheld the findings of the Securities and Exchange
Board of India (SEBI) that the Chairman of Satyam
Computer Services Limited, Ramalinga Raju, and other
directors of the company had engaged in insider trading
and fraud in the company's financial statements. The
FINDINGS
Court held that the actions of the directors were in
violation of the Securities and Exchange Board of India
Act, 1992 and the Securities Contracts (Regulation) Act,
1956. The Court also imposed penalties on the directors
and the company for their misconduct. This case is an
example of nominee directors being held accountable
for their actions under Indian laws.
 In the Satyam scandal, the nominee directors
appointed by the Indian government were T. R.
Prasad, C. Achuthan, and S. V. Raghavan. They were
appointed to the Satyam board after the company's
founder, B. Ramalinga Raju, admitted to falsifying
the company's financial statements and resigned as
chairman. The nominee directors were appointed
with the purpose of protecting the interest of
shareholders and ensuring good corporate
governance in the company.
 In the Satyam scandal, the independent directors who were on the board at
the time of the fraud include:
• Krishna G Palepu

• Vinod Dham

• Mangalam Srinivasan

• T N Manoharan

• Rammohan Rao

• Suresh A Surana

• R A Mashelkar

• P Rammohan Rao

• Homi Khusrokhan

 It should be noted that these directors have been criticized for not fulfilling
their duties as independent directors and for failing to detect the fraud.
 a director other than a managing director, whole-time director or a
nominee director:
 Who is a person with integrity and has relevant expertise and experience.

 Who has not been a promoter of the company, its subsidiary or holding
company either in past or present.
 Who himself or his relative has no pecuniary relationship with the INDEPENDENT
company, its holding or subsidiary company, directors or promoters.
DIRECTORS
 Who himself or his relative, do not hold the position in key managerial
personnel, or not an employee of the company.
 The independent director has to declare his independence at the first
meeting of the Board and subsequently every year at the first meeting of
the Board in the financial year.
 An independent director holds office for a term of five years on the
Board. He is also eligible for being reappointed after passing a special
resolution, but no independent director is to hold the office for more
than two consecutive terms.
 Directors are professionals deputed by the Company to run its business.
They are officers who control the overall functioning of the Company
involving day-to-day management and superintendence of the
company’ affairs. Section 2(34) of Companies Act, 2013 defines director
means a director appointed to the Board of a Company. Directors are
collectively referred as Board of Directors. Only an individual person can POSITION OF
be appointed to hold the position of director. An artificial person or an
entity cannot be appointed as director of a company.  DIRECTORS
 The position held by the directors in any corporate enterprise is a tough
subject to explain as held in the case of Ram Chand & Sons Sugar Mills
Pvt. Ltd.v. Kanhayalal Bhargava. The position of a director has been
cited by Bowen LJ in the case of Imperial Hydropathic Hotel Co
 Blackpool v. Hampson as a versatile position in a corporate body.
Directors are sometimes described as trustees, sometimes as agents and
sometimes as managing partners. These expressions are from indicating
point by which directors are viewed in particular circumstances.
 Independent Directors (Section 149): These are non-
executive directors who are not associated with the
management or control of the company and are
appointed to provide independent judgment on the
Board's activities. They must meet certain criteria,
such as not having any material pecuniary
relationships with the company.
 Ferguson v. Wilson (1904), it was established that the
directors are the agents of the company. This was
established in the eyes of the law that a company
cannot work as an artificial person in its own DIRECTORS AS
capacity that’s why it needs an agent to operate. 
AGENTS OF THE
 Ray Cylinders & Containers v. Hindustan General
Industries Limited (1998), it was noticed that
COMPANY
directors are the agents of the company but not of
the members of the company. This means that the
directors are the agents of the company and not its
individual members, except in the case where the
relationship between the two arises out of special
facts. A company is a different legal entity apart from
its members, i.e., shareholders. 
 In the case of Dale & Carrington Investment (P.) Ltd.
v. P.K. Prathapan [2004], it was noticed that the
directors have to act within their fiduciary capacity,
which means that they have a duty to act on behalf DIRECTOR AS A
of the company with the utmost care, skill, good
faith, and due diligence, most importantly towards TRUSTEE
the interests of the company that they are
representing. 
  V.S. Ramaswami Iyer v. Brahmayya and Co. (1966), the
directors can be rendered liable as trustees with
reference to their power to apply funds of the company.
A director may misuse these in many ways. Due to this,
if legal action is taken against a director with reference DIRECTOR AS
to the mentioned offence, then the cause of action will A TRUSTEE
survive even after the death of the director against his
legal representative. In both the cases of Percival v.
Wright (1902) and Peskin v. Anderson (2001), it was
held that the directors of a company owe their duty to
the company as a whole, and are not trustees for
individual shareholders or owe them a fiduciary duty
merely by virtue of their offices. They may purchase
their shares without disclosing pending negotiations for
the sale of the company’s undertaking.
 The directors of a company represent the
shareholders’ will and wants. They tend to act on
behalf of the shareholders and their goals. Due to DIRECTOR AS A
this, they enjoy vast powers and can perform many MANAGING
functions that are proprietary in nature. Due to the
provisions mentioned in the MOA and AOA of the PARTNER
companies, the board of directors acts as the
supreme policy and decision-making authority. 
 In the case of Lee Behrens & Co., Re [1932], it was
seen that it is the shareholders who elect their
representatives who shall engage in directing the DIRECTOR AS AN
affairs of the company on their behalf. This means EMPLOYEE/OFFI
that they are acting in the capacity of an agent in this
scenario. It can also be seen that they are not the CER
employees or servants of the company. However, in
the case of R.R. Kothandaraman v. CIT (1957), was
held by the Madras High Court that since there is
nothing mentioned in the law, no one can prevent
the director from accepting his position as an
employee under a special contract made with the
company. 
 To summarize the legal position of directors in a
company, Jessel M.R can be quoted from Forest of
Dean Coal Mining Co., Re [1878], “Directors have
sometimes been called as trustees or commercial
trustees, and sometimes they have been called
managing partners; it does not matter much what LEGAL POSITION
you call them so long as you understand what their OF DIRECTORS
real position is, which is that they are really
commercial men managing a trading concern for the
benefit of themselves and of all the shareholders in
it. They stand in a fiduciary position towards the
company in respect of their powers and capital under
their control.”
 (a) The power of employing the funds of the company;

 (b) The power to declare dividend in the general

meeting;
EXAMPLES OF
 (c) The power to make call;
SUCH POWERS ARE
 (d) The power of forfeiting shares; AS FOLLOWS
 (e) The power of receiving payment of call-in advance;

 (f) The power of approving the transfer of shares;

 (g) The power of accepting the surrender of shares;

 (h) The power of issuing the unissued shares of the

company and making allotments thereof.
 Appointment of Directors
 Appointment of first Directors
 Appointment at general meeting
 Appointment by the Board of Directors
 Appointment of Resident Director
 Appointment of Independent Directors
APPOINTMENT
OF DIRECTORS
Inherent Power to Appoint a Director
Section 152 provides that every
director shall be appointed by the
company in the general meeting,
except as otherwise provided in the
Act. So inherent power to appoint a
director is vested in shareholders.
 The first directors are usually appointed by name in
the articles or in the articles or in the manner
provided therein.
 Where the articles do not provide for the APPOINTMENT
appointment of first directors, the subscribers to the OF FIRST
memorandum who are individuals shall be deemed DIRECTORS
to be the first directors of the company until the
directors are duly appointed. Section 152 of the Companies Act, 2013

 In case of OPC an individual being member shall be

deemed to be its first director until the director or
directors are duly appointed by the member in
accordance with the provisions of this section.
 Where for any reason for example death the persons named in the
list of first directors do not assume office, it will be necessary for
the subscribers of the Memorandum (who will then be the only
members) to convene a meeting for the appointment of directors.
To the extent to which the articles do not make any other
appointment of directors. To the extent to which the articles do not
make any other provisions in that behalf, subscribers who would be
entitled to requisition a meeting may call the meeting. Notice of the
meeting must be served on every subscriber in the manner in which
notices are required to be served by the Act.
 A director is appointed in a general meeting under
the Companies Act 2013 by following these steps: APPOINTMENT
 Notice of the meeting: The company must give a
OF DIRECTOR –
notice to its members at least 21 days before the SOP UNDER THE
meeting. The notice should contain the purpose of COMPANIES ACT,
the meeting and the agenda items, including the 2013
appointment of a new director.
 Quorum: A quorum must be present for the meeting
to be valid. The quorum is either one-third of the
total number of members of the company or two
members, whichever is higher.
 Resolution for appointment: A resolution for the
appointment of a new director must be proposed
and seconded. The members must then vote on the
resolution, and a simple majority is required for it to SOP UNDER THE
pass.
COMPANIES ACT,
 Filing with the Registrar: The company must file the
details of the appointment with the Registrar of
2013
Companies within 30 days of the appointment.
 It's worth noting that there are other provisions in
the Companies Act 2013 that govern the
appointment of directors, including eligibility criteria,
disclosure requirements, and restrictions on the
number of directorships that a person can hold.
 No person shall be appointed as a
director of a company unless he has
been allotted the Director Identification NO
Number (DIN) under Section 154 APPOINTMENT
WITHOUT DIN
Section 154
 Provided that no application shall be
generated in case of the person applying for
DIN is a national of a country which shares
land border with India, unless necessary
security clearance from the Ministry of Home
Affairs, GoI has been attached along with the DIN
application for DIN.
 Every person proposed to be appointed as
director by the company in general meeting
or otherwise, shall furnish his DIN and a
declaration that he is not disqualified to
become a director under this Act.
 Suppose, Mr. X is a citizen of Pakistan and wants to apply for a
Director Identification Number (DIN) in India for the purpose
of becoming a director of a company in India. However, as per
the statement mentioned above, Mr. X cannot generate an
application for a DIN unless he attaches the necessary security
clearance from the Ministry of Home Affairs, Government of
India. This is because Pakistan shares a land border with India,
and the Ministry of Home Affairs needs to ensure that the
appointment of Mr. X as a director in an Indian company does
not pose a threat to the national security. Hence, the security
clearance is a mandatory requirement in such cases.
 A person appointed as a director shall not act as
a director unless he gives his consent to hold
the office as director and such consent has been
filed with the Registrar within thirty days of his CONSENT TO
appointment in such manner as may be ACT AS
prescribed DIRECTOR
 In the case of appointment of an ID in the Section 152(5)
general meeting, an explanatory statement for
such appointment, annexed to the notice for
the general meeting, shall include a statement
that in the opinion of the Board, he fulfils the
conditions specified in this Act for such an
appointment.
 According to Section 152(2) every director shall be appointed
by the company in general meeting except where the Act
provides otherwise.
APPOINTMENT
 Sub-section(6) of Section 152 provides that unless the AoA
provide for the retirement of all directors at every AGM, not
OF DIRECTORS
less than two-thirds of the total number of directors of a AT GENERAL
public company shall-
MEETING
 (i) be persons whose period of office is liable to determination
by retirement of directors by rotation; and Section 152(2)
 (ii) be appointed by the company in general meeting except
where otherwise expressly provided in this Act.
The remaining directors in the case of any such company (i.e.
public company) shall, in default of, and subject to any
regulations in the articles of the company, also be appointed by
the company in general meeting.
 The provision of "not less than two-thirds of the total number of directors
have to retire by rotation and one-third of such shall actually retire from
the office" refers to a rule in company law that requires a certain number
of directors on a company's board to leave office periodically.
 This is to ensure that the board remains fresh and dynamic, and to
provide new perspectives and ideas to the company. The law requires
that a minimum of two-thirds of the directors must retire by rotation,
meaning that they must leave office after a set period, usually three
years. Out of these directors, one-third of them must actually retire,
meaning that they cannot stand for re-election. This provision helps in
promoting good corporate governance by bringing new talent to the
board and increasing the accountability of directors.
 Under the Companies Act 2013, the retirement by rotation provision
requires that not less than two-thirds of the total number of directors on a
company's board must retire by rotation and one-third of those directors
must actually retire from their positions every year. This is to ensure that
there is a regular change in the composition of the board and that new
perspectives and expertise are brought in.
 For example, consider a company with 9 directors on its board. As per the
provisions of the Companies Act 2013, not less than 6 directors must
retire by rotation and at least 2 directors must actually retire from their
positions every year. These 2 directors can be re-appointed for another
term, but the provision ensures that a minimum number of positions are
open for new directors to join the board.
 Not less than two-thirds of the total number of directors have to retire by
rotation and one- third of such shall actually retire from the office.
 Independent Directors are not liable to retire by rotation

 Whole time / Executive Directors are being appointed for a particular

period and they are also not liable to retire by rotation
 Most of the Institutions while appointing their nominees as Directors also
stipulate that they need not retire by rotation.
 In case of a private company if the articles are silent as
to the appointment of directors, or do not specifically APPOINTMENT
provide for appointment of directors otherwise than in OF DIRECTORS
a general meeting, then the directors are to be
appointed in general meeting by the shareholders. IN CASE OF A
PRIVATE
 Manner of rotation- Section 152(6)(c ) provides that at
the first annual general meeting of a public company COMPANY
held next after the date of the general meeting at
which the first directors are appointed and at every
subsequent annual general meeting, one-third of such
of the directors for the time being as are liable to
retire by rotation, or if their number is neither three
nor a ,multiple of three, then the number nearest to
one-third shall retire from office.
 If the directors do not hold a general meeting in time, can
they continue till the meeting is held?
 As per few judgements; Directors cannot cannot prolong
their tenure by not holding a meeting in time. The
directors due to retire by rotation must vacate office at
the latest on the last day on which an annual general
meeting ought to have been held. Retiring directors are
however eligible for re-election.
 Deemed re-appointment of a retiring director [Section 152]

At the annual general meeting at which a director retires as aforesaid, the

company may fill up the vacancy by appointing the retiring director or some
other person thereto (152(6)(e))
Section 152(7) provides that if the vacancy of the retiring director is not so filled
up and the meeting has not expressly resolved not to fill the vacancy, the
meeting shall stand adjourned till the same day in the next week, at the same
time and place or if that day is a national holiday, till the next succeeding day
which is not a holiday at the same time and place.
 If at the adjourned meeting also the vacancy of the retiring
director is not filled up and that meeting also has not
expressly resolved not to fill the vacancy, the retiring director
shall be deemed to have been re-appointed at the adjourned
meeting except in the following cases:
 At any previous meeting, a resolution for his re-appointment
was put to vote, but was lost; or
 The retiring director has, in writing expressed his
unwillingness to continue, or
 He is not qualified or is disqualified for appointment; or

 A special or ordinary resolution is necessary for his

appointment; or
 It is resolved to fill two or more vacancies by a single
resolution (Section 162)
 Whether under the law it is compulsory for the
ROTATIONAL
private companies to have rotational directors? AND NON-
 In the case of a private company which is not a
ROTATIONAL
subsidiary of a private company, it is not compulsory DIRECTORS VIS
under the law that they must have rotational A VIS PRIVATE
directors unless the AoA of the company so require. COMPANY
 In the absence of any provision in the Articles,
directors of an Independent private company are
entitled to continue until removed under Section 169
 Appointment by Board of Directors

 The Board of Directors can exercise the power to

appoint directors in the following three cases:
APPOINTMENT
 Additional Directors
BY BOARD OF
 Filling up the casual vacancy DIRECTORS
 Alternate Directors Section 161
 Nominee Directiors
Appointment of Additional Director
The articles of a company may confer on its Board of
Directors the power to appoint any person, other than
a person who fails to get appointed as a director in a APPOINTMENT
general meeting, as an additional director at any time OF ADDITIONAL
who shall hold office up to the date of the next annual DIRECTOR
general meeting or the last date on which the annual
general meeting should have been held, whichever is Section 161

earlier.
 The power to appoint additional
director may be conferred to the Board POWER TO APPOINT
of Director (BOD) by the articles of the ADDITIONAL
company. That means BOD may DIRECTOR
appoint any person as an additional
director of the company.
 The BOD may appoint any person as an additional
director of the company. However, if any person fails ELIGIBLE PERSON
to get appointed as a director in a general meeting FOR ADDITIONAL
shall also not be eligible for appointment as an DIRECTOR
additional directors of a company. Note that this
eligibility criterion was not there in the provisions of
the Companies Act, 1956.
 The appointed additional director shall hold office up
to the date of the next Annual General Meeting TERM OF OFFICE
(AGM) or the last date on which the annual general OF ADDITIONAL
meeting should have been held, whichever is earlier. DIRECTOR
Under the companies Act, 1956 the additional
directors shall hold office only up to the date of the
next AGM of the Company.
 The appointment of alternate directors of company
shall be made as per section 161(2) of the Companies APPOINTMENT OF
Act, 2013. This section came into force on 1st April, ALTERNATE
2014 vide Notification No. S.O. 902(E) issued dated DIRECTOR IN A
27-03-2014. Section 161(2) of the CA 2013 COMPANY
corresponds to the section 313 of the Companies Act,
1956 i.e. appointment and term of office of alternate
directors.
 For the appointment of an alternate director, the
Board of Directors (BOD) may be authorised by:
POWER TO APPOINT
 Articles of the Company; or ALTERNATE
DIRECTOR:
 A resolutions passed in the General Meetings of the
company.
Therefore, the BOD may appoint any person to act as
an alternate director if so authorised by its articles or
by a resolution passed by the company in general
meeting.
 Whenever, a director of the company is absence for a
period of at least 3 months from India, an alternate WHEN TO APPOINT
director may be appointed in his place by the BOD of ALTERNATE
the company.
DIRECTOR
 Did you know? Under the Companies Act, 1956, it
was provided that Alternate director can be appointed
in place of director who is absent from the State in
which meetings of the Board are ordinarily held.
Whereas, the provisions of new CA 2013 provide that
an Alternate Director can only be appointed in case a
director leaves India for not less than three months.
 The BOD may appoint a person to act as alternate
director for a director during his/her absence from ELIGIBLE PERSON
India. However, if a person already holding any FOR ALTERNATE
alternate directorship for any other director in the DIRECTOR
company then, he shall not be eligible for
appointment as an alternate director of any other
director of the same company.
 Hence, it is quite clear that a person shall not be
appointed as an alternate director for two or more
directors in the same company.
 ELIGIBLE
 Further, if a person is qualified to be appointed as an
independent director then only he shall be eligible for PERSON FOR
appointment as an alternate director for an ALTERNATE
independent director of a company. That means no DIRECTOR
person shall be appointed as an alternate director for
an independent director unless he is qualified to be
appointed as an independent director under the
provisions of the CA 2013.
 The appointed alternate director shall not hold office
for a period longer than that permissible to the TERM OF OFFICE
director in whose place he has been appointed. OF ALTERNATE
 Further, the alternate director shall vacate the office if DIRECTOR
and when the original director returns to India. Note
that if the term of office of the original director is
determined before he so returns to India, any
provision for the automatic re-appointment of retiring
directors in default of another appointment shall
apply to the original, and not to the alternate director.
 The provisions of section 161(3) of the Companies
Act, 2013 deals with the provisions related to the
appointment of nominee director of a company. Sub- APPOINTMENT OF
section (3) of Section 161 of the CA 2013 came into NOMINEE DIRECTOR
force on 12th September, 2013 vide Notification No. IN A COMPANY
S.O. 2754(E) dated 12-09-2013. Note that there was
no provision for the appointment of nominee director
in the Companies Act, 1956.
 That means this is a new section inserted in the CA
2013 for the appointment of Nominee directors.
 Subject to the articles of a company, the Board of
Directors (BOD) may appoint any person as a WHO SHALL
director nominated by:
APPOINT NOMINEE
 Any Institution in pursuance of the provisions of any DIRECTOR
law for the time being in force or of any agreement;
or
 The Central Government (CG) or the State
Government (SG) by virtue of its shareholding in a
Government company.
 Section 161(4) of the Companies Act, 2013 deals with the
provisions related to the casual vacancy of directors in a CASUAL VACANCY
public company.
OF DIRECTOR IN A
 This section came into force on 12th September, 2013 PUBLIC COMPANY
vide Notification No. S.O. 2754(E) dated 12-09-2013.
Section 161(4) of CA 2013 corresponds to the section 262
of the Companies Act, 1956 i.e. Filling of casual
vacancies among directors. Section 161(4) of the Companies Act,
2013
 In compliance with the provisions of section 161(4) of the
CA 2013, if the office of a public company director
appointed in GM is vacated before his term of office
expires in the normal course, then such casual vacancy
shall be filled by the BOD in BM of the company.
 However, such casual vacancy of director shall be
filled in default of and subject to any regulations in CASUAL
the articles of the company. Note that such appointed VACANCY OF
person shall hold office only up to the date up to DIRECTOR IN A
which the director in whose place he is appointed
would have held office if it had not been vacated. PUBLIC
COMPANY
Section 161(4) of the Companies Act,
2013
 Under the old Companies Act, 1956, the provisions for
such Casual Vacancy was applicable to Public company or
a Private company which is a subsidiary of a public
company. However, under the new Companies Act, 2013,
it has been provided that the provision related to the
Casual Vacancy is applicable to only public company.
 According to Section 162 –Sub-section (1)

 At a general meeting of a company, a motion for

the appointment of two or more persons as
directors of the company by a single resolution shall
not be moved unless a proposal to move such a
motion has first been agreed to at the meeting APPOINTMENT OF
without any vote being cast against it. DIRECTORS TO BE
VOTED INDIVIDUALLY |
SECTION 162 |
COMPANIES ACT, 2013
 In General, the appointment of directors is done
in the General meeting of the Company by
passing Ordinary Resolution.
 If a company wants to appoint 5 directors in the
general meeting, it has to pass 5 ordinary
resolutions for their appointment i.e. one
resolution for the appointment of one director.
 XYZ Ltd. wants to appoint Mr. V, Ms. P Mr. VG, Ms. PQ & Mr.
VG in the General Meeting of the Company.
 Notice for the same has been sent to all the 10 members of
the Company. Now, out of the 10 members, 7 members
come to attend the general meeting of the company.

Pass a motion for the appointment of directors by a single

resolution.

We need to make sure that each of the shareholders present

in the general meeting cast vote in favor of the motion. Even
if 1 out of 7 members presents cast vote against the motion.
The appointment by a single resolution will not be done.
 If a motion is moved, then the appointment of directors by a
single resolution can be passed if it gets the majority votes.
 Section 162(2) A resolution moved in contravention
of sub-section (1) shall be void, whether or not any
objection was taken when it was moved.
 Section 162(3) A motion for approving a person for
appointment, or for nominating a person for
appointment as a director, shall be treated as a
motion for his appointment.
 Section 163 of the Companies Act, 2013 in India
APPOINTMENT
provides for the appointment of directors by OF DIRECTORS
proportional representation. This section sets out the BY
rules for appointing directors to the board of directors PROPORTIONAL
in companies where there are multiple classes of
shares with different voting rights. REPRESENTATIO
 Under this section, the board of directors of a
N
company can appoint additional directors in SECTION 163

accordance with the proportion of shares held by

each class of shareholders. This means that the
number of directors appointed from each class of
shareholders would be proportional to the number of
shares held by that class.
 For example, if Class A shareholders hold 60% of the
company's shares and Class B shareholders hold
40%, then the board could appoint 3 directors from
Class A and 2 directors from Class B. This would
ensure that each class of shareholders is represented
on the board in proportion to their investment in the
company.
 The purpose of this system is to ensure that all
stakeholders have a say in the decision-making
process of the company and that the interests of all
shareholders are considered. This system can also
help to promote diversity on the board and ensure
that the company is run in a manner that takes into
account the interests of all stakeholders.
 It's important to note that the appointment of
directors by proportional representation under section
163 of the Companies Act, 2013 is subject to certain
restrictions and conditions. For example, the total
number of directors appointed in this manner cannot
exceed one-third of the total strength of the board.
Additionally, the Companies Act requires that the
appointed directors should meet certain qualifications
and should not have any disqualifications under the
Act.
 Ordinarily, directors are appointed by simple majority votes
on the resolution moved for their appointment. As a result
majority shareholders controlling 51% or more votes may
elect all directors and a substantial minority as high as 49%
may find no representation on the Board.
 In order to enable the minority shareholders to have a
proportionate representation, Section 163 of the Companies
Act, 2013 gives an option to companies to appoint directors
SECTION 163
through a system of proportional representation.
 The section provides that a company may provide in its
articles for the appointment of not less that 2/3 rd of the
total directors according to the principle of P.R. by single
transferable vote or some system of cumulative voting
 Such appointment shall be made once in every three years.
 Second proviso to Section 149(1) read along with
Rule 3 of AQD Rules, 2014 require appointment of
atleast one woman director on the Board of the
following class of companies:
 Every listed company WOMAN
 Every other public company having DIRECTOR
Section 149 (1)
 Paid up share capital of 100 crore rupees or more;

 Turn over of three hundred crore rupees or more

 Section 2(54) defines ‘managing director’ to mean a
director who, by virtue of the articles of a company
or an agreement with the company or a resolution
passed in its general meeting, or by its Board of
Directors, is entrusted with substantial powers of
management of the affairs of the company and MANAGING
includes a director occupying the position of DIRECTOR
managing director, by whatever name called. Appointment and Disqualification
under the Companies Act, 2013
 Explanation.—For the purposes of this clause, the
power to do administrative acts of a routine nature
when so authorised by the Board such as the power
to affix the common seal of the company to any
document or to draw and endorse any cheque on
the account of the company in any bank or to draw MANAGING
and endorse any negotiable instrument or to sign DIRECTOR
any certificate of share or to direct registration of Managing director
transfer of any share, shall not be deemed to be
included within the substantial powers of
management;
 The definition makes it clear that the managing director’s
powers of managing the affairs of the company must be
substantial.
 The Act also states that substantial powers of the managing
director do not include the power to do administrative acts
that are of a routine nature authorised by the board, such as
the following:
• Power to affix the company’s common seal on any document.

• Draw and endorse cheque on the company’s account in any

bank. 
• Draw and endorse a negotiable instrument.

• Sign any share certificate.

• Direct registration of transfer of a share.

 The executive management of a company is
responsible for the day to day management of a
company. The companies Act, 2013 has used the
term key management personnel to define the
executive management.
 The key management personnel are the point of first
contact between the company and its stakeholders.
While the Board of Directors are responsible for
providing the oversight, it is the key management
personnel who are responsible for not just laying
down the strategies as well as its implementation.
 Chapter XIII of the Companies Act, 2013 read with
Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014 deal with the legal and
procedural aspects of appointment of Key Managerial
Personnel including Managing Director, Whole-time
Director or Manager, managerial remuneration, secretarial
audit etc.
 Key Managerial Personnel

 The Companies Act, 2013 has for the first time recognized
the concept of Key Managerial Personnel. As per section
2(51) “key managerial personnel”, in relation to a company,
means— (i) the Chief Executive Officer or the managing
director or the manager; (ii) the company secretary; (iii)
the whole-time director; (iv) the Chief Financial Officer;
and (v) such other officer as may be prescribed
 Section 2 (94) of the Companies Act, 2013 defines
“whole-time director” as a director in the whole-
time employment of the company.
Manager
 Section 2(53) of the Companies Act, 2013 defines
WHOLE TIME
“manager” as an individual who, subject to the DIRECTOR
superintendence, control and direction of the Board
of Directors, has the management of the whole, or
substantially the whole, of the affairs of a company,
and includes a director or any other person
occupying the position of a manager, by whatever
name called, whether under a contract of service or
not
 Chief Executive Officer & Chief Financial Officer

 Section 2(18)/(19) of the Companies Act, 2013

defined “Chief Executive Officer”/ “Chief Financial
Officer” as an officer of a company, who has been
designated as such by it;
 Company Secretary Section 2(24) of the Companies
Act, 2013 defines “company secretary” or
“secretary” means a company secretary as defined in
clause (c) of sub-section (1) of section 2 of the
Company Secretaries Act, 1980 who is appointed by
a company to perform the functions of a company
secretary under this Act;
 Section 196 of the Companies Act, 2013 provides
that no company shall appoint or employ at the
same time a Managing Director and a Manager. APPOINTMENT OF
Further, a company shall not appoint or reappoint MANAGING
any person as its Managing Director, Whole Time DIRECTOR, WHOLE-
Director or manager for a term exceeding five years TIME DIRECTOR OR
at a time and no reappointment shall be made MANAGER
earlier than one year before the expiry of his term.
 Section 196(4) of the Companies Act, 2013 provides
that subject to the provisions of section 197 and
Schedule V, a managing director, whole-time director
or manager shall be appointed and the terms and
conditions of such appointment and remuneration
payable be approved by the Board of Directors at a
meeting which shall be subject to approval by a
resolution at the next general meeting of the
company and by the Central Government in case
such appointment is at variance to the conditions
specified in Schedule V. Approval of the Central
Government is not necessary if the appointment is
made in accordance with the conditions specified in
Schedule V to the Act.
 Therefore, the appointment of a managing director
or whole-time director or manager and the terms
and conditions of such appointment and
remuneration payable thereon must be first
approved by the Board of directors at a meeting and
then by an ordinary resolution passed at a general
meeting of the company.
 A notice convening Board or general meeting for
considering such appointment shall include the
terms and conditions of such appointment,
remuneration payable and such other matters
including interest, of a director or directors in such
appointments, if any.
 Section 196(5) provides that subject to the
provisions of this Act, where an appointment of a
managing director, whole-time director or manager
is not approved by the company at a general
meeting, any act done by him before such approval
shall not be deemed to be invalid.
 As per section 200, the Central Government or a
company may, while according its approval under section APPOINTMENT
196, to any appointment of a managing director, whole- WITH THE
time director or manager, the Central Government or the
company shall have regard to— APPROVAL OF
 the financial position of the company; CENTRAL
 (b) the remuneration or commission drawn by the
GOVERNMENT
individual concerned in any other capacity;
 (c) the remuneration or commission drawn by him from
any other company;
 (d) professional qualifications and experience of the
individual concerned;
 (e) such other matters as may be prescribed
 As per Rule 6 for the purposes of item (e) of section 200,
the Central Government or the company shall have regard
to the following matters while granting approval to the
appointment of managing director under section 196: (1)
Financial and operating performance of the company
during the three preceding financial years. (2) Relationship
between remuneration and performance. (3) The principle
of proportionality of remuneration within the company,
ideally by a rating methodology which compares the
remuneration of directors to that of other executive
directors on the board and employees or executives of the
company. (4) Whether remuneration policy for directors
differs from remuneration policy for other employees and if
so, an explanation for the difference. (5) The securities held
by the director, including options and details of the shares
pledged as at the end of the preceding financial year.
 Section 196(3) of the Act makes a specific
prohibitory provision with regard to the appointment
of managing director, whole time director or
manager. The section lays down that no company
shall appoint or continue the employment of any
person as its managing director, whole time director DISQUALIFICATI
or manager who— (a) is below the age of twenty- ONS
one years or has attained the age of seventy years:
Provided that appointment of a person who has
attained the age of seventy years may be made by
passing a special resolution in which case the
explanatory statement annexed to the notice
 for such motion shall indicate the justification for appointing
such person; (b) is an undischarged insolvent or has at
anytime been adjudged as an insolvent; (c) has at any time
suspended payment to his creditors, or makes, or has at any
time made, a composition with them; or (d) has at any time
been, convicted by a court of an offence and sentenced for a
period of more than six months.
 (c) he has completed the age of 21 years and has not attained
the age of 70 years: Provided that where he has attained the
age of 70 years; and where his appointment is approved by a
special resolution passed by the company in general meeting,
no further approval of the Central Government shall be
necessary for such appointment; (d) where he is a managerial
person in more than one company, he draws remuneration
from one or more companies subject to the ceiling provided
in section V of Part II; (e) he is resident in India.
 Under sections 196 and 203 of the Companies Act,
2013, appointment includes reappointment.
Reappointment of a managing director of a company
must be taken for consideration before the expiry of REAPPOINTMEN
his term of office. If the reappointment of the
managing director is approved and if it is not in T OF MANAGING
accordance with the conditions specified in Schedule DIRECTOR
V then the approval of the Central Government must
be obtained for such reappointment. Rest of the
provisions for reappointment of a managing director
are same as in the case of appointment of a
managing director.
 Section 203 of the Companies Act, 2013 read with
Rule 8 mandates the appointment of Key Managerial
Personnel and makes it obligatory for a listed APPOINTMENT
company and every other public company having a OF KEY
paidup share capital of rupees ten crores or more, to
appoint following whole-time key managerial MANAGERIAL
personnel: (i) managing director, or Chief Executive PERSONNEL
Officer or manager and in their absence, a whole-
time director; (ii) company secretary; and (iii) Chief
Financial Officer:
 Every whole-time key managerial personnel of a
company shall be appointed by means of a
resolution of the Board containing the terms and
conditions of the appointment including the
remuneration. An individual shall not be appointed
or reappointed as the chairperson of the company,
as well as the managing director or Chief Executive
Officer of the company at the same time unless the
articles of such a company provide otherwise; or the
company does not carry multiple businesses.
However, such class of companies engaged in
multiple businesses and which has appointed one or
more Chief Executive Officers for each such business
as may be notified by the Central Government are
exempted from the above.
 A whole-time key managerial personnel shall not
hold office in more than one company except in its
subsidiary company at the same time. However, he
can hold such other directorship with the permission
of the Board. A whole-time key managerial
personnel holding office in more than one company
at the same time, shall, within a period of six months
from such commencement, choose one company, in
which he wishes to continue to hold the office of key
managerial personnel.
 A company may appoint or employ a person as its
managing director, if he is the managing director or
manager of one, and of not more than one, other
company and such appointment or employment is
made or approved by a resolution passed at a
meeting of the Board with the consent of all the
directors present at the meeting and of which
meeting, and of the resolution to be moved thereat,
specific notice has been given to all the directors
then in India. If the office of any whole-time key
managerial personnel is vacated, the resulting
vacancy shall be filled-up by the Board at a meeting
of the Board within a period of six months from the
date of such vacancy