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Thursday, January 3, 2008

require the approval of the Central Government? What are the consequences, if such approval

Section 2(26) defines ‘managing director’ as a director who, by virtue of an

agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors or by virtue of its Memorandum or

Articles of Association, is entrusted with substantial powers of management which would not otherwise be exercisable by him. The expression includes a

director occupying the position of a managing director, by whatever name called.

The definition makes it clear that the managing director’s powers of managing the affairs of the company must be substantial. The power to do

administrative acts of routine nature 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 sign any certificate of share shall not be deemed to be included within substantial powers of management.

The managing director shall exercise his powers subject to the superintendence,

control anQ direction of the Board of Directors.

Some of the important legal provisions relating to managing directors are:

1. He, being a director, must be an individual.

2. He is appointed by the Board of Directors usually to perform such functions and carry out such duties as may be assigned to him by the Board of

Directors to whom he is responsible or subject. The Board can revoke the authority of the managing director.

3. There can be two or more than two managing directors in a company.

4. Approval of the Central Government shall be necessary in case the conditions

as laid down in Schedule XIII are not satisfied. The Government may subject its approval to any conditions, that it may deem fit.

In case the approval is not granted by the Central Government (the application for which must have been made within 90 days of the appointment) the

appointee shall vacate the office immediately on communication of the decision of the Central Government to the company [Sec. 269(6)].

5. As per Section 316, a person cannot be appointed as a managing director of more than two companies without the approval of the Central Government.

6. Section 269, as amended by the Companies (Amendment) Act, 1988 requires that every public company and/ or private company which is subsidiary of

a public company having a paid-up share capital of not less than Rs. 5 crores must appoint a managing director/manager /wholetime director.

7. The term of office of a managing director cannot exceed 5 years at a time. Also re-appointments or extension can be made on the basis of 5 years

tenure on each occasion [Sec. 317]. However, re-appointment cannot be made earlier than 2 years from the date on which it is to come into force.

8. A managing director may be remunerated either by way of a monthly payment or as a specified percentage of the net profits of the company or partly

by one way and partly by the other. However, such remuneration should not

exceed 5 per cent of the net profits without the sanction of the Central Govenunent. Where there are more than one managerial personnel, the

remuneration to all of them must not exceed 10 per cent of the net profits without sanction of the Central Government [Sec. 309].

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