Appointment & Remuneration of Managerial Personnel

Question 1

‘X’ was appointed as MD for life by the AOA of a private company incorporated on 1st June, 2016. Examine in this connection, Can ‘X’ be appointed for life as MD?

OR

Mr. P is proposed to be appointed as manager for life by the AOA of S Pvt Company incorporated on 1st June, 2015. Examine in the light of Companies Act, 2013, whether such an appointment is valid.

OR

‘X’ was appointed as MD for life by the AOA of a private company incorporated on 1st June, 2005. The articles also empowered ‘X’ to appoint a successor. ‘X’ appointed by will ‘G’ to succeed him after his death.
Examine in this connection:
(i) Can ‘G.’ succeed ‘X’ as MD after the death of ‘X’?
(ii) Is It possible for the company in GM to remove ‘X’ from his office of directorship during his life time?

Answer 1

The given problem relates to section 196 of the Companies Act, 2013, as discussed below:

Provision of Law:
1. As per section 196(2), no company shall appoint or re-appoint any person as its MD, WTD or manager for a term exceeding 5 years at a time.
–> This condition applies to all companies, whether public or private.

2. As per section 196(4), the terms and conditions of the appointment of a MD, WTD or manager and the remuneration payable to him shall be -
   (a) approved by the Board of directors at a meeting;
   (b) approved at a GM held immediately after the approval by the Board; and
   (c) approved by the CG, in case such appointment is at variance to the conditions specified in Part I of Schedule V.
3. However, the provisions of section 196(4) shall not apply to a private company if it has not committed any default in filing with the Registrar its FS u/s 137 or annual return under section 92.

Ans. to Case I.
The given case and analysis of the case:

1. Mr. X was appointed as the MD for life in accordance with the articles of a private company.
2. Such appointment is in contravention of section 196(2).
3. Further, if the private company which has appointed Mr. X as the MD has committed any default in filing with the Registrar its FS u/s 137 or annual return under section 92, there would be contravention of section 196(2) as well as section 196(4).

Conclusion:
4. The appointment of Mr. X as the managing director for life is not valid.

Ans. to Case II.
The given case and analysis of the case:
1. Mr. X was appointed as the MD for life in accordance with the articles of a private company.
2. Such appointment is in contravention of section 196(2).
3. Further, if the private company which has appointed Mr. X as the MD has committed any default in filing with the Registrar its FS u/s 137 or annual return under section 92, there would be contravention of section 196(2) as well as section 196(4).
4. The appointment of Mr. X as the MD for life is not valid.
5. Since the appointment of Mr. X as the MD is not valid, he is not entitled to name Mr. G as his successor for the position of MD.

Conclusion:
(i) Mr. G cannot succeed Mr. X as the MD, after the death of Mr. X.
(ii) Had Mr. X been validly appointed as the MD, it would have been possible for the company to remove him before the expiry of his term, in accordance with the provisions of section 169.

–> Section 169 empowers a company (whether public or private) to remove any director (including a MD) by passing an OR and after giving a reasonable OOBH to the director concerned. A special notice (in accordance with the provisions of section 115) has to be given to the company for such removal.