Section 2(26) of
Companies Act, 1956 defines "Managing Director".
Whole-Time Director is not defined in the companies Act but given Explanation for "Whole-Time Director" under section 269 of the Companies Act, 1956
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Section 255 of Companies
Act, 1956 provides that not less than two-thirds of the total number of
directors (of a Public Company or its subsidiary) shall be liable to retire
by rotation, unless the Articles of Association provide for the retirement of
all directors at every Annual General Meeting.
It is common that the Articles of
Association of the Public Companies provide that the Managing Director or Whole-Time Director shall
not liable to retire by rotation so long as he hold the position of Managing
Director.
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If a Managing Director or Whole-Time Director, who is appointed for a fixed
term(may be three years), is liable to retire by rotation, a situation may
arise that at an Annual General Meeting, he would retire by rotation and
reappointed at the same meeting. So as soon as his retirement at the Annual
General Meeting and before his reappointment, he might deem as not occupying
the position of a Director and hence the office of Managing Director. That
is, there is a break to his appointment as a Managing Director. So the
question is whether he is to be reappointed.
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In this regard department
of Corporate Affairs, through letter no. 8/16(1)/61-PR, dated 9-5-1961
clarified as follows.
A
Managing Director’s office as Managing Director does not suffer any break if
he retires as a Director under Section 255 of the Act and is re-elected as a
Director in the same meeting. In such case, the approval of the Government
would not be necessary for five years where the terms of appointment of a
Managing Director have already been approved by the Government for that
period.
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Some
important points regarding the position Managing Director or Whole-Time Director:
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1.
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A Managing Director or Whole-Time Director is
both a Director and employee of the Company.
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2.
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If the Articles of
Association give power to the directors to appoint one among them as Managing
Director, the members cannot exercise that power.
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Thomas Logan Limited v. Davis (1911)
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3.
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The capacity of Managing
Director cannot be terminated by sending resignation. It becomes effective
only when the Company accepts the resignation and relieves him from his
duties.
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Achutha Pai v. Registrar of Companies
(1966).
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4.
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A Managing Director,
being in charge of the management of the Company’s affairs, enjoys the power
to vary the duties of employees within permissible limits.
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V.Ramaswami v. Madras Times Printing &
Publishing Co. (1917)
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5.
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If the Company has
borrowing powers, Managing Director has the authority to authenticate
promissory notes on behalf of the Company.
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Kumar Krishna Rohatagi v. State Bank of India (1980)
In general Practice, Managing and Whole Time Directors
come under the 1/3rd non retiring directors list as per section 255 of the
Companies Act,1956.
