Friday, June 13, 2014

Appointment of Managing Director

Appointment of Managing Director
  1. Every Public company having a paid up share capital of Rs. 5.00 crores or more must appoint a Whole time director or Managing Director. 
  2. A managing Director must essentially be a Director of the Company. In case the proposed MD is not a Director he must be appointed as Additional Director.
  3. Being an Additional director he will assume the office of Director till the next AGM, wherein he has to be reappointed.
  4. Managing director can be appointed for the period of 5 years. [Sec. 317]
  5. A copy of Board resolution appointing MD should be filed with the ROC within 30 days. [Sec. 192 (1)]
  6. Section 269 applies to every Public Company and Pvt. Co. which is a subsidiary of Pub. Co.
  7. After appointment of MD form 25-C should be to be filed as specified u/s 269(2) within 90 days of appointment.
  8. In case of omission of filing such form the appointment does not become void.
  9. Schedule XIII specifically provides that appointment of MD should be approved by shareholders in General meeting.
  10. Approval of Central Govt. is necessary in case the appointment is not according to Sch. XIII. An application in form 25A has to be submitted within 90 days of such appointment. U/s 269(6), even in case Central Govt. rejects the appointment, the individual can continue occupying the position by payment of Fine / Penalty.
  11. The above-mentioned provisions do not apply to Pvt. Company.
  12. There is no restriction on Remuneration payable to MD of a Pvt. Company.
  13. Restrictions on Appointment: An individual cannot be managing director or manager of more than two companies, public or private, where out of two companies at least one is a public company or private company, which is a subsidiary of a public company. An individual may hold the office of managing director or manager in any number of private companies, which are not subsidiaries of public company. But if the office is held in a public company or a private company which is subsidiary of a public company, the same individual can not, in addition thereto, hold the office of managing director in more than one company whether such company is a public company or private company which is subsidiary of public company or any private company. (Section 316) 
  14. Terms of Office: The term of office of a managing director must not exceed 5 years at a time. The term, however, may be extended for further period not exceeding 5 years at a time. (Section 317) 
  15. It is important to note that the person ceases to be managing director with a censure of directorship on account of his retirement by rotation at the Annual General Meeting. But if such a person is re-elected as director at the AGM and thereby he continues as the director of the company, he shall continue as a managing director also for the period for which he is so elected by the AGM and for the unexpired period of present term of appointment as managing director.
  16. Disqualifications for appointment: A managing director must be a director and therefore, all the disqualifications rendering impossibilities for the appointment of a person as director (Section 274) will apply in the case of appointment of a managing director. Section 267 specifically provide that company must appoint or continue the appointment of a person as managing or whole time director who is: 
    1. An undischarged insolvent or has at any time been adjudged insolvent; 
    2. Suspends or has at any time suspended payment to his creditor or has made a composition with them or 
    3. Has at any time been convicted of an offence involving moral turpitude. Meaning of the term moral turpitude: According to American encyclopedia of Law, it comprises anything contrary to justice, honesty, and principle of good morals, an act of baseness, vileness or depravity in the private and social duties, which a man owes to his fellowmen or society in general. The term also comprises anything contrary to the accepted and customary rule of right and duty between humans. 
  17. u/s 117(3) of the Companies Act 2013 any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a Managing Director needs to be re filed with ROC within 30 days of passing the same.

    Sunday, June 01, 2014

    Buy Back of shares under Companies Act 2013

    Section 68(1) of the new Act, deals with the issue of ‘buy-back’. The corresponding provision in the old Act is Section 77A. There has been no significant change in the laws regarding buy-back. The changes have only been in terms of
    • the procedure of odd-lots applicable to listed stocks: The same has been done away with and 
    • the punishment for contravening the section has been enhanced.
     The old Act provided that any offer of buy-back cannot be made within a period of 365 days reckoned from the date of the preceding offer of buy-back. Under the new Act, this period of 365 days has been provided as one year which has to be reckoned from the date of the closure of the preceding offer of buy-back. Furthermore, Rule 17 of the Companies (Share Capital and Debentures) Rules, 2014 also makes certain deviations from the erstwhile Private Limited Company and Unlisted Public company (Buy Back of Securities) Rules,1999 prescribed under the old Act in respect of buy-back. These are-

    1. Vide rule 17(1)(n)(iii) the new Act requires that a report addressed to the Board of directors by the company’s auditors should state that the audited accounts on the basis of which calculation for the purpose of buy-back is made, is not more than six months old from the date of the Offer Document;
    2. Rule 17(14) of the Companies (Share Capital and Debentures) Rules, 2014 requires that a Certificate of Compliance in respect of buy-back of securities has to be annexed to the return filed with the Registrar in Form No. SH.11. This Certificate of Compliance has to be signed by two directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and the rules made thereunder. The above requirement was there in the old Act.