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Disqualification of Managing Director

Disqualification of Managing Director

Disqualification of Managing Director

Role of a Managing Director of a Company

The Companies Act of 1956 recognized and defined managing director or whole-time director, but the Companies Act, 2013, has widened the concept and termed such positions as ‘Key Managerial Personnel’. This has been done keeping in line with global trends and it covers not only Managing Director or Whole-time Director but also Chief Financial Officer, Chief Executive Officer, and Company Secretary.

As per Section 2(54) of the Companies Act, 2013, a “Managing Director” means 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 includes a director occupying the position of managing director, by whatever name called.

In other words, a Managing Director is someone who is entrusted with substantial powers to take decisions related to the company, and also sees as well as manages, the operations of the company.

Appointment of a Managing Director In a Company

Companies Act, 2013, lays down the terms and conditions for the appointment of a Managing Director. As a Managing Director is a station above the directors, therefore it is but natural that the qualification and disqualification of directors simply do not apply on them, there are much more stringent norms and rules to be followed.

These terms and conditions vary depending on whether it is a public company or a subsidiary of a public company or a purely private company. The qualification which is applicable to all is that.

He must be an individual; this means a corporate or an association or a firm or any such artificial legal personality cannot be appointed.

The tenure of a Managing Director is fixed at 5 years maximum.

Disqualification of a Managing Director of a Company

Section 196(3) of the Companies Act, 2013, mandates that a company shall not appoint, or continue the employment of any person as Managing Director, Whole-time Director or Manager if he falls under any of the following conditions.

  1. If the person is below 21 years or has attained 70 years of age; although a person above 70 years of age can be appointed by a special resolution.
  2. If the person is an undischarged insolvent or has at any time been adjudged an insolvent.
  3. If he has at any time suspended payments to his creditors or makes, or has at any time made a composition with them.
  4. If he has any time been convicted by a court for an offence and sentenced for more than a period of six months.
  5. If he has been sentenced to imprisonment for any period, or to a fine exceeding one thousand rupees, for the conviction of an offence under various Acts as mentioned under section 196 (3) of the Companies Act, 2013.

These regulations are more severe and exacting than those of disqualification of an ordinary director and in addition, they are absolute and mandatory in nature.

The Final Word

The post of Managing Director carries immense responsibility and demands that the person holding the office performs his duty diligently and honestly. He should not only promote the best interests of the company but also exert his independent judgement while exercising his duties! He should foster confidentiality and avoid conflict of interests at all times while working in sensitive matters. It also is expected of him to lead from the front and keep the team motivated in order to achieve healthy growth.

“The higher the post, more power is invested, but along with it comes additional responsibility; therefore, in proportion, the penalty and retribution are more harsh and severe!”
-Shweta Gupta, Founder and CEO, MUDS

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