Corporate Law-I

CONTENTS
TABLE OF AUTHORITIES ................................................................................................... 2
Cases ...................................................................................................................................... 2
INTRODUCTION .................................................................................................................... 6
Appointment of Managing Directors ...................................................................................... 8
Removal .............................................................................................................................. 15
Qualifications/Disqualifications ........................................................................................... 18
Remuneration .......................................................................................................................... 21
Applicability ....................................................................................................................... 25
By way of Stock options .................................................................................................... 26
Director’s Right to remuneration ...................................................................................... 28
Manager vis-à-vis a Managing Director .............................................................................. 31
List of Pay Structures in Leading Companies ..................................................................... 37
CONCLUSION ....................................................................................................................... 51
Bibliography ........................................................................................................................... 53
TABLE OF AUTHORITIES
CASES
1. A.K. Khosla v. T.S. Venkatesan, (1992) 1 CALLT 77 HC (Calcutta High Court).
2. A.S. Gill v State of Punjab, (2006) 133 Comp Cas 759.
3. Achutha Pai v. Registrar of Companies, (1966) 36 Com Cases 598 (High Court
of Kerala).
4. Anderson v. James Sutherland (Peterhead) Ltd., 1941 SC 203 (Scottish Court of
Session).
5. Ashok Mittal v. Ram Parshotam Mittal, (2008) 149 Com Cases 11 (Delhi High
Court).
6. Avnish Bajaj v State (2005) 3 CompLJ 364 Del.
7. Bank of Maharashtra v Racmann Auto P Ltd (1992) 74 Com Cases 752.
8. Bennet, Coleman and Co. Ltd. v. Union of India, (1993) 78 Com Cases 666
(Supreme Court of India).
9. Biggerstaff v Rowatt’s Warf Ltd. [1896] 2 Ch 93.
10. Bluett v Stutchberry’ Ltd (1908) 24 TLR 469
11. Boschoek Proprietory Co. Ltd., v. Fuke, (1906) 1 Ch 148 (Chancery Division).
12. CIT, Kerala v. Alagappa Textiles (Cochin) Ltd., (1979) 49 Com Cases 947
13. CIT v M.S.P. Rajes, (1993) 77 Com Cases 402.
14. Chandigarh Tourist Syndicate Ltd. Re (1978) 48 Com Cases 267.
15. Craven Ellis v. Cannons Ltd., (1936) 2 KB 403 (King’s Bench Division).
16. Deen Dayalu v. Sri Bezwada Papi Reddy, (1984) 2 Comp LJ 396 (AP).
17. Dry v Pullinger Engineering Co., [1921] 1 KB 77.
18. Freeman and Lockyer v Buchurst Park Properties Ltd, [1964] 2 QB 480.Foster v.
Foster, (1917) All ER Rep 856 (Chancery Division).
19. Harold Holdsworth and Co. (Wakefield) Ltd. v. Caddies, (1955) 1 All ER 725
(House of Lords).
20. Indian Molasses Co. Pvt. Ltd. v. CIT, AIR 1959 SC 1049 (Supreme Court of
India).
21. Jayesh Ramniklal Doshi v. Carbon Corpn. Ltd., (1993) 76 Com Cases 748
(Bombay High Court).
22. John Shaw & Sons v Shaw, (1935) 2 KB 113.
23. Jyotirmoy Dey v. Dacca Picture Palace Ltd., MANU/WB/0304/1962 (Calcutta
High Court).
24. K.K. Ahuja v V.K. Vora, AIR 2011 SC 2259.
25. K.S. Sundaram v. Union of India, (2004) 119 Comp Cas 69 (Madras High
Court).
26. Kumar Krishna Rohatgi v State Bank of India, (1980) 50 Com Cases 722.
27. Life Insurance Corporation of India v. Escorts Ltd., (1986) 59 Com Cases 548
28. M.R. Pratap v V.M. Muthukrishnan, ITO (1992) 74 Com Cases 400.
29. Major R.S. Murgai v. Ex Servicemen, Airlink Transport Services (P) Ltd. (2001).
30. Maksud Saiyed v State of Gujarat, (2008) 5 SCC 668

31. Meenakshi Mills v. V. Vishvanatha Sastri, AIR 1955 SC 13 (Supreme Court of
India).
32. Montreal Public Service Co v Champagne, (1916) 33 DLR 49.

33. Morarji and Co. v. Sholapur and Co., (1944) 14 Com Cases 59 (Bombay High
Court).
34. Morrell v. Oxford Portland Cement Co. Ltd., (1910) 26 TLR 682 (Chancery
Division).
35. Motilal Shivlal v. Poona Cotton Mfg. Co. Ltd., AIR 1915 PC 69 (Bombay High
Court).
36. Nelson v. James Nelson and Sons (1915) All ER Rep 433 (Court of Appeal).
37. Nell v. Atlanta, (1895) 11TLR 407 (Court of Appeal).
38. Neufeld v Secretary of State 2009 2 B.C.L.C
39. Newspaper Proprietary Syndicate Ltd., Re, (1900) 2 Ch 349 (Chancery
Division).
40. Panorama Developments Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711.
41. Pyare Lal Gupta v. D.P. Agarwal [1983] 53 Comp. Cas. 586 (Allahabad High
Court).
42. Rama Corporation Ltd v Proved Tin and General Investments, [1952] 2 QB 147.
43. Ram Pershad v The Commissioner of Income Tax, New Delhi, [1972]
42CompCas 544 (SC ).
44. Ramesh Narang v. Rama Narang, 1995 83 Com Cases 194 (Supreme Court of
India).
45. Rampur Distillery and Chemical Co. Ltd. v. Company Law Board, (1970) 40
Com Cases 916 (Delhi High Court).
46. Raymon Engg. Works v. Union of India, AIR 1970 Delhi 5 (Delhi High Court).
47. Read v. Astoria Garage (Streatham) Ltd. (1952) 2 All ER 292 (Court of Appeal).
48. Reliance Jute and Industries Ltd., Re, (1983) 53 Com Cases 591 (Calcutta High
Court).
49. Richmond Gate Property Co. Ltd., Re, (1964) 3 All ER 936 (Court of E ngland
and Wales).
50. Risal Singh v. Chandgi Ram, AIR 1966 Punj 393 (Punjab-Haryana High Court).
51. S.S. Lakshmana Pillai v. Registrar of Companies, (1977) 47 Comp Cas 652
(Madras High Court).
52. Sardar Gulab Singh v. Punjab Zamindara Bank Ltd., (1941) 11 Com Cases 301
53. Saroj Kumar Poddar v. State (NCT) of Delhi and Anr, 2007 (2) SCC (Cri) 135
54. Schindler v Northern Raincoat CO [1960] 2 All ER 239.
55. Shuttleworth v Cox Bros & Co. Ltd. [1927] 2 KB 9.
56. Sinha Watches (India) P. Ltd v Gujurat State Finance Corporation (1985)58 Com
Cases 489 (Guj)
57. Sishu Ranjan Dutta v Bhola Nath Paper House Ltd. (1983) 53 Com Cases 883
(Cal)
58. Southern Foundries Ltd v Shirlaw, [1940] AC 70.
59. Surve Kedarappa vs D.G. Bhimappa, AIR 1959 Kant 36
60. Sridhar Sundararajan v. Ultramarine & Pigments Limited, (2015) 192 Comp Cas
355 (Bombay High Court).
61. Subhash Chand Agarwal v. Associated Limestone Ltd., (1998) 92 Comp Cas 525
(Company Law Board).
62. Swabey v. Port Darwin Gold Mining Co., (1889) 1 Meg 385 (Court of Appeal).
63. Swapan Das Gupta v. Navin Chand Suchanti, (1988) 64 Com Cases 562, 582
(Calcutta High Court).
64. T.R. Pratt (Bombay) Ltd. v E,D, Sasoon & Co. Ltd. (1936) 6 Com Cases 90
65. T. Murari v. State, (1976) 46 Comp Cas 613 (Madras High Court).
66. Thomas Logan Ltd. v. Davis, (1911) 104 LT 914 (Chancery Division).
67. Wasava Tyres Partnership Firm v. The (Printers) Mysore Ltd.,
MANU/KA/8543/2006 (High Court of Karnataka).
68. Woolf v. East Nigel Gold Mining Co. Ltd., (1905) 21 TLR 660 (Court of
Appeal).
69. V. Ramaswami v Madras Times Printing & Publishsing, AIR 1917 Mad 485.
70. Varey Souriar v Keraleeya Banking CO., (1957) 27 Com Cases 591.
71. Vinod Kumar Mittal v, Kaveri Lime Industries Ltd., (2000) 2 Comp LJ 354
STATUTES
1. Banking Regulations Act, 1949.
2. Specific Relief Act, 1963.
3. Code of Civil Procedure, 1908.
4. Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014.
5. Companies (Meeting of Board and its Powers) Rules, 2014.
6. Companies Act, 1956.

7. Companies Act, 2013.
8. Companies Act (U.K.), 1948.
9. Companies Act (U.K.), 2006.
10. Companies (Share Capital and Debentures) Rules, 2014.
11. Income Tax Act, 1961.
12. Indian Penal Code, 1860.
13. Information Technology Act
14. SEBI Guidelines on Corporate Governance, 2005.

15. S ECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND
DISCLOSURE R EQUIREMENTS ) R EGULATIONS , 2015 available at

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1441284401427.pdf (Last
visited on December 2, 2016).
INTRODUCTION
Majority of the business activities are conducted by corporate bodies. The actions of
these corporate bodies have a huge impact on the environment, the market, the society
and affect almost everyone in one way or the other. Considering the fact that
corporations have such a large reach and impact, it is pertinent to look at for whose
benefit these corporations function and who controls these corporations. This is where
the importance of corporate governance creeps in. The Cadbury Committee which
considered the status and issues related to corporate governance in the UK defined it as
“the system by which the companies are directed and controlled.”1 It was observed that
the economy would depend upon the drive and efficiency of their companies. Corporate
governance has become all the more important in this era sowing to the separation
between ownership and control. 2 Considering the fact that ownership is scattered to a
large extent in many companies, there is little accountability of the persons in charge of
control of the company. 3 The interests of those who are managing the company need to
be aligned with that of the shareholders to ensure efficiency
The authors understand that a corporation is an abstraction and requires human actions
to run it. This function is carried out by the management of the company which is the
board of directors. The powers and functions of the board of directors are derived from
the constitution of the company. These powers and functions can further be delegated to
managers and managing directors. In this paper the authors also look at the powers,
functions and duties of the managing director.
In this paper the authors aim to look into an important figure in corporate governance:
the Managing Director. The managing director has a very important role to play in the
management of the company. The authors will address the important facets of the office
of the managing director including the qualifications and disqualifications, appointment,
the role played by the managing director in his office. This paper will also address the
aspect of remuneration that a managing director receives and the rationale behind the
method of calculation.
1
The Financial Aspects of Corporate Governance, 14, available at
http://www.ecgi.org/codes/documents/cadbury.pdf, (Last visited December 6, 2016).
2
Pankaj Gupta and Singh Shallu, Evolving legal framework of corporate governance in India – issues and
challenges, Vol. 4(2), JURIDICAL TRIBUNE, 240, 240, (2014).
3
Rajesh Chakrabarti, Corporate Governance in India – Evolution and Challenges, 5, available at,
http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan023826.pdf (Last visited on December 6,
2016).
In this paper we aim to identify the legal position of the managing director. Further, this
paper aims at distinguishing between the directors, non executive directors, executive
directors, managers and managing director. In this paper, the authors attempt to bring
out the significance of the role played by the managing director.
CHAPTER I- APPOINTMENT OF MANAGING DIRECTORS
Under the English Law, it has been held that if the articles do not contain any provisions
that enable the Board to appoint a managing director, the directors would lack the
sufficient power for such an appointment. 4 The said precedent is not applicable in the
case of India since under both, the old and the new act, any express power required to
appoint any specific director is stated in a provision. For instance, Sec. 161 5 of the
Companies Act, 2013 requires articles to give powers to appoint additional directors.
Sec. 2(54)6 clearly states that the entrustment of powers can take place through Articles
of Association and other methods.
Section 1967 contains provisions relevant to the appointment of a managing director. It

is noted that this provision is analogous to Section 269 8 of the Companies Act, 1956 and
amalgamates some other provisions of the same.
As per the relevant provision, company is barred from appointing a managing director
and a manager simultaneously. But there is no such legal prohibition for appointing
both a whole-time director and a managing director at the same time. There is no bar in
appointing two or more managing directors as well.
The procedure of appointing a managing director has its roots in the English
jurisprudence. It has been held as early as 1914 that the Board of Directors may be
competent to appoint a managing director only when allowed by the articles to do so. 9
At the same time, the members are barred from exercising the power to appoint a
managing director if the articles confer the same on the Board. 10 The directors have the
power to strip him from the designation of a managing director but lack the power to
remove him from directorship. 11
Second important direction is that the term of a managing director cannot exceed a
period of five years. In order for a re-appointment to be made, it should be done one
year prior the expiry of the term.
4
Boschoek Proprietory Co. Ltd., v. Fuke, (1906) 1 Ch 148 (Chancery Division).
5
Sec. 161, Companies Act, 2013.
6
7
8
9
Nelson v. James Nelson and Sons, (1915) All ER Rep 433 (Court of Appeal).
10
Thomas Logan Ltd. v. Davis, (1911) 104 LT 914 (Chancery Division).
11
Foster v. Foster, (1917) All ER Rep 856 (Chancery Division).
Then, for a valid appointment to be made, qualifications under the same provision have
to be strictly adhered to.
Section 19012 deals with the appointment of a managing director but does not apply to
that in a private company. This provision clearly contemplates that the managing
director has a contractual relationship with the public company. It is also noted that
such a provision was not present the 1956 act. In fact, there are various cases that hold
the relationship purely contractual in nature.13 There may or may not be a formal
contract between a managing director exemplifying the contractual relationship. But in
case such a contract is absent, it could be established through an implied contract. 14 This
will come into operation when a managing director has been appointed by duly
complying with the company’s constitution and no express contract has been entered
into.15 This will apply even if the constitution of the company does not contemplate a
contract between the company and the managing director qua managing director. 16 The
contract may be of a mixed nature as well, some terms implied by the acts of the parties
or expressed in words or writing. 17
Furthermore, the appointment has to be made subject to the provisions of section 197 18
and Schedule V.19 For the appointment of managers, whole-time directors and managing
directors, the terms of appointment and remuneration to be paid is to be approved by the
Board in its meeting. Then, it has to be subsequently approved by an ordinary resolution
at a general meeting held after the Board’s approval. If any of the conditions mentioned
in Schedule V is deviated from, an approval from the central government would be
necessary. The notice that specifies the convening of a General or a Board meeting must
include terms of appointment and details such as remuneration, interests of a
director/s.20 The provision mandates the filing of a return, in the prescribed form, within
a period of sixty days from the date of such appointment. The date of such appointment
12
13
Anderson v. James Sutherland (Peterhead) Ltd. 1941 SC 203 (Scottish Court of Session).
14
K.R. Chandratre, Relevant Provisions of the Companies Act, 2013 -Concerning Appointment and
Remuneration of Mananging Director and Whole-time Director, 556(49) T AXMAN 2 (2014).
15
Id.
16
Id., at 3.
17
Sardar Gulab Singh v. Punjab Zamindara Bank Ltd., [1941] 11 Comp. Cas. 301 (High Court of
Lahore).
18
19
Schedule V, Companies Act, 2013.
20
Chandratre, supra note 11, at 5.
implies the date of appointment on which the said appointment was made with the
registrar.21 Just because the approval was not approved in a general meeting, the acts
done prior to such a meeting will not be deemed to be invalid. This applies to a whole -
time director and a manager as well.
There exist, certain practices most commonly followed while drafting the resolutions
pertaining to the appointment of a managing director. Except for the definition of a
whole-time director, those of managers and managing director contain a peculiar phrase
“by whatever name called”. Hence it becomes a key issue sometimes when a whole -
time director is appointed as managing director in such resolutions. 22 Such an issue
arises because the scope of conferment of powers and intention is very ambiguous. Such
hazy drafting leads to legal complications, especially when the conferred powers do not
fall in line with the designation of a managing director. 23
Earlier, Sec. 269 of the 1956 Act, read with Rule 10A of the Companies (Central
Government’s) General Rules and Forms, 1956, used to provide that every public
company possessing a paid up capital of at least Rs. 5 Crores shall have either a
managing director or a whole-time director. 24 Now, after the enactment of the new Act,
the mandatory requirement of appointing such personnel applies to a public company
having a paid up capital of at least Rs. 10 Crores. 25 All listed companies have to have a
managing director as well. 26
In the old act, like the new enactment, there was no express provision that required the
appointment of a managing director only by the shareholders or the Board of Directors.
Sub-section 2 of Sec. 269 of the old act was amended in 1988 and provided for two
exigencies pertaining to appointment: one that needed approval from the central
government and one that did not. 27 In the latter case, appointments had to be subject to
Schedule XIII of the 1956 Act, (to which Schedule V of the new Act is mostly similar).
‘Subject to’ implies strict adherence to the requirements mentioned un der the schedule.
21
Id.
22
Harshawardhan S. Chindhade, Concept of Managing Director - A Draftsman’s View, 96 T AXMAN 1
(2009).
23
Id., at 2.
24
S. Venugopalan, The Managing Director - His status, powers and duties, 38 T AXMAN 2 (2002).
25
Rule 8, Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
26
27
K.R. Chandratre, Managing Director: Appointment, Reappointment, Cessation and Removal, 59
T AXMAN 1 (1991).
It is noted that Part III of the said Schedule did state one condition. It required the
appointment to be approved by a resolution of shareholders. It is submitted that the
requirement cannot be misconstrued so as to mean that the shareholders have to make
the appointment itself. 28 It only means that the appointment has to be made by the Board
of Directors which is to be later approved by the shareholders. Unless and until it is
expressly stated by the articles of the company that the appointment has to be made by
the shareholders, the Board of Directors remains competent to appoint managing
directors of a company. 29
The rule of retirement by rotation is generally not applicable, unless circumstances

justify the need for it. 30 For instance, Section 25531 of the old act required that two-
thirds of the total directors of a public company or a private company subsidiary to a
public company shall be retired at every annual general meeting. In order to comply
with this provision, companies, having provisions that make managing directors non-
retirable before the expiry of their terms, make sure that the total number of directors
not liable to retire never exceeds one-third the total number of directors. If the said
number is in excess of the specified limit, the managing directors are subject to
retirement. In English Law, it has been held that if a managing director has been
appointed from one of the rotational directors and the directors do not re-elect him, he
will cease to hold that office even if the appointment was purportedly for a fixed term. 32
A departmental clarification (Int. Cir. No. 3 (No. 8/16(1)61-PR), dated 9 th May, 1961)
stated that a managing director’s office will not suffer any break if he retires (as a
director) under Sec. 255 and is re-elected as the same, in the same meeting. 33
Corresponding/relevant provisions to Sec. 196 from the old act are Sec. 197 -A, 267,
269, 317, 384, 385 and 388. 34 One difference to be noted is that Sec. 317 (related to the
tenure of only five years) of the old act applied only to managing directors and not
28
Id.
29
Id.
30
Id., at 2.
31
32
Bluett v. Stuchbury’s Ltd., (1908) 24 TLR 469 (Court of Appeal).
33
A. Ramaiya, GUIDE TO C OMPANIES ACT, 3433 (18 th edn., 2015)
34
Sec. 197-A, 267, 269, 317, 384, 385, 388, Companies Act, 1956.
whole time directors. Furthermore, re-appointment in the old act had to be made two
years prior to end of term, as opposed to one year. 35
The time limit of filing a return before the Registrar of Companies has been reduced to
60 days as compared to a period of 90 days in the old act. 36
The appointment of a managing/whole-time director and a manager has to be made only

through a meet of the Board of Directors, merely a circular resolution cannot be
passed.37
In case an appointment is made in violation of the conditions mentioned in Schedule V

of the new Act, an approval from the Central Government will be required. 38 Rule 7(3)39
of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014, gives a period of 90 days for making an application to the Central Government in
form No. MR 2.
In case of a listed company, a combined reading of provisions under Sec. 196 and Sec.
201 of the new Act read with Rule 7 would require the company to pass a resolution
before applying for such an approval from the government. For banking companies,
Sec. 35-B40 of the Banking Regulations Act requires the approval of the Reserve Bank
for appointing a manager or a managing director.
Nothing in the relevant provision suggests that there has to be a ‘prior’ approval.
An unlisted company that no/inadequate profits but has not defaulted on the payment of
its debts does not require approval from the government, by virtue of Rule 7(2).
Sec. 196(5) states that acts of managing director shall not be invalid by reason of
subsequent non-approval by the shareholders. Like the old enactment, the acts of the
managing/whole-time director and the manager are protected irrespective of subsequent
approval at the general meeting.
35
Ramaiya, supra note 30, at 3420.
36
Id.
37
Id., at 3421.
38
Id.
39
40
Sec. 35-B, Banking Regulations Act, 1949.
Rule 341 of the Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014, is relevant for the purposes of appointment. It requires the return for the
appointment of managerial personnel has to be filed within 60 days of appointment in
form MR1.
In the old act, the Central Government wielded the power to grant a conditional
approval for such appointments. 42 In doing so, it was entitled to lower the minimum age
requirements, subject to conditions imposed by the government. If the said condit ions
were not followed, the government had the power to withdraw its conditional
approval.43 In certain cases, if the application for approval is neither accepted nor
rejected within a reasonable period of time, it will be presumed that the approval has
been granted and the government will be stopped from checking its validity later on. 44
The power of approval, to be exercised by the government under 1956 act which is
relevant as well, had to be exercised on the basis of a statement of reasons. 45
In 1988, the amendment to the Companies Act, 1956, added the requirement of approval
of appointments by shareholders through a special resolution so as to curb the practice
of companies bypassing the governmental approval. 46
Rule 847 of the Companies (Meeting of Board and its Powers) Rules, 2014, specifies
that powers of the Board regarding the appointment and removal of key managerial
personnel have to be exercised through resolutions. The Companies Law Committee has
suggested that the current restrictions under Schedule V of the act, that could be
doubled through a special resolution, should be amended to be made an ordinary
resolution only requiring the appointee to satisfy a certain criteria. An instance of this
would be him not being a promoter, etc. 48
41
42
Sec. 637A, Companies Act, 1956.
43
Raymon Eng. Works v. Union of India, AIR 1970 Delhi 5 (Delhi High Court).
44
Reliance Jute and Industries Ltd., Re, (1983) 53 Com Cases 591 (Calcutta Hig h Court).
45
Bennet, Coleman and Co. Ltd. v. Union of India, (1993) 78 Com Cases 666 Del (Supreme Court of
India).
46
47
Rule 8, Companies (Meeting of Board and its Powers) Rules, 2014.
48
E NABLING PROVISION I N ARTICLES O F ASSOCIATION
In a 1906 English company law case 49 it was held that where the articles of a company
do not contain any provision that would enable the board to appoint a managing
director, it would be beyond the power of the board to appoint any person to be the
managing director of the company. This decision will have no application in the context
of India. The Companies Act 2013 and the Companies At 1956, both indicate that in the
instance an express power is required for any action under the articles of a company 50, it
has been stated so in the related section.51 Section 2(54), 52 additionally makes it clear
that the entrustment of power need not necessarily be made by the articles of the
company itself and could be made through other methods, i.e., by virtue of an
agreement or through a resolution of the board.53 Such a provision allows for the
interpretation that there is no absolute legal need for the inclusion within the articles the
power to appoint a managing director.
This argument is supported by the Table F of Schedule 1 in the New Act 54 which
provides the model articles under the regime of the 2013 Act has no mention of the
powers of the board to appoint a managing director. Regulation 77 does talk about the
powers of the board to appoint a manager; it does not mention a managing director. A
manager belongs to a different class of managing personnel and therefore cannot be
analogous to the managing director. 55 There is a statutory compulsion under section
269(1)56 for public companies that have a paid-up share capital of more than ₹5 crore to
appoint one of the managerial personnel as a managing director. In the New Act under
section 20357 in respect of certain companies a similar compulsion is present. Therefore
it can be inferred from these provisions that even in the absence of an express provision
in the articles of a company; the board would have the implied authority to do so.
49
Boschoek Proprietory Co Ltd v Fuke, (1906) 1 Ch 148.
50
L.V.V. Iyer, GUIDE TO COMPANY LAW, 613, (4th edn., 2016).
51
For an example of a provision that indicates that there needs to be express mention in the articles for the board
to exercise the said power see section 161 of the Companies Act 2013. This section requires that the articles
have to give power to appoint additional directors.
52
Section 2(54), Companies Act, 2013.
53
Iyer, Supra note 50 at 613.
54
Table F, Schedule 1, Companies Act, 2013.
55
56
Section 269(1), Companies Act, 1956
57
Section 2013, Companies Act, 2013.
The 1956 Companies Act provided through section 268 58 that in the cases of public
companies or private companies that were subsidiaries of such public company, if it is
sought to bring an amendment to any provisions that is dealing with the appointment, or
re-appointment of a managing director 59, then such a provision whether it is contained
in the company’s articles or memorandum or in an resolution of passed by the Board or
the general meeting, or in an agreement entered into by it, the amendment would have
no effect. It would have effect if it receives the approval of the Central Government and
this amendment would become void if it was disapproved by the Central Government. 60
It is interesting to note that such an analogous provision is absent in the 2013 Act .
REMOVAL
It has correctly been decided that in case office of a director is vacated, his appointment
as managing director automatically comes to an end but where he is remov ed from the
office of managing director only, his appointment as a director remains intact. 61
In order to remove the managing director from his office, the trend is that the Articles
of Association empower the Board of Directors to remove him as such. 62 A person
removed will have the right to claim damages only when the removal has not been
effectuated in accordance with the said provisions of the Articles. 63 It has been
previously held that no approval from the Central government will be required while
removing a person from the office of managing director. 64 According to Palmer, a
managing director can be removed like any other director by virtue of Section 148 65 of
the 1948 (UK) Act or on the expiry of the term as specified in the contract. 66
58
Section 268, Companies Act, 1956
59
The same position of law is applicable to the managing director, a whole time director and a director.
60
61
Swapan Das Gupta v. Navin Chand Suchanti, (1988) 64 Comp Cas 562 (Calcutta High Court ).
62
Chandratre, supra note 24, at 3.
63
Id.
64
Pyare Lal Gupta v. D.P. Agarwal [1983] 53 Comp. Cas. 586 (Allahabad High Court).
65
Sec. 148, Companies Act (U.K.), 1948.
66
Sir Francis Beaufort Palmer, and Clive Macmillan Schmitthoff, P ALMER ’S COMPANY LAW, 832 (23rd
edn., 2016).
For a resignation submitted by the managing director to come into effect, it is necessary
that the letter be accepted. 67 In this regard, Sec. 168 68 of the 2013 Act becomes relevant.
The person acting as the managing director cannot claim the date of resignation t o be
the one on which he sends his resignation. It will be effective from the date when such a
resignation is accepted when the same is accepted by the company. 69 However, it has
also been held to the contrary. In one such case, it was held that the Compani es Act is
silent on vacancy by resignation of a director. In such a case, a resignation will come
into effect immediately after the intention to do so is made manifest. 70 But if the
principle under Sec. 168 is to be applied, the former precedent stands, sin ce this
provision clearly lays down that the resignation of a director will be in effect from the
day it was received by the company.
It is pertinent to note that the managing director might be stripped of the said
designation but can continue to act as a director on the conversion of public company to
a private company. 71
It is submitted that a managing director, just like any other director, can be removed
from the office of a director, through a general meeting under Sec. 169 72 of the new act.
In order to give a justification for the removal of a managing director on allegations of

misconduct, the relevant issue is whether the alleged misconduct was reasonably
apprehended or conclusively proved, had direct consequences on the company or its
business and whether it affected the capacity of the managing director to discharge his
duties.73 The removal effected by a company that had taken over the appointee company
and also altering the articles of associations in the process (that laid down the
provisions for the appointment of a managing director) has been held to be wrongful. 74
67
68
69
Achutha Pai v. Registrar of Companies, (1966) 36 Com Cases 598 (High Court of Kerala).
70
T. Murari v. State, (1976) 46 Comp Cas 613 (Madras High Court); S.S. Lakshmana Pillai v. Registrar
of Companies, (1977) 47 Comp Cas 652 (Madras High Court).
71
Swapan Das Gupta v. Navin Chand Suchanti, (1988) 64 Com Cases 562, 582 (Calcutta High Court).
72
73
Morarji and Co. v. Sholapur and Co., (1944) 14 Com Cases 59 (Bombay High Cou rt).
74
Southern Foundries v. Ltd. v. Shirlaw, (1940) 2 All ER 445 (House of Lords).
If the removal of the managing director is fully justified even in violation of the
contract, it has been held, that the removal shall remain valid. 75
Under certain circumstances, removal of a managing director has been held to be

justified and not termed as oppression, when he was responsible for several complaints
against the company in various government agencies. 76 The Company Law Board had
proposed that removing a managing director employed in a family company under Sec.
397 and 39877 of the 1956 act. It has been held that such a managing director removed
from a family company shall be discharged of all the guarantees he had given to
financial institutions for the purposes of borrowing for the company. 78 A petition
against the order of removal on grounds of oppression is liable to be dismissed if it is
not made out that the winding up order was justifiable in given factual matrix of the
case.79 There is no remedy that can be sought for by means of a writ petition for the
removal of a managing director. The rationale behind this is that since the relationship
between the managing director and the company is contractual in nature. 80
75
Major R.S. Murgai v. Ex Servicemen, Airlink Transport Services (P) Ltd., (2001) 103 Com Cases 177
(Delhi High Court).
76
L.V.V. Iyer, G UIDE TO C OMPANY D IRECTORS, 620 (4 th edn., 2016).
77
Sec. 397 and 398, Companies Act, 1956.
78
Vinod Kumar Mittal v, Kaveri Lime Industries Ltd., (2000) 2 Comp LJ 354 (Company Law Board).
79
Subhash Chand Agarwal v. Associated Limestone Ltd., (1998) 92 Comp Cas 525 (Company Law
Board).
80
A.S. Gill v State of Punjab, (2006) 132 Comp Cas 759.
CHAPTER II- QUALIFICATIONS/DISQUALIFICATIONS
Section 196 lists some requirements that are to be satisfied for a valid appointment of a
managing director to be made. In a nutshell, these include an age bar, insolvency, dues
to qa creditor and previous conviction.
For the provisions under the old act, it has been said that Sec. 267 prescribed stricter
qualifications for managing directors than those applicable to a manager.
The qualifications prescribed related to age mandate that the appointee be at least 21
years of age, a reduction from the earlier requirement of 25 years (Schedule XIII Part I
cl.(c), 1956 Act). Hence, provisions relating to maximum/minimum age have been made
a part of Sec. 196, which were contained in Schedule XIII of the old act.
It is also to be noted that Schedule V (Part I) of the new act provides certain instances
where a Central government-approval cures/disregards disqualification. Except for the
condition mentioned in Sec. 196(3), most other requirements can be relaxed by the
government.81 Hence, condition regarding the minimum age is absolute, a case different
when a person below the age of 25 was appointed to the said office under the old Act.
For a person over 70 years, however, a special resolution is required accompanied by an
explanatory statement containing the justification for the same. 82 It is pertinent to note
that the U.K. Companies Act (2006) allows people over the age of 70 to become
directors although it contains a minimum age requirement under Sec. 157 83. In India, the
recent trend has been to enforce this disqualification leniently and in the event of a
managing director crossing the age of 70, doesn’t necessarily have to vacate the office. 84
Also, the age requirement applies to private companies as well since the provision
covers both public and private companies. 85
Sec. 196(1) is analogous to Sec. 197-A86 of the 1956 Act, barring the appointment of a
manager and a managing director at the same time.
81
82
Id.
83
Sec. 157, Companies Act (U.K.), 2006.
84
Sridhar Sundararajan v. Ultramarine & Pigments Limited , (2015) 192 Comp Cas 355 (Bombay High
Court).
85
As per subsection 3 of Sec. 196, if the appointee suffers from any of the stated
disqualifications, he/she cannot be appointed as a managing director or a whole time
director. Sec. 196(3) (a) and (d) have been added as the two new additional
disqualifications.
The second of the new condition includes a disqualification of a previous conviction by

a court, due to commission of some offence, and sentencing for a period of not less than
six months. This terminology is inclusive of all kinds of offences, while the old Act
required commission of an offence that had to ‘involve moral turpitude’ irrespective of
the period of sentencing, was another disqualification. No power lies with the appellate
court before which the conviction has been challenged to suspend the order of
conviction itself. 87 No power to remove such a disqualification is available with respect
to the appointment of a managing director. 88
Insolvency is a disqualification under Sec. 196(b) and has been previously held to be
absolute in nature. 89 The disqualification is not attracted if there exists a ‘composition’
with the creditors. 90 A composition implies an agreement between an insolvent debtor
and the creditor by virtue of which the latter accepts a part of debt from the former in
satisfaction of the whole. 91 The same will have to discontinue from office in case of a
conviction.92 Even if the case involves suspension of the sentence but not the order of
conviction, such a person will remain barred from becoming a managing director. 93 It is
submitted that the previous requirement was very narrow, where criminals could get
appointment even after committing offences, 94 and the new act remedies this by
expanding the ambit under which a appointee can be disqualified.
Further, under Sec. 269(4) of the old act, the approval of the Central government was
barred unless it was satisfied that the appointee was a fit and proper pe rson. It has been
held that if the findings that the proposed person was not a fit and proper person for the
86
Sec. 197-A, Companies Act, 1956.
87
88
Id.
89
Jayesh Ramniklal Doshi v. Carbon Corpn. Ltd., (1993) 76 Com Cases 748 (Bombay High Court).
90
91
A.S. Oppe, W HARTON ’S LAW LEXICON, 226 (14 th edn., 1993).
92
93
Ramesh Narang v. Rama Narang, 1995 83 Com Cases 194 (Supreme Court of India).
94
Risal Singh v Chandgi Ram, AIR 1966 Punj 393.
job of managing director are sound, the disqualification will be justified. 95 This factor is
inclusive of facts like the pendency of prosecution, if any. 96 An order quashing an
appointment on the mere reliance of this ground shall be valid and has been previously
upheld in law. 97 Other factors to be taken into account while considering the fitness of
an appointee can be summarized as follows:
 Any misfeasance or breach of a duty, including that is fiduciary in nature.

 Extent of a director’s responsibility pertaining to company’s transactions under
provisions of debt avoidance
 A retention or misapplication by the director, or any other conduct that gives rise
to an obligation to account for any money or property of the company.
 Extent of a director’s responsibility for any failure of the company in
maintaining records, etc. 98
In various cases under the analogous provisions of the old act, it has been h eld that
disqualification is attracted on the personal conduct of the director. 99 Hence, when the
director acts in his individual capacity and is unable to pay debts of the creditors of
another company, disqualification cannot be attracted.
95
K.S. Sundaram v. Union of India, (2004) 119 Comp Cas 69 (Madras H igh Court).
96
97
Rampur Distillery and Chemical Co. Ltd. v. Company Law Board, (1970) 40 Com Cases 916 (Delhi
High Court).
98
Lord Hailsham of Marylebone, H ALSBURY ’S LAWS OF E NGLAND , 399 (4 th edn., Vol.7, 1989).
99
Ashok Mittal v. Ram Parshotam Mittal, (2009) 149 Com Cases 11 (Delhi High Court).
CHAPTER III REMUNERATION
It has been an established practice that the remuneration of directors comes from either
of the two sources, that is, benefits receivable under the service contract or, in case of
executive directors, fees paid to them for acting as directors. 100 The former is the greater
source of income, mostly for executive directors and remains the most controversial
subject as regards regulation. 101
Managerial remuneration is governed by Section 197 102 of the 2013 Act. This, again,
applies to public companies as well as private company, subsidiary of public
companies. The phrase ‘managerial remuneration’ implies the inclusion of manager and
all directors, including managing and whole-time directors. 103 The provisions set a limit
to the remuneration to be paid to directors as a percentage from the total profits. They
also put a ceiling of 5% of the net profits to be paid to a managing director and that of
10% to the managing directors as a whole.
In any case, a director who deals with the company on the issue of remuneration is in a
position of conflict of interest. Traditionally, the common law rule was a need of
sanction from shareholders for the agreement between directors and the company. 104
However, such an arrangement inconvenienced directors and it was common to find the
power to fix remuneration conferred upon the Board. 105 One form in which stricter
regulation in this area manifested itself was the requirement of remuneration committee
in the company. 106 This has been incorporated so as to exclude executive directors from
the process of fixing remuneration. This is because not only the individual director if
precluded from voting on the decision, but also that they are sidelined from the process
itself.107
100
Paul Davies, and Sarah Worthington, G OWER AND D AVIES ’ P RINCIPLES OF MODERN COMPANY LAW,
400 (9 th edn., 2012).
101
Id.
102
103
Chandratre, supra note 11.
104
Worthington, supra note 84.
105
Id.
106
Id., at 401.
107
Id.
Under new enactment in India, Sec. 2(51) clearly indicates that the phrase ‘key
managerial personnel’ is inclusive of a managing director. Hence the chapter 108 related
to remuneration of managerial personnel applies in his case.
Sec. 2(61) of the 2013 act defines ‘remuneration’ as something that is inclusive of
perquisites as used under the Income Tax Act 109, 1961. The relevant provision in the
said act clearly states that the entire component of perquisites shall not be taxable.
Examples of the same will include medical reimbursements, superannuation funds, etc.
Furthermore, it is submitted that clause (a) of Sec. IV, Part II of Schedule V shall be
rendered meaningless if this interpretation is not followed. Hence, taxable value of
perquisites has been clearly been included in calculating remuneration.
Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel)

Rules, 2014, mandates the disclosures related to the remuneration of key managerial
personnel in listed companies.
A person who is in employment of more than one company can withdraw remunerati on
from all of them, provided that the remuneration does not exceed ceiling from any of
the companies he is employed. 110 Further, there is no bar against the appointment of
more than one managing director in the company. 111
It has been notified by the Ministry of Corporate affairs that the loans disbursed to
managing/whole-time directors are also subject to Sec. 186 112 and are not exempted. 113
The Irani Committee 114 recommended major policy related issues to be incorporated in
the Companies Act. The remuneration of the managing directors should be compared to
that of a non-executive director. There has to be no limit to be prescribed to sitting fees
payable to such directors. The company may decide the fees after getting an approval
from the shareholders. 115
108
Chapter XIII, Companies Act, 2013.
109
Sec. 17, Income Tax Act, 1961.
110
Schedule V, Companies Act, 2013.
111
L.V.V. Iyer, GUIDE TO C OMPANY D IRECTORS, 617 (4 th edn., 2016).
112
113
http://mca.gov.in/Ministry/pdf/Circular_04_10032015.pdf (Last visited on December 1, 2016).
114
Ministry of Corporate Affairs, J.J. Irani Committee Report, (2004), available at
https://www.mca.gov.in/Ministry/pdf/Report_Companies_Law_Committee_01022016.pdf.
115
The remuneration to non-executive directors must be decided as well, including that of
independent directors. This could be in form of sitting fees for the Board and committee
meetings, either attended physically or electronically. This may include profit related
commissions. 116
Under the new act, the term ‘remuneration’ is anything that includes money or its
equivalent paid to a person for the services rendered. 117 Pension is not a payment for
services rendered but a benefit given post-retirement. 118
When a managing director is removed from directorship, his former office shall come to
an end as well. 119 Under the old act, the only remedy left with the aggrieved director
shall be compensation for loss of office, if, the removal was in violation of the terms of
contract and was not covered under Sec. 318 120. It has been repeatedly held by courts
that they cannot compel the company to reinstate him nor grant an injunction again st the
company so as to preclude his removal. 121
The compensation largely depends upon the terms of the appointment (contract) and the
breach thereof. 122 Even if the director has the requisite power under the articles to
confer a revocable appointment, the revocation will be a breach if the contract does not
mention this power. 123 However, the contrary has also been held to be applicable in
some cases. For instance, it has been held that if appointment was in terms of the
articles and empowered the general meeting to determine the same, does not cause a
breach.124
The new act requires the formation of a Nomination and Remuneration Committee
under Sec. 178(1). 125 The remuneration disbursed to a director for any other service
rendered will not be included if the committee opines so. 126
116
117
Iyer, supra note 95, at 726.
118
Id.
119
120
121
Life Insurance Corporation of India v. Escorts Ltd., (1986) 59 Com Cases 548 (Supreme Court of
India); Sardar Gulab Singh v. Punjab Zamindara Bank Ltd., (1941) 11 Com Cases 301 (High Court of
Lahore).
122
Nelson v. James Nelson and Sons Ltd., (1914-15) All ER Rep 433 (Court of Appeal).
123
Nelson v. James Nelson and Sons Ltd., (1914-15) All ER Rep 433 (Court of Appeal).
124
Read v. Astoria Garage (Streatham) Ltd., (1952) 2 All ER 292 (Court of Appeal).
125
The old act permitted a company to pay remuneration to a director, managing director
or a manager through monthly payment or it could be in the form of specified
percentage of the net profits over a particular period of time. 127
Summarily, a director designated as managing/whole-time director or a manager will

fall in one of the following categories:
1. An appointee proposed to be appointed not in compliance with Part I of Schedule

V.
2. The profit making company and the appointee is in compliance with Part I and
Part II, Sec. I of Schedule V.
3. A company with inadequate profits or a loss making company in compliance
with Part I and Part II, Sec. II A of the Schedule V.
4. Where the proposed remuneration is in excess of the limits imposed by Schedule
V.
As per the given Schedule, the cases (2) and (3) require the mere approval of the
shareholders for the appointment to be complete since they are covered in Part I and II
read with Part III of Schedule V. It is submitted that the nature 128 of such a resolution
has not been specified by the second proviso to Sec. 197(1) (for payment in of
remuneration in excess of 5% or 10% or 1% or 3% of the net profits as the case may
be). It is pertinent to note that such cases also attract Sec. 188. 129 As long as the limit of
11% of the net profits is not exceeded by the overall remuneration, the company will
have flexibility in disbursing payments in excess of 5% or 10%, as the case may be,
subject to the shareholders’ approval. No approval from the Central Government will be
required if the proposed remuneration is in excess of the 5% ceiling but is in
compliance with the overall ceiling on remuneration 11% of net profits. Also, the 2013
Act includes a new provision where the 11% is not a fixed percentage anymore but can
be altered subject to approval by the government. 130
Cases (1) and (4) require Central Government’s approval.
126
127
Sec. 198(3), read with Sec. 198(3), Companies Act, 1956 Act.
128
Either ordinary or special.
129
130
Sec. 197(2) is completely analogous to Sec. 198(2) of the 1956 Act, and reiterates the
rule that sitting fees paid to the director shall not be counted under total remuneration.
Sec. 197(3) introduces one deviation from the older version of the act insofar as the
requirement of an approval from Central Government is concerned. Under Sec. 198(4)
of the old act, the said approval was necessary for disbursement of remuneration in case
of inadequate profits. Now, it only becomes a requirement when Schedule V is not
complied with.
In a situation where private companies convert into public companies or are deemed to
be public companies and the managing directors employed in them are receiving
remuneration in accordance with section 309 131 and 198132 of the Old Act, there would
be no need for seeking the permission of the Central Government. The managing
director may continue with the existing appointment. However section 268 133 and 317134
would become applicable as on the date of conversion or change of character. The
Central Government’s approval would become necessary at this stage for the purpose of
any amendment in the terms of appointment. It would also become necessary if
reappointment under section 269(2) 135 since it would be needed for the payment of
minimum remuneration as per section 198(4). 136
Hence, substantial powers have been conferred upon shareholders as regards

remuneration of managerial personnel.
APPLICABILITY
A private company is subject to the requirements laid down by Sec. 196 pertainin g to
the appointment of a managing director, manager and a whole-time director. But
provisions under Sec. 197 are not applicable to a private company. 137
131
132
133
134
135
136
137
Hence, a private company is not barred by law to pay remuneration in excess of 11%
percent of the net profits. Also, a private company is not required to have a Nomination
and Remuneration Committee under Sec. 178(1). 138
Sec. 197(1) is clear as to the section’s applicability to public companies. While the
following subsections refer to a ‘company’, applying ejusdem generis, legislative
intention appears to refer to public companies only. 139
Hence provisions under Sec. 197 may not be applicable to a private company.
B Y WAY OF STOCK OPTIONS

The grant of stock options to all the employees of the company, especially directors,
will be governed by Sec. 62(1)(b) 140. This provision has to be read with the
relevant Regulations and Guidelines issued by SEBI (Securities Exchange Board of
India). Other relevant rules being the SEBI (Share Based Employee Benefits)
Regulations. 2014, and the Companies (Share Capital and Debentures) Rules, 2014,
particularly Rule 12 141 of the latter.
There are generally two methods through which remuneration by way of stock options
can be granted to employees (including directors). These are:
Direct Allotment: In this case, fresh allotment of equity shares is done by a company to
the employees as and when the said options are exercised.
Trust Route: Here the company issues shares to a trust for the administration of
Employee Stock Ownership Plan (ESOP), that subsequently transfers the shares to the
employees. 142
However, the directors can be allotted stock-related schemes only if all of the following
conditions are satisfied:
 The said director does not belong to the promoter group. 143
138
Id.
139
Id.
140
141
Rule 12, Companies (Share Capital and Debentures) Rules, 2014.
142
143
Sec 62(1)(b), Companies Act, 2013, read with Rule 12 of the Companies (Share Capital and
Debentures) Rules, 2014.
 The director does not hold more than 10% of the outstanding equity shares in the
company. 144
 He should not be an independent director in the company. 145
Furthermore, the following persons will not be allowed to be the trustees for the
purposes of administering ESOPs:
 Director/employee holding 10% or more in the paid-up share capital of the

company, beneficially.
 Promoter, Key Managerial Personnel or a director of the company itself or its
Holding, Subsidiary or Associate Company. 146
The term ‘expenditure’ implies something that has been paid out or gone
irretrievably. 147 Furthermore, the language employed in the Explanation to Sec. 198 of
the 1956 Act is similar to the one used in Sec. 40-A(5)148 of the Income Tax Act. Hence
stock options are valid remunerations.
It has been clearly provided that shares under sweat equity, given to managerial
personnel, will be included as a part of remuneration. 149
It is pertinent to note that in case of listed companies, Clause 49 150 of the Listing
Agreement on Corporate Governance has been replaced by the Listing Obligations
LODR. Clause 49(VIII)(C) (policy for disclosure on remuneration) has now been
amended and the requirements include disclosing percentage increase in each directo r,
CEO,CFO, manager’s salary, comparison of the remuneration of Key Managerial
Personnel against the performance of the company and the average percentile increase
in the salaries of non-managerial personnel as compared to the average percentile
increase of managerial remuneration, citing justification for the same. 151 The U.K.
144
Sec. 62(1)(b), Companies Act, 2013, read with Rule 12 of the Companies (Share Capital and
Debentures) Rules, 2014.
145
146
147
Indian Molasses Co. Pvt. Ltd. v. CIT, AIR 1959 SC 1049 (Supreme Court of India).
148
Sec. 40-A, Income Tax Act, 1961.
149
150
Clause 49, SEBI Guidelines on Corporate Governance, 2005.
151
SECURITIES AND E XCHANGE B OARD OF INDIA (LISTING O BLIGATIONS AND D ISCLOSURE
R EQUIREMENTS) R EGULATIONS , 2015 available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1441284401427.pdf (Last visited on December 2,
2016).
Corporate Governance Code also states that companies should have a transparent policy
on executive remuneration. 152
In the old act the limits on remuneration in Sec. 197 were covered by Sec. 309153. The
legislative intention was to control the cost of management. Hence, remuneration for
any other purpose other than managerial is not excluded. 154
The difference between the two provisions is that earlier, the limits on remuneration
could be imposed only by the articles or through a special resolution by passed by the
general body. The directors could not, by themselves, impose ceilings. 155 The provisions
of Sec. 309 were inapplicable when remuneration is paid to director for his abstinence
from doing an act that did not form a part of his official duty. 156 An instance of this
would be the compensation due to an ex-Managing Director under an agreement under
which he was restrained from conducting a competing business for a reasonable period
of time following a resignation.
The subsection 5-A of Sec. 309 required all the illegally paid amounts to or received by
a director to be refunded to the company and cannot be waived by the company without
the approval of the Central Government. The provision remains the same under Sec
197(9).
DIRECTOR ’S RIGHT T O REMUNERATION

The reward for acting as a director in the company is fees and status. 157 But merely
possessing the said designation does not per se entitle him to remuneration. 158
Director’s right to remuneration has been held to be contractual in nature in the English
law. It has been held that a director is well within his rights to sue a company for the
152
Len Sealy, and Sarah Worthington, SEALY AND W ORTHINGTON ’S C ASES AND M ATERIALS IN
C OMPANY LAW, 265 (10 th edn., 2013).
153
154
155
Id.
156
Id.
157
Nicholas Grier, U.K. C OMPANY LAW, 347 (1998).
158
Id.
remuneration. 159 However, there is no right to sue if the articles provide for the Board to
pay remuneration until a resolution is passed. 160
Further, it is not correct to say that a provision in the articles of a company will
constitute an express contract between the director and the company. 161 Hence the result
will be that a director cannot have a contractual claim just because the articles authorize
him a fixed remuneration. But in cases where a director has been serving on the basis of
the terms contained in the articles, the courts shall presume the existence of an implied
contract for the remuneration in those terms.162
Assuming the existence of a valid contract, a director is not entitled anything beyond
the specified terms. If he renders any services without any agreement on the
remuneration of the same, no remuneration can be paid on a quantum meruit basis.163
However there have been instances where the same has been awarded in the absence of
a contractual provision. Where a managing director was appointed by a group of
directors who were no longer in office but had entered into a contract with him
nevertheless, it was held that the appointment was improper. But it was held that
remuneration for his working period was allowed as quantum meruit.164
Under the 1956 act, the position as regards to a director’s remuneration, retained under
the new act, can be summarized as follows:
 The remuneration should be in compliance with Sec. 198 of the 1956 act.
Basically, it should not exceed the 11% limit which is fixed for the managerial
personnel as a whole. This is excluding the sitting fees payable for attending
Committee and Board meeting.
 Irrespective of the designation of the director (Whole-time/managing or any
other director), the remuneration must be determined by the constitution or a
special resolution in the absence thereof.
 In cases where the remuneration is to be paid for professional services rendered,
it is necessary to obtain the approval of the central government, recognizing his
159
Nell v. Atlanta, (1895) 11TLR 407 (Court of Appeal).
160
Morrell v. Oxford Portland Cement Co. Ltd., (1910) 26 TLR 682 (Chancery Division).
161
Richmond Gate Property Co. Ltd., Re, (1964) 3 All ER 936 (Court of England and Wales).
162
Swabey v. Port Darwin Gold Mining Co., (1889) 1 Meg 385 (Court of Appeal).
163
Woolf v. East Nigel Gold Mining Co. Ltd., (1905) 21 TLR 660 (Court of Appeal).
164
Craven Ellis v. Cannons Ltd., (1936) 2 KB 403 (King’s Bench Division).
qualifications claimed to be possessed by the director for the particular
profession.
 The remuneration to be paid to the director will be inclusive of the remuneration
payable for the services rendered in that capacity or any other capacity.
 An exception to the above rule is where services rendered by him will be
separately remunerated, excluded from that under his services of a direc tor. In
cases where services were rendered in the capacity of a lawyer, accountant or a
consultant, extra remuneration can be paid for these services.
 Under Sec. 291 165 of the 1956 act, the Board has the power to determine
remuneration for such professional services.166
165
166
COMPARISON OF THE MANAGERIAL PERSONNEL
MANAGING DIRECTORS AND E XECUTIVE DIRECTORS

Companies can be of different sizes, and this affects the nature of its managements. In
smaller and medium sized companies, the management which includes the dir ectors
generally invest their whole time and attention to the company’s affairs. 167 In other
companies some members of the Board of Directors do not devote their entire time for
the company. The day to day activities are carried on by the full time directors who may
divide the various parts of management amongst themselves. This would be done for the
sake of efficiency and they would be collectively known as executive directors.
Contrasted with those director that remain passive with regards the day to day ac tivities
are known as the non executive directors. The inclusion of non-executive directors is a
more prevalent practice in large public companies. These directors have their primary
interests outside the company. 168
In many situations the day to day management is vested in the hands of one of the full
time director or executive directors. Such an action is given formal effect by appointing
that person a managing director and vesting in him the powers of management. These
powers of management can be exercised by him without the interference or reference to
the Board of Directors. 169 It is important however to note that a managing director
ceases to hold that office when he ceases to be a director 170 subject to contrary provision
in the Articles of Association.171 This would however not mean that the Managing
director’s position could be protected by Articles of Association in the event he is
disqualified by the legislation that regulates companies. In the case of England the
relevant provision is the Companies Act, 2006. 172 And, in the case of India it is the
Companies Act, 2013. 173
167
Robert R. Pennington, PENNINGTON'S COMPANY LAW, 775, (7th edn., 1995).
168
Pennington, 775, The non executive directors may be directors of companies which have certain commercial
relations with the company in question. These directors are can also be chosen for their skill and experience in
the business. This expertise may be general or in particular fields which may prove to be important and
significant to a company. This could include instances where directors who are experienced in finance,
marketing advertising or exporting are appointed to provide guidance to the company in these fields. Though
they may not involve in everyday decision making they provide an invaluable source of knowledge and
expertise which could if utilized appropriately can benefit the company.
169
Pennington, Supra note 167, at 776.
170
Bluett v Stutchberry’ Ltd (1908) 24 TLR 469.
171
172
The Companies Act, 2006. (United Kingdom)
173
The Companies Act, 2013.
The articles of a company empower the Board of Directors to vest in the managing
director any of the powers that they can wield as it thinks fit. This vesting of power can
be either parallel with that of the board or to the exclusion of the board. 174 They also
have the authority to revoke or vary any of the powers conferred in the Managing
Director. In such situations the Managing director is merely a delegate of the board.
Even if he serves under a contract, the Board still reserves the power to alter his rights
under a contract; the only remedy available would be to sue for damages. 175
A managing director can be perceived as an independent organ of a company only if his

powers maybe derived from the memorandum or articles of association of a company.
In such a situation he would be entitled to prevent his colleagues and other directors
from interfering in his exercise of power. 176
MANAGER VIS -À-VIS A MANAGING DIRECTOR

The definitions of a manager and a managing director reveal the most crucial point of
differentiation between the two. The managing director has to be a director, whereas it
not mandatory requirement to become a manager. In case of managers, the
disqualifications mandated under the old act would have been attracted only when they
occurred during the preceding 5 years. 177 No such provision is found in the new Act.
Also, the power of the Central government to remedy the disqualification of manager
(under Sec. 385(2) 178) has been done away with.179 This shows that the grip on the
appointment to the post of a manager has been made tighter.
The position of a managing director has been interpreted as to be inclusive of two

positions.180 Such a designation-holder happens to be a manager who is simultaneously
a director, and that the two designations involve distinct responsibilities and duties as
well as distinct qualifications. 181
174
175
Pennington Supra note 167, at 778. See also, Harold Holdsworth & Co Ltd v Caddies, (1955) 1 All ER 725;
Montreal Public Service Co v Champagne, (1916) 33 DLR 49.
176
John Shaw & Sons v Shaw, (1935) 2 KB 113.
177
178
179
180
Id., at 3437.
181
Newspaper Proprietary Syndicate Ltd., Re, (1900) 2 Ch 349 (Chancery Division); Southern Foundries
Ltd. v. Shirlaw, (1940) 2 All ER 445 (House of Lords).
The most important factor that distinguishes between the two designations is the phrase
‘substantial powers’ conferred on the managing director. 182 It is more probable for a
managing director to exercise more power than a manager since the law envisages the
office of the former to be more important, given the prescribed qualifications. 183 The
fact that the appointment of the former and its terms have to be intimated to the public
through registration with the Registrar of Companies, indicates that he is directly
responsible to the members. 184 But both of them are subject to the control of the
Board.185
This phrase has been interpreted to include powers and privileges of the managing
director to conduct the business of the company in accordance with the constitution of
the company. Instituting a suit on behalf of the company has been deemed to lie within
the powers of a managing director since “they are incidental and imperative for
managing the day-to-day affairs of the company”.186
The test applied by courts to construe a director to be a managing director has been to
weigh the powers conferred on him are whether wholly or in part related to the
management of the company. 187 It is sufficient to be showed that the appointee had been
conferred powers to carry on business to constitute the designation of a managing
director.188
The judicial decisions on Sec. 2(26) as to the interpretation of ‘substantial powers’ are
also relevant in this regard and help differentiate between the two designations. It has
been held by the Supreme Court that even if a person is designated as a manager, it does
not matter if he is exercising substantial powers of management. 189 However, it also true
that the term does not have a fixed meaning and would depend on the factual matrix of
each case.190
182
E.D. Devadason, C OMPANY LAW P RECEDENTS IN I NDIA, 371 (3 rd edn., 1966).
183
Id.
184
Id., at 372.
185
Id.
186
Wasava Tyres Partnership Firm v. The (Printers) Mysore Ltd., MANU/KA/8543/2006 (High Court of
Karnataka).
187
Jyotirmoy Dey v. Dacca Picture Palace Ltd., MANU/WB/0304/1962 (Calcutta High Court).
188
A.K. Khosla v. T.S. Venkatesan, (1992) 1 CALLT 77 HC (Calcutta High Court).
189
CIT, Kerala v. Alagappa Textiles (Cochin) Ltd., (1979) 49 Com Cases 947 (Supr eme Court of India).
190
Meenakshi Mills v. V. Vishvanatha Sastri, AIR 1955 SC 13 (Supreme Court of India).
The similarity between a manager and a managing director is that both of them de facto
enjoy substantial powers of management but the difference arises by virtue of the source
of their powers. In the former’s case, the source of his power arises due to his
appointment but in the latter’s case it has to be entrusted by the Board of Directors or
the articles of the company. 191 The Department of Company Affairs, as it was then
called, had issued a clarification in 1960 regarding the interpretation of the definition
clause.192 According to the clarification, the definition of a manager indicated a person
possessing the management of, wholly or in part, the affairs of the company. On the
other hand, a managing director may be conferred upon substantial powers but not
necessarily whole or substantially the whole of the management of the company.
Even if the managing director was confined to the affairs of a single subsidiary, it was
held to be binding upon him as a part of his duty. 193 However, a person cannot qualify
as a manager or a managing director if it is merely the power to purchase liabilities of a
third person. 194
It is submitted that the departmental clarification F. No. 8/16(1)/61-PR195 is mistaken in

its assumption that a manager who also happens to be a director vested with substantial
powers of management will be a managing director, since Sec. 197-A of the old act
clearly reflected the legislative intention of prohibiting the co-existence of a manager
and a managing director.
MANAGING DIRECTOR AND WTD

In the Companies Act, 1956 there is no legal prohibition against having both a whole
time director and a managing director. The bar is only against having both a managing
director and a manager. There is no prohibition against having a whole time director and
a manager either. For the purpose of section 269 196 or section 309 197 a whole time
director would rendering his services for the whole of his time to the management of the
company. In this regard he can be considered, virtually a managing director even tho ugh
he is not given that designation explicitly. Further a director-in-charge would also hold
191
A. Ramaiya, GUIDE TO THE C OMPANIES ACT, 64 (17 th edn., 2010).
192
193
Harold Holdsworth and Co. (Wakefield) Ltd. v. Caddies, (1955) 1 All ER 725 (House of Lords).
194
Motilal Shivlal v. Poona Cotton Mfg. Co. Ltd., AIR 1915 PC 69 (Bombay High Court).
195
196
Section 269, The Companies Act, 1956.
197
Section 309, The Companies Act, 1956.
a similar position even if he does not render the whole of his time to the management of
the company.
NON-E XECUTIVE DIRECTOR

A non-executive director does not undertake to devote his whole time working for the
company. He receives a smaller amount of money as remuneration. In contrast, an
executive director is in the nature of a Whole time Director and hence is deemed to have
agreed to devote his whole time of working hours to the company. He has a significant
personal interest in the company as his source of income. The underlying belief is that a
non-executive director can act as a check mechanism so as to ensure that the board of a
company acts in the interests of the company and not in the interest of a member or
members of the board.
The non- executive directors are expected to little or nothing other than to attend a
reasonable number of board meetings and perhaps be a part of certain committees that
the board might establish. 198 Their remuneration for their carrying out of functions
would be modest at best which would be decided by the company in a general
meeting.199 On the other hand, executive directors in addition to their roles as directors
are vested with executive and/or managerial positions. They are appointed by the board
which would determine their emoluments and perks. 200 Between the company and them
there are in most cases contract which in the case of public companies maybe no more
formal than a mere board resolution that are communicated to the director or by way of
an exchange of letters. 201
Generally the top executive directors adorn the role of managing directors. The practice
in England has been to call one of the top executive directors as Chief Ex ecutive.202 The
practice in USA has been to name these directors Presidents and Vice-Presidents.203
Their powers are nevertheless the same as that of a managing director and have similar
powers and functions. The similarity can be discerned by a perusal of the articles of the
company which general describes the distribution of powers among the managerial
198
COMPANY DIRECTORS: DUTIES, LIABILITIES AND REMEDIES, 76, (Simon Mortimore QC ed., 2009).
199
L.C.B. Gower, GOWER’S PRINCIPLES OF MODERN COMPANY LAW, 156, (5th edn., 1992).
200
Gower, Supra note 199 at, 156.
201
Gower, Supra note 199 at,157.
202
Gower, Supra note 199 at,157
203
Iyer, Supra note 50 at 635; Gower, Supra note 199 at,156.
personnel. Professor Gower describes such differences in nomenclature by arguing that
“the assumption is that a managing director includes the power to call him or her a
chief executive instead”204 Section 250 of the Companies Act, 2006 205 uses the phrase
‘by whatever name called’ covers the alternative descriptions in a company constitution
of the office of the director. 206
There can be no reason to object the companies adopting the American nomenclature to
address their managerial personnel as Presidents and Vice-presidents. However, it
would have to be made clear what these terms meant in the Articles of Association. A
clear description of the powers and duties of the candidate would be sufficient. 207 It
would also be beneficial if the company made it clear to its prospective investors and
the public what this nomenclature means in conventional terms like managing director
or executive director as ordinarily used.
As a matter of practice Public companies have both executive and non executive
directors. Professor Gower suggests that it is encouraged to have a reasonable
proportion of non-executive directors. 208
204
Gower, Supra note 199 at,158.
205
Section 250, Companies Act, 2006. (United Kingdom). The provision reads: “Director- In the Companies
Acts “director” includes any person occupying the position of director, by whatever name called.”
206
COMPANY DIRECTORS: DUTIES, LIABILITIES AND REMEDIES, 65, (Simon Mortimore QC ed., 2009). The other
descriptions of managing directors or persons managing the affairs of the company which are occasionally
found in the constitution of companies are ‘council’, ‘managing committee’ or ‘managers’. These descriptions
are not commonly used to address managing personal now.
207
Iyer, Supra note 50 at, 635.
208
Gower, Supra note 199 at, 157.
LIST OF PAY STRUCTURES IN LEADING COMPANIES
The average pay of a managing director in the United States is $145,947 (approximately
Rs. 9926577.91) per annum.209 The following figure gives the details of the pay
structure on an average of the data of some leading companies.
Figure 1.210
Salary $80,029 - $232,249
$2,416 - $106,324
Bonus
$29,359
Profit Sharing
$50,500
Commission
$64,480 - $270,476
Total Pay
In India, the average annual salary of managing director is estimated to be around Rs

2,958,420.211 The following data shows the prevailing pay structure for people
occupying the said designation in the country.
209
Managing Director Salary (United States), available at
http://www.payscale.com/research/US/Job=Managing_Director/Salary (Last visited on December 3, 2016).
210
Id.
211
Chief Executive Officer (CEO) Salary (India), available at
http://www.payscale.com/research/IN/Job=Chief_Executive_Officer_(CEO)/Salary (Last visited on December
4, 2016).
Figure 2.212
Salary Rs 436,584 - Rs 9,687,582
Bonus Rs 8,515 - Rs 3,072,478
Profit Sharing Rs 0.00 - Rs 2,030,992
Commission Rs 200,000
Total Pay Rs 499,432 - Rs 11,134,296
The average pay structure of a managing structure in an American Investment Bank is

fairly high, leading to fewer and fewer of the expensive staff at the top. 213
Figure 3.214
Total
Type of Base Total compensation,
Bonus, Bonus,
financial salary, compensation, high (all in
low high
institution low low thousands of
US$)
Boutique
investment 350 650 1,900 1,000 2,250
banks
212
Id.
213
Dan Butcher, Here’s how much managing directors in M & A make on Wall Street (February 25,
2016), available at http://news.efinancialcareers.com/us-en/237168/how-much-ibd-managing-directors-
make-on-wall-street (Last visited on November 30, 2016).
214
Id.
Total
Type of Base Total compensation,
Bonus, Bonus,
financial salary, compensation, high (all in
low high
institution low low thousands of
US$)
Large
investment 350 700 2,000 1,050 2,350
banks
The salary of the top executive has been subject to debate in context of widening of gap
in incomes. The CEO pay packages are structured in a way so as to maximize executive
remuneration.
More than one-third of a managing director’s salary comes from cash. The rest
originates from stock options, surplus, pensions, etc. 215 Hence the percentages for both
are contingent on market conditions. The companies added to the stock options of
managing directors after the 2008 financial crisis, when prices of stocks dro pped and to
avoid giving them excess equity. 216 As far as the relation between the salary and
performance is concerned, it has been found that the variance in the pay structure does
not exceed 5% and that the biggest variable is the corporation’s size. 217
215
Tim Mullaney, Why CEO pay is so high, and going higher (May 18, 2015), available at
http://www.cnbc.com/2015/05/18/why-corporate-ceo-pay-is-so-high-and-going-higher.html (Last visited
on December 1, 2016).
216
Tim Mullaney, Why CEO pay is so high, and going higher (May 18, 2015), available at
http://www.cnbc.com/2015/05/18/why-corporate-ceo-pay-is-so-high-and-going-higher.html (Last visited
on December 1, 2016).
217
Id.
ROLE OF MANAGING DIRECTOR
MANAGING DIRECTOR AS PRINCIPLE O FFICER FOR TAX PURPOSES

218
In the case of M.R. Pratap v V.M. Muthukrishnan, ITO where a verification for
income tax-purposes was signed by the company’s Managing Director on its behalf.
The court held that the Managing Director is a principle officer for tax purposes and
hence he could be proceeded against. The reasoning given was that the word “person”
used in Section 277 of Income Tax Act 219 is not restricted to the assesse only.
STATUS O F A MANAGING DIRECTOR

A Managing Director cannot be equated with an ordinary director. Sections 2(26) and
2(13) of the 1956 Act are indications of the intention of the legislature to treat the, i.e.,
ordinary directors and Managing Directors, two as separate categori es. Therefore, when
the term of a Managing Director expires, he cannot continue as a Managing Director
without being reappointed. This was explained in the case of Sishu Ranjan Dutta v
Bhola Nath Paper House Ltd. 220 Further a person does not acquire the role and the
status of a Manager or a Managing Director on being appointed only as a Director. 221 It
must also be noted that merely by conferring upon a director the power of attorney with
substantial powers of management, will not necessarily make him the managing
director.222
English Courts and common law courts have consistently held that managing director
would be an employee of a company. 223 In the Scottish Court of Sessions where Lord
Normand224 said that qua Managing Director he is a party to the contract with the
employer and this contract is that of employment. He further went on to observe that it
was a contract of service and not a contract for service. He further asserted that it was
common in the eyes of law for an individual to have multiple capacities, ea ch including
special rights and obligations in relation to the same person or same thing or matter. A
218
M.R. Pratap v V.M. Muthukrishnan, ITO (1992) 74 Com Cases 400.
219
Section 277, Income Tax Act, 1961.
220
Sishu Ranjan DUtta v Bhola Nath Paper House Ltd. (1983) 53 Com Cases 883 (Cal)
221
Deen Dayalu v Sri Bezwada Papi Reddy, (1984) 2 Comp LJ 396 (AP).
222
Iyer, Supra note 50 at, 614.
223
224
Anderson v James Sutherland (Peterhead) Ltd., 1941 Scottish Cases 203.
similar position was held in an English case. Upjohn LJ made the observation that
though it was true that director were not employees of a company, he ass erted that
without doubt the Managing Director would for many purposes properly be regarded as
an employee. 225
In Palmer’s Company Law 226 this position of the managing director is described
succinctly. The authors state that “in modern company practice a managing director, in
the great majority of cases combines the position of director and of employee. ”227 They
further go on to say that the validity of his appointment and scope of duties would be
determined from the provisions of the articles and the terms of his agreement with the
company. This proposition that a managing director can also be an employee has been
discussed and supported in many cases. 228
As per section 197-A of the 1956 Act, a company cannot have both a manager and a
Managing Director. Hence the question whether a Managing Director is an employee or
a director becomes relevant. A similar view was espoused in The Supreme Court of
India observed that he qua Managing Director has a dual capacity. 229 It is therefore
evident that “in the capacity of a managing director he may be regarded as having not
only the capacity as persona of a director but also has the persona of an employee or
an agent” depending upon the nature of his work and the terms of his employment. 230
Thus, the relationship between the Managing Director and the company maybe one of a
person employed as a servant or as an agent. This is so since the term employment is
flexible enough to cover both these roles. This question further leads to the question of
whether he is a ‘servant’ or an ‘agent’ of the company. This distinction has no
significant importance in the context of the Companies Act. The relevance of this
question may, however, take an important position as regards the remuneration of the
Managing Director is concerned for the purposes of the Income Tax Act. 231
225
Boulting v Association of Cinematograph, Television & Allied Technicians, (1963) 1 All ER 716.
226
Palmer, et al, PALMER’S COMPANY LAW, (25th edn., 1992).
227
Palmer, Supra note 226 at, 8065.
228
See, Lee v Lee’s Air Farmign, (1960) 3 All ER 420; Boulting v Assn. of Cinematography etc., technicians,
(1963) QB 600 (CA).
229
Ram Pershad v The Commissioner of Income Tax, New Delhi, [1972 ] 42 CompCas 544 (SC ).
230
231
Income Tax Act, 1961.
In the case of Ram Pershad v The Commissioner of Income Tax, New Delhi 232 the apex
court observed after considering a number of cases and authoritative text books, that it
could not arrive at a test for determining whether the person employed by a company is
a servant or agent based only upon the extent of supervision and control exercised on
him. It was further observed that the real test would one of the construction of the
Articles of Association and the agreement between the employee and the company. In a
case where the company itself is carrying on its business and the employee is employed
to manage his affairs on the basis of the Articles of Association and he could be
terminated from employment or be dismissed if his work is not satisfactory, then it
would be wrong to not consider him a servant of the company. This proposition was
further discussed and affirmed in a Karnataka High Court Judgement where the court
held that the remuneration of a Managing Director however paid would be taxable as a
salary. 233 The same position was taken in the case of Neufeld v Secretary of State. 234
A Managing Director is a director who has the powers of management delegated to him.
This power is delegated to him by the board of Directors and this is an essential
requirement of his office as “Managing Director” that he should hold the office of a
director prior to this delegation and appointment. 235 The idea that a Managing Director
who is not a director is contradiction in terms has stood ground for ove r half a
century. 236
REPRESENTATIVE CAPACITY O F MANAGING DIRECTOR - AGENCY

The position of the Manager in a representative cases have been discussed at length in
many cases under the Companies Act, 1956. Nevertheless they still are relevant under
the Companies Act, 2013.
The Courts have allowed the Managing Director to appear in court and make
representations on behalf of the company. This was subject to him not having
conflicting interests with the interests of the company. Such a position was adopted by
the courts notwithstanding the fact that he does not hold the power of attorney as
232
233
CIT v M.S.P. Rajes, (1993) 77 Com Cases 402.
234
Neufeld v Secretary of State 2009 2 B.C.L.C.
235
A R AMAIYA G UIDE TO COMPANIES ACT. 3439, (Arvind P. Datar, et al, eds., 18 th edn., 2015)
236
This proposition was first laid out in the case of Shirlaw v Southern Foundaries Ltd. (1940) 10 Com
Cases 11 (CA) and was further affirmed on appeal in the case of Southern Foundaries Ltd v Shirlaw
(1940 10 Com Cases 255. More recently this view was expressed in the case of Balchand C. v Devashala
(Nilgiri Tea Estates Co. Ltd. (1972) 42 Com Cases 623 (Madras High Court).
required under Order 3 of the Code of Civil Procedure. 237 Though correctness of this
decision is criticized it does not take away the fact that the Managing Director is vested
with the representative capacity and third parties who are dealing with him in the
ordinary course of business are entitled to assume he had the necessary authority. 238
In The case of a company that has borrowing capacity, its Managing Director, by virtue
of his position as the person in charge of substantially all the management, he would
have the authority to authenticate promissory notes on behalf of the company. 239
A Managing Director is said to be the natural custodian of the company’s records and
property. By virtue of this position, he would have the right to sue the formere
Managing Director in whose place he was appointed and who was refusing to handover
the charge to compel him to do so. 240
The MD of a company entrusted with the charge of management of company’s affairs

has the power to vary the duties of employees within permissible limits. 241
Once a Managing Director has ceased to hold the office he will no longer be authorized
to exercise any of the powers he enjoyed qua MD. It would be an irregular exercise of
power. In addition it would also be the exercise of power by a person who has no power
whatsoever.242 Further the Civil Court will not be included to give an injunction in
respect of the company interfering with the exercise of the functions of a Managing
Director once he is removed from office. 243
Though he has a representative capacity the principle of the separate legal personality
still persists. The loan documents of the company that were signed by the Managing
Director on behalf of the company will not automatically make him a party to an action
for recovery against the company. It was held that he was not a necessary party in su ch
suits.244
237
Order 3, Code of Civil Procedure, 1908.
238
Ramaiya, Supra note 33 at,3440.
239
Kumar Krishna Rohatgi v State Bank of India, (1980 50 Com Cases 722.
240
Chandigarh Tourist Syndicate Ltd. Re (1978) 48 Com Cases 267.
241
V. Ramaswami v Madras Times Printing & ublishsing, AIR 1917 Mad 485.
242
Varey Souriar v Keraleeya Banking CO., (1957) 27 Com Cases 591.
243
Joginder Singh Pa;ta v Time Travels (Pvt) Ltd., (1984) 56 Com Case 103.
244
Bank of Maharashtra v Racmann Auto P Ltd (1992)m74) Com Cases 752.
KNOWLEDGE O F MANAGING DIRECTOR AS KNOWLEDGE O F COMPANY
In the case of Sinha Watches (India) P. Ltd v Gujurat State Finance Corporation 245 it
was held that where the registered office of the company was not traceable and no one
was there to receive any communication addressed to the company, it was held that the
Managing Director who came to know of the fact of the proceeding and the ex parte
order, was the proper person to act on behalf of the company to oppose the winding up
petition though no notice had been served on him.
Even in the context of the 1913 Act, it was the duty of the Managing Director to
communicate to the company any material fact about certain other companies which he
came to know while acting as a director of those companies. The position was granted
to him for the protection for the interest of the company of which he was the Managing
Director T.R. Pratt (Bombay) Ltd. v E,D, Sasoon & Co. Ltd. 246
A Managing Director’s
knowledge is imputed to the company. 247
APPARENT AUTHORITY- T HE PIVOTAL ROLE O F T HE MANAGING DIRECTOR

A managing director by virtue of his position as the managing director is invested with
apparent or ostensible authority to carry on the company’s affairs in its usual course. He
may therefore, sign cheques and bills of exchange on behalf of the company. 248 This
proposition was followed in the Karnataka High court decision. 249 He also would have
the authority to borrow money on the company’s account and place the company’s
property as collateral for that loan, 250 receive the repayment of the debts owed to the
company. In Biggerstaff v Rowatt’s Warf Ltd 251 Lindley L.J. said “The persons dealing
with him must look to the articles, and see that the managing director might have power
to do what he purports to do, and that is enough for a person dealing with him bona
fide.” This apparent authority of the managing director is however limited to
commercial affairs and thus he would have no apparent or ostensible authority to
authorize the transfer of shares in the company or to make changes in the register of
members.252 At this stage it becomes obvious that he would no authority to sell the wole
245
Sinha Watches (India) P. Ltd v Gujurat State Finance Corporation (1985) 58 Com Cases 489 (Guj)
246
T.R. Pratt (Bombay) Ltd. v E,D, Sasoon & Co. Ltd (1936) 6 Com Cases 90.
247
United India Sugar Mills CO Limited, Re, (1933) 3 Com Cases 424 .
248
Dry v Pullinger Engineering Co., [1921] 1 KB 77.
249
Surve Kedarappa vs D.G. Bhimappa, AIR 1959 Kant 36
250
Biggerstaff v Rowatt’s Warf Ltd. [1896] 2 Ch 93.
251
Biggerstaff v Rowatt’s Warf Ltd. [1896] 2 Ch 93
252
George Witechurch Ltd v Cavanagh, [1902] AC 117.
or any part of the company’s business either as a going concern or on a break -up
basis.253 Contrastingly a non-manaigng or non-executive director and the secretary will
have no power to act as agents of the company by virtue of their designations. This is
apart from the limited authority of the secretary to negotiate contracts based upon the
instructions of the board’s and to do the acts necessary for administration of the
company’s organisation consistently with the board’s direction. 254 Hence the directors
and secretaries of the company will not have apparent authority as the managing
director will have on the company’s behalf. Which means that if person negotiates a
commercial contract with a director or a secretary, he would be doing so at his own risk
unless this authority has been delegated by the Board to enter into contract. The only
other way such a contract negotiated by a director or the secretary would be binding on
the company is if the company had held out as having delegated powers. 255 In such
situations the company will not be bound by a contract made without actual delegation
of powers by non-managing directors. 256 The statutes that are legislated to protect
parties who interact with the Board of Directors would not apply to them and they
would not be protected since the provisions extend only to transactions that were
authorised by the board. It would also extend to those transactions under the power
delegated by the board and not to transactions or acts done by individual directors or
secretaries on his own initiative without delegated powers.
It is pertinent in this juncture to note the stark contrast between the authorities of the
managing director as compared with a normal director or a secretary. Deviating from
this distinction in power, a company would be affected by notice of all matters known
to any of its directors (managing, executive or non executive directors) unless this
information is acquired by him in breach of his duties to the company.
253
Pennington, Supra note 167 at, 156.
254
Panorama Developments Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711.
255
See, Pennington, Supra note 167 at,156. Holding out would mean creating an impression in the minds of the
third party that the agent had the authority. For example if the company had appointed him to be an executive
director or a director with certain function which would have the effect of causing the third party to think he had
the authority.
256
Rama Corporation Ltd v Proved Tin and General Investments, [1952] 2 QB 147; Freeman and Lockyer v
Buchurst Park Properties Ltd, [1964] 2 QB 480.
CONTROL
The legal authority to control, run and direct the company affairs are vested in the board
of Directors. 257 In India section 179 258 of the Companies Act, 2013 and section 291 of
the Companies Act, 1956. 259 The boards generally delegate their legal powers to the
managerial personnel in substantial measure. The Managing Director is an example of
such managerial personnel. He would have the responsibility for deciding upon the long
term corporate objectives and co-ordinating important business actions. It is important
to note that along with control there is a large amount of discretion that is granted to the
MD. It is inclusive of discretion to act without external influence or interference.
A company’s executive will in most cases have a contractual relationship with the
company. The duration for which the executive is expected to continue in office is
defined in this agreement. It is standard practice to have a clause specifically dealing
with the duration of office. 260 In the absence of a specific agreement to this effect, both
the parties are expected to give sufficient and reasonable notice before the termination
of the relationship. The reasonability of this period is subjective and will be dependant
on the circumstances. One way to overcome this subjectivity is to specify the duration
with a clause dedicated to this. Another option would be that of a fixed period
contract.261 Companies quite often set up ‘rolling’ or ‘evergreen’ contracts wherein the
contracts essentially renew themselves. Which means that a three year rolling contract
would be always be three years from expiry; thus negating the problem of renewal.
257
Brian Cheffins, C OMPANY LAW, T HEORY, S TRUCTURE & O PERATION ,117,(1997).
258
section 179, the Companies Act, 2013. The section reads: “The Board of Directors of a company
shall be entitled to exercise all such powers, and to do all such acts and things, as the company is
authorised to exercise and do” and has certain exceptions. This means that the power of the Board of
Directors is essentially co-extensive with that of the company. The company being an abstraction needs
human action to function and this human action is provided by the board of directors collectively. It is
important to note that however that it is the Board colle ctively and not any individual director who has
this power. Therefore any action the company takes is taken through the board of directors.
259
Section 291, the Companies Act, 1956. “GENERAL POWERS OF BOARD (1) Subject to the
provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers,
and to do all such acts and things, as the company is authorised to exercise and do : Provided that the
Board shall not exercise any power or do any act or thing which is directed or required, whether by this
or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done
by the company in general meeting : Provided further that in exercising any such power or doing any
such act or thing, the Board shall be subject to the provisions contained in that behalf in this or any
other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent
therewith and duly made thereunder, including regulations made by the compa ny in general meeting.
(2) No regulation made by the company in general meeting shall invalidate any prior act of the Board
which would have been valid if that regulation had not been made. ”
260
Cheffins, Supra note 257 at,109.
261
Pennington, Supra note 167 at, 157
In many situations top managerial personnel are pressured into leaving the company
during the pendency of his service. He may either leave office or be removed from
service, this does not mean that the duration clause will end up being redundant. 262 The
contract between the managing director would be a contract of personal service. It
would be at the volition of the party. In India, it would not be possible to specifically
enforce this contract under section 21 263 or get an injunction under section 56(i) 264
against his removal from service. It would nevertheless be an option for him to sue for
damages.265 In case the terminated executive decides to sue for damages his
compensation will largely depend on how long the agreement still has to run. 266 When
an executive still has substantial period left in his contract, he will be in a good position
to negotiate a generous severance payment. Such lucrative ‘golden handshakes’ have
been a matter of controversy since underperforming managers, and executives were
potentially being rewarded. Thus there was a campaign for having shorter contract
durations. In support of this campaign the Greenbury Committee on executive pay
recommended that having a one-year contract term would be the best practice. 267
When a company enters into an agreement with a managing director for service under
which he is to hold the office for a period specified therein, and the Articles provide
that under certain circumstances the directors shall cease to hold the office, then such
provisions are deemed to have been including in the service contract itself. 268 The effect
is of having impliedly incorporated those provisions in the service contract. This is
additionally so since the board would have no power to exclude those items from a
contract. Further the managing director will have no cause to complain against the
company for having breached his service contract if he, by the happening of any of
those events, ceases to hold office. 269
Nevertheless, if the managing director is terminated from service by virtue of power

granted to the Board by anything contained in the Articles, this would give him cause to
sue for breach of service contract since the power of termination is subordinate to the
262
Cheffins, Supra note 257 110.
263
Section 21, Specific Relief Act, 1963.
264
Section 56(i), Specific Relief Act, 1963.
265
Iyer, Supra note 50, 617.
266
Iyer, 619.
267
Cheffins, Supra note 257 at 110.
268
Pennignton, Supra note 167 at 776.
269
Shindler v Northern Raincoat CO [1960] 2 All ER 239.
board’s power under the articles to appoint a managing director for such period as it
thinks fit. Therefore it is excluded when it appoints a managing director without
including in the contract an express power for the board to terminate it. 270 In a situation
where the company’s articles are modified after the appointment of the managing
director, with the aim of creating a new ground for his dismissal, or that which will
cause him to lose his position as a director, then such provision will not impliedly
become a part of the contract. And, on these grounds if his employment is terminated
then he can sue the company for damages. 271 If the managing director is employed
without a fixed time period being set for his tenure in office then the board will be
empowered to terminate his appointment at any time whether or not the Articles
expressly provide for it.272 On the other hand the company maybe sued if reasonable
notice of dismissal is not given. 273
When a managing director is appointed under a contract, his rights are contained in the
contract itself. However, in cases where the managing director is appoint ed without a
contract, he impliedly agrees to serve on the terms of the articles of the company. These
articles would be applicable to both directors and managing directors. Therefore, by
causing variations in the articles the rights of the Managing Director can be changed,
however this would not affect the rights that have already accrued. 274
OVERALL I NCHARGE OF T HE COMPANY

A company is represented by the board of directors who are vested the powers of the
company. The Supreme Court tackled an important facet of corporate governance in the
case of K.K. Ahuja v V.K. Vora.275 It took on the task of describing the question of who
was in charge of a company. In the context of section 141 276 of the Negotiable
Instruments Act, to hold a person liable, it would be necessary to prove two things: (a)
that person must be responsible to the company for the conduct of the business of the
company under the provision of the then Companies Act, 1956 and would have to also
270
Pennington, Supra note 167 at 777.
271
Southern Foundries Ltd v Shirlaw, [1940] AC 70.
272
Pennington, Supra note 167 at 777.
273
James v Thomas H Kent [1951] 1 KB 551.
274
Shuttleworth v Cox Bros & Co. Ltd. [1927] 2 KB 9.
275
K.K. Ahuja v V.K. Vora, AIR 2011 SC 2259.
276
Section 141, Negotiable Instrument Act, 1881
“in fact” be a person in charge of the business of the company. 277 The first prong could
be satisfied only certain persons listed by the Supreme Court. 278 This list includes the
managing director. The second element would be satisfied by identifying and making
specific averments to the effect that the person was in fact the “person in charge of the
business of the company”.279 This phrase would refer to a person who controls the day-
to-day business of the company. The Apex Court decided that the question as to who is
“overall control” is a very subjective test that would depend on the facts and
circumstance of each case. It further observed that such a test would not need to be
addressed if the person is designated as the managing director of the company. The
rationale behind such a finding is that the very word ‘managing’ which is prefixed to
Director makes it sufficiently clear that he was in charge and responsible to the
company for the business of the company. 280
L IABILITY O F MANAGING DIRECTOR FOR O FFENCES O F COMPANIES

The managing director who acts in a representative capacity binds the company as an
agent. Would the managing director be held responsible and liable for the offences of
the company? The case of Maksud Saiyed v State of Gujarat 281 decided by the Supreme
Court addressed this question. The criminal responsibility of directors for offences was
considered. In this case allegations were raised against a bank and the identities of the
people who ran the bank were not disclosed. It was held that though the actions gave
rise to statutory violation, it would not mean that its directors could be held personally
277
278
The Court placed reliance on Sections 5 and 291 read with clauses (24), (26), (30), (31) and (45) of section 2
of the Companies Act, 1956, listed the categories of person who under the Companies Act could be considerd as
persons who are supposed to be responsible to the company for the purpose of business. “These persons were:
a) the managing director/s;
(b) the whole-time director/s;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or instructions the Board of directors of the company is
accustomed to act;
(f) any person charged by the Board with the responsibility of complying with that provision (and who has given
his consent in that behalf to the Board); and
(g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors
who may be specified by the Board in this behalf or where no director is so specified, all the directors.”
279
The authors of this paper have strong reservations against such a holding. It is difficult for an outsider
affected to successfully make arguments to prove that the person was in charge of the business of the company.
In the case of the Managing director and the Secretary it might be obvious, but other with regard to other
directors this would become very difficult. It is submitted that it would be easier for a director to prove that he
was actually not in charge at the time of the incident. See, Avirup Bose, Director and Officer Liability for
Dishonour of Cheque, (July 31, 2009), available at http://indiacorplaw.blogspot.in/2012/04/implied-authority-
of-managing-director.html, (Last visited on Dcember 4, 2016).
280
281
Maksud Saiyed v State of Gujarat, (2008) 5 SCC 668.
liable. It cited a case 282 wherein it was held that the director of a company could not be
shown to responsible for the conduct of the business of the company. It further went on
to observe that the IPC 283 had no provisions that enable holding the managing director
of a company vicariously liable for its faults. Therefore to hold him liable it must be
shown that he was personally liable for the offence in question.
This case however must be understood in light of Avnish Bajaj v State.284 The relevant
question in this case was if the managing director could be held liable for the presence
of pornographic material being displayed on the company’s website. It was decided the
MD could be tried under section 85 of the Information Technology Act.285 It is
important to note that on this case the relevant statute itself contained provisions that
allowed making the persons who were in charge liable. Therefore the ration of
Maksud286 is limited to the extent that managing director could be held responsible only
if the governing provisions themselves allow it. 287
In the context of Scandinavian countries, the question of liability of a managing director

is distinct. He is supposed to be active on a full-time basis. Under Section 25 of Chapter
8 of the Swedish Companies Act, he is given the responsibility of the day-to-day
management of the company. 288 If the company were to institute any other provision
which would affect this position of responsibility, then the managing director would
have the risk of becoming liable for loss caused by the holder of that position.
282
Saroj Kumar Poddar v. State (NCT) of Delhi and Anr, 2007 (2) SCC (Cri) 135;
283
Indian Penal Code, 1860.
284
Avnish Bajaj v State (2005) 3 CompLJ 364 Del
285
Section 85(2), Information Technology Act clearly states that “where a contravention… has been committed
by a company, and it has been proved that the contravention has taken place with the consent or connivance of,
or is attributable to any neglect on the part of any director… such director shall also be deemed guilty of the
contravention and shall be liable to be proceeded against and punished accordingly.”
286
Maksud Saiyed v State of Gujarat, (2008) 5 SCC 668.
287
See, Everest Advertising Pvt. Ltd. v. State and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, both of which
are Supreme Court judgements in the year 2007. In both these cases the managing director was held liable only
under the express provision which allowed for the directors to be held liable.
288
Rolf Dotevall, Liability of Memebers of the Board of Directors and Managing Director – A Scandinavian
Perspective, Vol. 37(1), THE INTERNATIONAL LAWYER, 7, 13, (2003).
CONCLUSION
In this paper the authors have analysed the specific position of the managing director in the
ever changing and important field of corporate governance. A company is distinct from the
persons who manage it. The Companies Act provides that all the powers of the company
would be vested in the board of directors of the company. This in turn makes the board of
directors an organ of the company that runs it. In this context the position managing director
with special powers, procedures of appointment, qualifications and disqualifications is
emerging as a very important entity.
A managing director is appointed to the company by entering into a contract, or in the case of
small companies by a simple board resolution. But in most cases it is by way of a contract.
The Supreme Court of India considered his position in the company on multiple occasions
and came to the conclusion that he would have a dual capacity. He would be both a director
to the company and an employee of the company. His income could be assessed as income
from salary would be assessed. However, he isn’t an employee like everyone else. He adorns
the very important role of an agent of the company. The designation of managing director
along with the powers generally invested in him, he also gets the ostensible authority which
would be binding on the company. This shows the significance of the position of the
managing director. Therefore, it is submitted that the choice of a managing director must be
made after due consideration.
The managing director by virtue of his position has vested in him substantially all the powers
of management of the company. This puts him on a special pedestal as compared to other
managers, directors, secretaries and the board itself. While, it is true that he receives his
power from the board of directors itself, while he holds office, he has powers that cannot be
interfered with easily. He becomes the principal officer for the company in the context of tax
purposes. He has the authority to execute bills of exchanges by virtue of his position. The
Supreme Court of India has interpreted his authority to extend to the extent of him being the
overall in charge of the company.
Considering the fact that the managing director has been vested with and authorized to wield
so much power, it is surprising to note that the liability of the directors is very limited. It has
been observed that the companies offences could be attributed to the managing director only
on very few and particular cases where the statute itself permits such attribution of liability.
This means that unless the statute provides that the MD can be proceeded against, it would be
very hard to impute any liability on the part of the managing director.
BIBLIOGRAPHY
WEBSITES
1. Chief Executive Officer (CEO) Salary (India), available at
http://www.payscale.com/research/IN/Job=Chief_Executive_Officer_(CEO)/Sala
ry (Last visited on December 4, 2016).
2. Dan Butcher, Here’s how much managing directors in M & A make on Wall
Street (February 25, 2016), available at http://news.efinancialcareers.com/us-
en/237168/how-much-ibd-managing-directors-make-on-wall-street (Last visited
on November 30, 2016).
3. http://mca.gov.in/Ministry/pdf/Circular_04_10032015.pdf (Last visited on
December 1, 2016).
4. Managing Director Salary (United States), available at
http://www.payscale.com/research/US/Job=Managing_Director/Salary (Last
visited on December 3, 2016).
5. Ministry of Corporate Affairs, J.J. Irani Committee Report, (2004), available at
https://www.mca.gov.in/Ministry/pdf/Report_Companies_Law_Committee_0102
2016.pdf.
6. Rajesh Chakrabarti, Corporate Governance in India – Evolution and Challenges,
5, available at,
http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan023826.pdf
(Last visited on December 6, 2016).
7. The Financial Aspects of Corporate Governance, 14, available at
http://www.ecgi.org/codes/documents/cadbury.pdf, (Last visited December 6,
2016).
8. Tim Mullaney, Why CEO pay is so high, and going higher (May 18, 2015),
available at http://www.cnbc.com/2015/05/18/why-corporate-ceo-pay-is-so-
high-and-going-higher.html (Last visited on December 1, 2016).
B OOKS
1. Ramaiya, GUIDE TO COMPANIES ACT, (Arvind P. Datar, et al, eds., 18 th edn.,
2015)
2. A.S. Oppe, W HARTON ’S LAW LEXICON , (14 th edn., 1993).
3. Brian Cheffins, COMPANY LAW, THEORY, S TRUCTURE & OPERATION , (1997).
4. C OMPANY DIRECTORS: DUTIES , LIABILITIES AND R EMEDIES , (Simon Mortimore
QC ed., 2009).
5. E.D. Devadason, C OMPANY LAW P RECEDENTS IN INDIA , (3 rd edn., 1966).
6. L.C.B. Gower, GOWER ’S PRINCIPLES OF M ODERN C OMPANY LAW , (5th edn.,
1992).
7. L.V.V. Iyer, GUIDE TO C OMPANY DIRECTORS , (4 th edn., 2016).

8. Len Sealy, and Sarah Worthington, SEALY AND WORTHINGTON ’S C ASES AND
M ATERIALS IN C OMPANY LAW, (10th edn., 2013).

9. Lord Hailsham of Marylebone, HALSBURY ’S LAWS OF ENGLAND , (4th edn., Vol.7,
1989).
10. Sir Francis Beaufort Palmer, and Clive Macmillan Schmitthoff, P ALMER ’S
C OMPANY LAW, (23rd edn., 2016).
11. Palmer, et al, P ALMER ’S C OMPANY LAW, (25th edn., 1992).
12. Paul Davies, and Sarah Worthington, GOWER AND DAVIES ’ PRINCIPLES OF
M ODERN C OMPANY LAW, (9th edn., 2012).

13. Robert R. Pennington, P ENNINGTON 'S C OMPANY LAW, (7th edn., 1995).
ARTICLES
1. Harshawardhan S. Chindhade, Concept of Managing Director - A Draftsman’s

View, 96 TAXMAN (2009).
This article attempts to summarize the prevailing practices while drafting a
resolution that leads to the appointment of a managing director. It also analyzes the
problems of equivocal drafting. The author also mentions the differences between a
managing director on the one hand and a whole-time director and a manager on the
other. It ends by giving suggestions as to how attain unambiguous drafting and a
hassle-free appointment of a managing director.
2. K.R. Chandratre, Managing Director: Appointment, Reappointment, Cessation
and Removal, 59 TAXMAN (1991).
In this article, the author dwells upon some of the relevant legal aspects that govern
the appointment or reappointment of a person holding that designation, his removal
therefrom, and the cessation of his appointment under certain circumstances. In this
context, the author highlights the interplay among the Board of Directors of the
company, the powers of its shareholders, its and the Central Government as
envisaged by the relevant provisions of the Companies Act, 1956.
3. K.R. Chandratre, Relevant Provisions of the Companies Act, 2013 -Concerning

Appointment and Remuneration of Managing Director and Whole-time Director,
556(49) TAXMAN (2014).
This article deals with the relevant provisions pertaining to the appointment, and
remuneration of two kinds of directors, namely, managing and whole-time directors.
In the process of describing the relevant provisions, it takes the readers through
landmark English precedents and the corresponding/ deviating position in the Indian
statute. It also summarizes the analogous provisions of the new act and the old and
cites the differences in the same.
4. Pankaj Gupta and Singh Shallu, Evolving legal framework of corporate

governance in India – issues and challenges, Vol. 4(2), J URIDICAL TRIBUNE, 240,
240, (2014).
Corporate governance has begun to gain the attention of all stakeholders specially
the investors. Corporate governance essentially refers to the management of a
company. It is assumed that good corporate governance can strengthen inspire and
maintain the investor’s confidence. This is done by assuring the company’s
commitment to higher growth and profits. This area, corporate governance has
become a very important concern for global economics and is considered to be
extremely important in the developing and transitioning countries for efficiency and
the creation of key sectors. This paper seeks to explore how the legal framework for
corporate governance has evolved in India. It also seeks to address the issues and
challenges faced by corporate governance.
5. Rajesh Chakrabarti, Corporate Governance in India – Evolution and Challenges,

available at,
http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan023826.pdf
(Last visited on December 6, 2016).
This paper was written in light of the corporate governance failures in developed
countries that have gained media attention. The author argues that this issue has
always been very important for finance and economics. He further goes on to
argue that the issue of corporate governance is particularly relevant for
developing countries. The author suggests that financial development is largely
dependent on investor protection in country. He describes the Indian corporate
landscape as being characterized by a concentrated ownership of shares and a
pyramiding and tunnelling of founds among group companies. He goes on to
observe how the board of directors having become nothing more than silent
spectators with nominee directors paying little to no attention to their monitoring
functions. He finally argues that the corporate governance in India is moving
towards a more market based governance.
6. Rolf Dotevall, Liability of Members of the Board of Directors and Managing Director
– A Scandinavian Perspective, Vol. 37(1), THE INTERNATIONAL LAWYER, 7, 13,
(2003).
The authors have used this article to provide a comparative perspective on the
liability of the managing directors with that of India.
7. S. Venugopalan, The Managing Director - His status, powers and duties, 38

TAXMAN (2002).
The author looks at the role, importance and legal position of a managing director in
a company. According to him, the board has the most significant responsibility of
monitoring the company’s affairs. He goes on to say that a board generally appoints
one of the directors as the managing director in furtherance of the same and so as to
ensure smooth conduct of the company’s affairs. Hence, the author puts forward the
status, significance and roles of the managing director of a company in accordance
with the provisions of the Companies Act, 1956.
CASES
1. A.K. Khosla v. T.S. Venkatesan, (1992) 1 CALLT 77 HC (Calcutta High Court).

Directors misrepresented to the complainants about the status of the company’s
affairs so as to persuade them to buy shares. Complainants found out the status later
and sought to prosecute the directors on the said ground. It was held that since th e
complainants were experts in their field, stating untrue amount cannot be equated to
misrepresentation. It was noted, however, that in order to constitute
misrepresentation, the director in his personal capacity can be assumed to have
sufficient powers on behalf of the company.
2. A.S. Gill v State of Punjab, (2006) 133 Comp Cas 759.

The petitioner filed a writ petition to quash the order of the company in which his
terms of employment had been changed and he had subsequently been terminated. It
was held that there is no remedy that can be sought for by means of a writ petition
for the removal of a managing director. The rationale behind this is that since the
relationship between the managing director and the company is contractual in
nature. Both the appointment and termination would be based absolutely on contract
therefore it would not be possible to issue a writ to enforce a contract of personal
service.
3. Achutha Pai v. Registrar of Companies, (1966) 36 Com Cases 598 (High Court
of Kerala).
The capacity of managing director cannot be brought to an end merely submitting
two resignations. The resignation comes into effect when the resignation is accepted
by the company and relieves him from his duties (However, factually, it was held
that despite resignation, he could continue to act as the Managing Director).
4. Anderson v. James Sutherland (Peterhead) Ltd., 1941 SC 203 (Scottish Court of

Session).
The articles conferred powers on the directors to appoint a managing director. They
also stated in case of misconduct, they shall remove him as director as well. The
managing director fired with a revolver during a board meeting. The directors
removed him from the said designation but also wanted to remove him as a member,
for which it had to be proved that he was an employee. The court held that a
managing director acted in two different capacities due to which he was an
employee and could be removed.
5. Ashok Mittal v. Ram Parshotam Mittal, (2008) 149 Com Cases 11 (Delhi High
Court).
One of the directors sought an injunction against the reappointment of a managing
director on the completion of latter’s 5 years tenure. He had relied on the director’s
previous misconduct in certain dealings in order to establish a prima facie case. The
court did not accept the contention stating that the misconduct was not in his
personal capacity but due to non-payment to creditors of the company, which does
not attract the disqualification provision.
6. Avnish Bajaj v State (2005) 3 CompLJ 364 Del.

In this case an IIT student placed on the company website an obsecene MMS video
clip for sale. It was listed around 8:30 in the night and removed by 10 in the
morning two days later. The question was whether the owner of the website could be
held liable. Court held that since the IPC does not recognize automatically holding
the director of the company liable for such an offence where the company is the
accused, the director should be discharged.
7. Bank of Maharashtra v Racmann Auto P Ltd (1992) 74 Com Cases 752.

The suit was for a recovery of 3,29,193,61p. The managing director executed
documents that were necessary to obtain the Cash Credit on behalf of the company.
Though he has a representative capacity the principle of the separate legal
personality still persists. The loan documents of the company that were signed by
the Managing Director on behalf of the company will not automatically make him a
party to an action for recovery against the company. It was held that he was not a
necessary party in such suits.
8. Bennet, Coleman and Co. Ltd. v. Union of India, (1993) 78 Com Cases 666
Here the government approved the appointment on the terms proposed. Later, it
made an alteration in the terms stating that retirement benefits such as fund,
gratituity etc. would be taken on the basis of the salary and not commission earned.
No reasons were given for the same, on ground of which the court set it aside.
9. Biggerstaff v Rowatt’s Warf Ltd. [1896] 2 Ch 93.

In this case the question that was sought to be answered was whether an assignment
of debt by the company was valid. The assignment was executed by the managing
director, one Davy. By the articles of the company the directors were authorized to
appoint a managing director and to delegate to him such of the power of the board as
they thought fit. The company had power to assign the debts but there was no
minute shewing what powers had been delegated to the managing director, nor his
powers as such, although he had acted in that capacity. It was held that the
assignment was valid. Lindley L.J. said “The persons dealing with him must look to
the articles, and see that the managing director might have power to do what he
purports to do, and that is enough for a person dealing with him bona fide.”
10. Bluett v Stutchberry’ Ltd (1908) 24 TLR 469

The question was whether a decision of the directors to re-appoint a managing
director was valid. It was held that the directors would not be empowered to bind the
company by appointing a man as managing director for four years so as to deprive
the company of their power and duty of considering and deciding at the General
Meeting whether the person sought to be appointed would have been a person who
was fit or proper. It was also necessary to consider whether the person was eligible
for re-election as per the articles of the company and also if he was removable under
the articles. The court in this instance held that it was completely ultra vires the
power of the directors and their competence to enter into any agreement which
would entirely deprive the company of its right under the articles of association. It
was held in this case that the directors derive their power from the articles of
association. They could only act in accordance of the articles of the company
11. Boschoek Proprietory Co. Ltd., v. Fuke, (1906) 1 Ch 148 (Chancery Division).
The appointee lacked the requisite qualifications prescribed by the company’s
articles. In addition to that, the directors fixed his annual remuneration as 700
pounds as against the ceiling of 500 pounds stated in the articles. The court held that
unless the articles were amended, the directors had no authority to make such an
appointment.
12. CIT, Kerala v. Alagappa Textiles (Cochin) Ltd., (1979) 49 Com Cases 947
Under the relevant provisions of the Income Tax Act, the manager of a company was
sought by the authorities to be taxed as an assessee. The company argued that the
remuneration was in the nature of a managing agent and should not be taxed. The
court held that the appointment of the managing agent was not barred Sec. 384 and
Sec. 2(24) of the 1956 Act, and should be treated as a manger for assessment
purposes.
13. CIT v M.S.P. Rajes, (1993) 77 Com Cases 402.

The questions referred to in this case under section 256(1) of the Income Tax Act,
1961 were whether having consideration to the facts and circumstances of the case,
the tribunal was right in holding that the remuneration received by the managing
director was assessable under the Income from salary or Income from other sources.
For this they considered what the nature of employment was of the managing
director. By following the decision in Ram Pershad v CIT it held that the managing
director would have a dual capacity and would be an employee and could be taxed
under the income under salary.
14. Chandigarh Tourist Syndicate Ltd. Re (1978) 48 Com Cases 267.

This case was an application under section 151 of the CPC read with rule 9 of the
Companies (Court) Rules, 1959. The application was for the former managing
director of the company to hand over the records relating to the company and other
items including cash. The former managing director asserted that the applicant had
no locus standi to make such an application. A Managing Director is said to be the
natural custodian of the company’s records and property. By virtue of this position,
he would have the right to sue the formere Managing Director in whose place he was
appointed and who was refusing to handover the charge to compel him to do so.
15. Craven Ellis v. Cannons Ltd., (1936) 2 KB 403 (King’s Bench Division).
The plaintiff was appointed a managing director of a company. The directors who
appointed him, however, did not obtain the requisite shareholders’ qualificat ion for
the appointment and hence the contract was void. However, the court stated that he
was entitled to remuneration based on quantum meruit since there was an implied
contract in place. Where it is implied that the appointee would be paid for his
services, there exists an obligation to pay him for the same in absence of an express
contract.
16. Deen Dayalu v. Sri Bezwada Papi Reddy, (1984) 2 Comp LJ 396 (AP).
It was held in this case that a person does not acquire the position of or become the
managing director merely on being appointed the director of the company.
17. Dry v Pullinger Engineering Co., [1921] 1 KB 77.

The facts of that case were that the articles of the company empowered Directors a
member of the board of directors as the managing director. He would be so
appointed to draw the bills of exchange on behalf of the company. The managing
director in question drew a bill of exchange without the company actually being
vested with the authority by the directors to draw the bills. An action against th e bill
was taken against the company. It was held that the managing director would have
been entitled to draw the bill of exchange. A person taking such a bill would be
entitled to assume that the person in question by virtue of his designation as the
managing director would have the authority to draw that bill and hence would be
valid.
18. Freeman and Lockyer v Buchurst Park Properties Ltd, [1964] 2 QB 480. Foster v.
Foster, (1917) All ER Rep 856 (Chancery Division).
One of the two joint managing directors was stripped of his designation and the
other was appointed as the sole managing director of the company. It was argued
that the new appointee was barred from voting as per the articles of the company,
since she was interest in the outcome. It was held that it was an irregularity that
could be ratified by the shareholders, subsequently.
19. Harold Holdsworth and Co. (Wakefield) Ltd. v. Caddies, (1955) 1 All ER 725
(House of Lords).
The plaintiff was appointed as a managing director of a company emerging as a
result of a buyout. But then the holding company sought to move him to a
subsidiary. It was argued that it would in breach of contract to do so. The court held
that the said designation had no special meaning attached to it and when he is
appointed as a director of a subsidiary company, there was no breach of contract.
20. Indian Molasses Co. Pvt. Ltd. v. CIT, AIR 1959 SC 1049 (Supreme Court of
India).
The company entered into an agreement with the retired managing director
according to which it established a trust, where money will be placed in the hands of
trustees who will have to buy annuities. Sec. 10 of the Income Tax Act implies
liability that actually exists at the time of the agreement, but the court found that in
this case the liability was based on a contingency (trustees buying annuities). Hence,
the amount claimed by the managing director cannot be termed as expenditure.
21. Jayesh Ramniklal Doshi v. Carbon Corpn. Ltd., (1993) 76 Com Cases 748
(Bombay High Court).
Court came to the conclusion that once a person was adjudged insolvent by a court
of competent jurisdiction (in this case the adjudication was by a Judge of the
Bombay High Court) he would become disqualified. Even if the debtor paid off the
creditor the same does not wipe out the adjudication with retrospective and
proceedings cannot be said to be non-existent form the inception.
22. John Shaw & Sons v Shaw, (1935) 2 KB 113.

In this case the governing directors resigned and promised that they wouldn not take
part in financial affairs. The independent directors resolved ot bring a claim against
the and before the hearing a general meeting was called where the majority
shareholders got a resolution to discontinue the litigation. A managing director can
be perceived as an independent organ of a company only if his powers maybe
derived from the memorandum or articles of association of a company. They cannot
usurp the powers vested in the general body of shareholders and conversely the
general body of shareholders cannot usurp the powers of the board of dir ectors and
managing director. In such a situation he would be entitled to prevent his colleagues
and other directors from interfering in his exercise of power.
23. Jyotirmoy Dey v. Dacca Picture Palace Ltd., MANU/WB/0304/1962 (Calcutta

High Court).
A resolution authorising a Director-in-Charge to operate banking accounts and a
general power of attorney in his favour do not confer on him management of the
whole or substantially the whole of the affairs of the company' and do not 'entrust
him with substantial powers of management’, and, as such, he is neither a manager
nor a managing director within the meaning of the Companies Act, 1956.
24. K.K. Ahuja v V.K. Vora, AIR 2011 SC 2259.

The question in this case was; who can be said to be the persons “in charge of” and
responsible to the company for the business of the company for the purpose of
section 141 of the Negotiable Instruments Act, 1881. It was held in the case that the
person must be responsible to the company for the conduct of the business of the
company under the provision of the then Companies Act, 1956 and would have to
also “in fact” be a person in charge of the business of the company. Court decided
that the question as to who is “overall control” is a very subjective test that would
depend on the facts and circumstance of each case. It further observed that such a
test would not need to be addressed if the person is designated as the managing
director of the company. The rationale behind such a finding is that the very word
‘managing’ which is prefixed to Director makes it sufficiently clear that he was in
charge and responsible to the company for the business of the company.
25. K.S. Sundaram v. Union of India, (2004) 119 Comp Cas 69 (Madras High
Court).
The Central Government had scrutinized the eligibility of the appointee for the post
of managing directorship. It had listed six minute details for his rejection, issued a
show cause notice to the appointee and the company. The notice also suggested that
the grounds for fit and proper person have been carefully looked into. Hence, it was
held that the disqualification was fully justified.
26. Kumar Krishna Rohatgi v State Bank of India, (1980) 50 Com Cases 722.
This case was an appeal from a money suit. The company executed a promissory
note in favour of the bank. Mr. Rohatgi executed a guarantee for that amount which
was not paid and the suit was instituted. The question was whether the managing
director had the authority to execute the promissory note on behalf of the company.
It was held that in the case of a company that has borrowing capacity, its Managing
Director, by virtue of his position as the person in charge of substantially all the
management, he would have the authority to authenticate promissory notes on behalf
of the company.
27. Life Insurance Corporation of India v. Escorts Ltd., (1986) 59 Com Cases 548
In this case, the permission given by R.B.I. to the appellant company for chaning the
composition of the board was challenged. It was held that in the present case, the
company whose shares were bought by a non-resident company cannot refuse to
register the same because the permission taken by the appellants was valid. The fault
was committed by a bank responsible for the transaction while the R.B.I had no
malafides. (It was held that the appellants had full power to change the composition
of the board by removing the directors and replacing them with new ones, and that
no injunction could be granted to the aggrieved directors)
28. M.R. Pratap v V.M. Muthukrishnan, ITO (1992) 74 Com Cases 400.
The appellant who was the managing director of the company filed a return of the
income of the company to be assessed which was verified and signed by him. The
question was whether he would be a principal officer and thus have the authority to
sign the return. The court held that the Managing Director is a principle officer for
tax purposes and hence he could be proceeded against. The reasoning given was that
the word “person” used in Section 277 of Income Tax Act is not restricted to the
assesse only.
29. Major R.S. Murgai v. Ex Servicemen, Airlink Transport Services (P) Ltd. (2001)
103 Com Cases 177 (Delhi High Court).
Where a managing director was dismissed and an administrator was appointed in his
place, a suit by the managing director for salary and emoluments was held to be not
maintainable. It was found by the company Judge that his removal was fully
justified on merits and he had not challenged the findings. The same was upheld in
the High Court.
30. Maksud Saiyed v State of Gujarat, (2008) 5 SCC 668

Managing Director who was the appellant was the principle officer. There is a
statutory obligation on the principal officer to sign the tax returns. In a verification
for income tax-purposes was signed by the company’s Managing Director on its
behalf. The court held that the Managing Director is a principle officer for tax
purposes and hence he could be proceeded against. The reasoning given was that the
word “person” used in Section 277 of Income Tax Act is not restricted to the assesse
only.
31. Meenakshi Mills v. V. Vishvanatha Sastri, AIR 1955 SC 13 (Supreme Court of

India).
The case involved the application of pre-Constitutional tax statute. The court, while
deciding upon the question as whether proceedings started before the Constitution
came into force can continue, it also looked at the applicability of the statute to
‘substantial’ tax evaders and said that it would depend on the facts of that case. It
was held that the proceedings cannot continue.
32. Montreal Public Service Co v Champagne, (1916) 33 DLR 49.

It was observed in this case that companies general were allowed to appoint a
manager or managing director who would be invested with powers that could either
be narrow or wide as regards the management over the company and its affairs. It
would be ultra vires of the company to delegate all the administration of the
business of the company only to such direction and control as it is the duty of the
directors to exercise. A managing director in his capacity as a director would not
have any individual power to represent and bind the company as the directors are
vested with powers as a whole.
33. Morarji and Co. v. Sholapur and Co., (1944) 14 Com Cases 59 (Bombay High
Court).
A joint stock company entered into an agreement with a firm, holding the partners in
the latter to be its agents. In the agreement, it was stated that on any change in
composition in the firm, a new agreement has to be entered into. When the last of
the original firm partner assigned his share to the plaintiff, the company prevented
the same on the ground that previous changes in composition were not followed by
corresponding novations. The court upheld its actions.
34. Morrell v. Oxford Portland Cement Co. Ltd., (1910) 26 TLR 682 (Chancery
Division).
In case the articles leave it to the Board to distribute the remuneration, the directors
do not get an entitlement to the same until and unless a resolution is passed.
35. Motilal Shivlal v. Poona Cotton Mfg. Co. Ltd., AIR 1915 PC 69 (Bombay High
Court).
A company went into liquidation. It was argued that the assets of the company could
be mortgaged and that a certain amount could be raised for the purposes of
economic security of the liquidators. The court said held that a lower court’s order
that the assets could be utilized for the said purpose was not executable but only a
solution to exigencies. (The company said that the initial consent of letting the
assets being used for the purposes of mortgage was not valid since they could not
deal with third parties. The court accepted this contention)
36. Nelson v. James Nelson and Sons (1915) All ER Rep 433 (Court of Appeal).
In this case, the articles of the company conferred powers of appointing managing
directors on directors. They appointed a person X who held the office as per the
terms of appointment and performed all his duties. He was then dismissed by the
directors. It was held that as long as X fulfilled the conditions of appointment, he
cannot be dismissed, violation of which would entitle him to damages.
37. Nell v. Atlanta, (1895) 11TLR 407 (Court of Appeal).
If the remuneration of directors is not provided in the articles of the company, they
cannot claim it as an entitlement. When the company agrees to the remuneration o f
directors, they are entitled to get paid from the company’s funds.
38. Neufeld v Secretary of State 2009 2 B.C.L.C

In this case the question as whether or not the governing director who owned 90%
shares in a company could be an employee in the same company. It was held that : if
the contract is not a sham, it is likely that the tribunal may, whether or not the
contract is labelled a employment contract, consider if it gives rise to an
employer/employee relationship. The factors that may be considered: the d egree of
control exercised by the company over the shareholder employee, however this is
not the same as whether or not there is controlling shareholding. The court may also
look into whether there are directors other than or in addition to the shareholder
employee and whether the constitution of the company gives that shareholder rights
such that he is in reality answerable to himself and incapable of being dismissed
39. Newspaper Proprietary Syndicate Ltd., Re, (1900) 2 Ch 349 (Chancery

Division).
A managing director is nothing but an ordinary director with additional
responsibilities. If a managing director is not a director, the designation is
contradictory since he cannot be taken an employee in the first instance. In any case,
even if he were an employee, he would not be entitled to preferential payments.
40. Panorama Developments Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711.
The company secretary hired expensive cars for the business while the managing
director of the company was away. He used the cars for himself, he was the
prosecuted and imprisoned. The company claimed it was not bound to the contracts
since Bayne had no authority to enter into the said contracts. It was observed that
the managing director would have had the authority to enter into contracts, but the
question was whether the secretary had the authority to enter into this contract. The
secretary will have no power to act as agents of the company by virtue of their
designations. This is apart from the limited authority of the secretary to negotiate
contracts based upon the instructions of the board’s and to do the acts necessary for
administration of the company’s organisation consistently with the board’s
direction.
41. Pyare Lal Gupta v. D.P. Agarwal [1983] 53 Comp. Cas. 586 (Allahabad High
Court).
In this particular case, the Allahabad High Court held that no approval of the Central
Government was required to remove a person from managing directorship. It
appears that in that case the articles of the company did not contain a ny provision
empowering the Board of Directors to remove the managing director. Approving the
view taken by the lower court, that the Board was at liberty to remove the managing
director who was only an agent of the Board to carry out the duties assigned t o him,
the High Court observed:
42. Rama Corporation Ltd v Proved Tin and General Investments, [1952] 2 QB 147.
A director purporting to act on the behalf of a company enters into a contract and
receives a cheque from the plaintiff. The plaintiff was not acquainted with the AoA.
The board in this case had not delegated the authority to the directors. It was held
that companies would not be bound by actions of non-managing directors who were
no delegated these powers.
43. Ram Pershad v The Commissioner of Income Tax, New Delhi, [1972]
42CompCas 544 (SC ).
The relevant question in this case was whether the Managing Director, the assesse in
this case, had to paid remuneration as a salary. It was held that the nature of
employment could be gathered from a construction of the Articles of Association
and a perusal of the agreement between the assesse and the company. It held that in
the present case, he would be employed as a servant of the company and hence his
remuneration would be of the nature of a salary.
44. Ramesh Narang v. Rama Narang, 1995 83 Com Cases 194 (Supreme Court of
India).
Here a person was convicted for an offence involving moral turpitude and the High
Court, on appeal, suspended the sentence but not the conviction. It was held that he
remained disqualified for the appointment and his appointment as managing director
was therefore void. SC dismissed the appeal challenging this order.
45. Rampur Distillery and Chemical Co. Ltd. v. Company Law Board, (1970) 40
Com Cases 916 (Delhi High Court).
In this case, two of the managing directors were facing prosecution against whom
the proceedings were pending. The company had contended in the application before
the application to the central government that these were sufficient grounds to allow
reappointment. The court said that it is not possible to say that the pendency of
prosecution cannot lead any reasonable person to the conclusion that the person who
is being prosecuted is fit and proper and the order can be justified on this ground
alone. Further, Sec. 326 289 requires application of mind by the central government
and in its absence the approval shall be quashed.
46. Raymon Engg. Works v. Union of India, AIR 1970 Delhi 5 (Delhi High Court).
This case involved a challenge to the Central government’s order upon the filing of
application for the appointment of a managing director. It was submitted that the
concerned officials had malafide intentions in imposing certain conditions on the
appointment. The court held that the government had the power to impose the s aid
conditions under Sec. 269(1) and 637-A of the 1956 Act and that there was no
question of malafide intentions.
47. Read v. Astoria Garage (Streatham) Ltd. (1952) 2 All ER 292 (Court of Appeal).
The managing director was appointed on the basis of contract that was silent on the
term and notice period before the removal. Hence, when he was removed summarily
from the office, it was held there has been no breach of the contract since the
relevant contractual provision was absent.
289
48. Reliance Jute and Industries Ltd., Re, (1983) 53 Com Cases 591 (Calcutta High
Court).
This was a matter under the Monopolies and Restrictive Trade Practices, Act which
provided a time-limit within which the government had to accord approval. On facts
of the case, it was held that a failure on the part of the Government to do so would
amount to an automatic approval.
49. Richmond Gate Property Co. Ltd., Re, (1964) 3 All ER 936 (Court of England
and Wales).
The managing director filed for recovering his remuneration when the appointing
company went into liquidation. It was argued that in the absence of a contract
specifying terms of remuneration, he should be given the same on a quantum meruit
basis. The court held that since the articles specified terms of his appointment, he
cannot be rewarded remuneration on such basis. But at the same time, the articles
clearly stated that he had to stay at the mercy of the directors and cannot claim
remuneration if they choose to opt for it.
50. Risal Singh v. Chandgi Ram, AIR 1966 Punj 393 (Punjab-Haryana High Court).
Held that offence of possessing an unlicensed revolver committed under the Indian
Arms Act implied no such depravity so as to constitute ‘moral turpitude’ for the
purposes of the Companies Act, 1956.
51. S.S. Lakshmana Pillai v. Registrar of Companies, (1977) 47 Comp Cas 652
(Madras High Court).
The petitioner was the managing director when criminal proceedings were initiated
against him. He sought resignation which would absolve him of all liabilities. It was
held that the resignation was effective from the date of submission and the company
could not proceed against him.
52. Sardar Gulab Singh v. Punjab Zamindara Bank Ltd., (1941) 11 Com Cases 301
(High Court of Lahore).
The relevant provisions of the Specific Reliefs Act 290 can be enforced since the
managing director is an employee of the company. The terminated director had no
right to an injunction against his removal in the case because no agent can be forced
to be employed by a principal.
53. Saroj Kumar Poddar v. State (NCT) of Delhi and Anr, 2007 (2) SCC (Cri) 135
The appellant in this case was a director of a public limited company. The company
had issued three cheques in favour of the complainant. The managing director and
the directors of the company were arrayed as accused. It was held that the director of
a company could not be shown to responsible for the conduct of the business of the
company. It further went on to observe that the IPC 291 had no provisions that enable
holding the managing director of a company vicariously liable for its faults.
Therefore to hold him liable it must be shown that he was personally liable for the
offence in question.
54. Schindler v Northern Raincoat CO [1960] 2 All ER 239.

The facts of the case are the share capital of the defendant company were sold by the
plaintiff and entered into an agreement to serve as the managing director of the
company. The company was sold and the plaintiff lost employment and he sued for
wrongful dismissal. It was held that the managing director will have no cause to
complain against the company for having breached his service contract if he, by the
happening of any of those events, ceases to hold office
55. Shuttleworth v Cox Bros & Co. Ltd. [1927] 2 KB 9.

Cox Bros had appointed a board of directors and fixed under its articles of
association that they would hold office for life. It was then proposed to amend
articles such that the director would lose his position if other directors requ ested him
to resign. It was held that in cases where the managing director is appointed without
a contract, he impliedly agrees to serve on the terms of the articles of the company.
These articles would be applicable to both directors and managing directors.
290
291
Indian Penal Code, 1860.
Therefore, by causing variations in the articles the rights of the Managing Director
can be changed, however this would not affect the rights that have already accrued.
56. Sinha Watches (India) P. Ltd v Gujurat State Finance Corporation (1985)58 Com
Cases 489 (Guj)
The petitioners, Sinha Watches and its managing directors challenging order of
winding up. The managing director was in Tihar jail. It was held that where the
registered office of the company was not traceable and no one was there to receive
any communication addressed to the company, it was held that the Managing
Director who came to know of the fact of the proceeding and the ex parte order, was
the proper person to act on behalf of the company to oppose the winding up petition
though no notice had been served on him.
57. Sishu Ranjan Dutta v Bhola Nath Paper House Ltd. (1983) 53 Com Cases 883
(Cal)
It was held in this case that a Managing Director cannot be equated with an ordinary
director. They considered section 2(26) and Section 2(13) of the companies Act,
1956 and observed that the two were clearly defined and had separate and specific
provisions. Therefore they could not be treated the alike and mixed up. Therefore it
was held that if the as per the provisions a managing director ceases to hold office
then they cannot continue as directors without being validly appointed by the
company as opposed to a director. Therefore they would not be able to continue as
directors of the company after termination of their employment as managing
director.
58. Southern Foundries Ltd v Shirlaw, [1940] AC 70.

Mr Shirlaw was the managing director of Southern Foundries. Another company
took over the business. The new owners altered the articles empowering two
directors and the secretary to remove any director. Mr Shirlaw was thus fired. It was
held in this case that a managing director who is not a director is a contradiction. It
was further observed that the contract of the managing director was breached and he
was awarded compensation.
59. Surve Kedarappa vs D.G. Bhimappa, AIR 1959 Kant 36
This case applied the finding in the case of Dey v Pullinger. The question in this
case was whether the promissory note executed by the defendant was valid or not.
There was no delegation of power in respect of drawing of bill of exchanges in fact.
It was held that the persons dealing with the company could assume the authority of
the managing director of his authority and hence the company would be held liable.
60. Sridhar Sundararajan v. Ultramarine & Pigments Limited, (2015) 192 Comp Cas
355 (Bombay High Court).
The managing director was appointed before the relevant provision for the new act
was notified. Upon notification, he still had his 2 years of tenure left but he had
crossed the age of 70. The court applied contextual rule of interpretation and said
that in such cases ‘continue’ implies appointment/reappointment and not necessarily
cessation of managing directorship.
61. Subhash Chand Agarwal v. Associated Limestone Ltd., (1998) 92 Comp Cas 525
The company was a limited company and therefore, partnership principles could not
have been applied to order its winding up. More than half the capital of the company
was held by a State Government undertaking so that the company was in the
category of a Government company. An order for winding up of a Government
company on the just and equitable ground would be something for which there was
no precedent. The CLB also found that the company was turning the corner and the
accumulated losses were being wiped out. A petition filed by a member on the
ground that the managing director of a public company has been removed would not
find much respect unless it could be shown that the interest of the company would
be prejudiced by the removal.
62. Swabey v. Port Darwin Gold Mining Co., (1889) 1 Meg 385 (Court of Appeal).
In this case, the articles provided that “the directors shall each receive by way of
remuneration each year the sum 200 pounds, and the chairman in addition 100
pounds per annum.” A director resigned in the course of a current year, and he was
held entitled to an apportioned part of the remuneration for that year.
63. Swapan Das Gupta v. Navin Chand Suchanti, (1988) 64 Com Cases 562, 582
(Calcutta High Court).
An additional director was appointed as pet the terms of the articles. The said
articles were silent on the duration of the appointment. He was removed from office
by the directors. It was held that in absence of relevant provisions it will assumed
that the appointment is indefinite but for removal by way of removal in annual
general meeting.
64. T.R. Pratt (Bombay) Ltd. v E,D, Sasoon & Co. Ltd. (1936) 6 Com Cases 90
The question that arose was as to the power of the company and its directors to
borrow money. The managing director was given delegated all the powers of the
directors through the articles. It was the duty of the Managing Director to
communicate to the company any material fact about certain other companies which
he came to know while acting as a director of those companies. The position was
granted to him for the protection for the interest of the company of which he was the
Managing Director.
65. T. Murari v. State, (1976) 46 Comp Cas 613 (Madras High Court).
The person acting as managing director was to face proceedings against him,
brought by the company. He sought to resign in order to escape the same. It was
held that in absence of provisions and articles, resignation will come into effect on
the date on which it was tendered.
66. Thomas Logan Ltd. v. Davis, (1911) 104 LT 914 (Chancery Division).
An express provision that gave members powers to give directions by way of an
ordinary resolution was challenged. The court held that if directors act under a
specific article and not in general exercise of their powers of management, their
decision cannot be altered through an ordinary resolution by the members.
67. Wasava Tyres Partnership Firm v. The (Printers) Mysore Ltd.,

MANU/KA/8543/2006 (High Court of Karnataka).
Held that, in the instant case the facts stand on a different footing. There is no
material to show that there is dis-agreement amongst the directors for filing of the
suit in question. On the other hand the suit is obviously filed for the benefit of the
company.
That apart, the provisions of Section 2(26) of the Companies Act defines the
word managing director. The words “substantial powers of anagement" specifically
excludes certain acts from its purview. Therefore except the excluded acts the
managing director has power and privilege of conducting the business of company in
accordance with the Memorandum and Articles of Association of the company.
68. Woolf v. East Nigel Gold Mining Co. Ltd., (1905) 21 TLR 660 (Court of
Appeal).
In case the company doesn’t specify provisions for the appointment of a managing
director, it should be presumed in law that the directors have the power to do so.
69. V. Ramaswami v Madras Times Printing & Publishsing, AIR 1917 Mad 485.
The plaintiff was appointed as the managing director of the company to carry on the
business. Two directors were appointed at the same time. After the managing
director ceased to hold office one of the directors took up that position and in
exercise of his power directed the plaintiff to carry out certain actions in his new
position as a co-editor. The MD of a company entrusted with the charge of
management of company’s affairs has the power to vary the duties of employees
within permissible limits.
70. Varey Souriar v Keraleeya Banking CO., (1957) 27 Com Cases 591.
The question in this case was regarding the authority of the managing director to
execute the bond in favour of plaintiff. It was observed that the managing director
was in fact without the authority to carry on this function. However, it was held that
since it was the managing director who is invested with the powers by virtue of the
provisions of the articles of association, it would be unfair to expect the outsider to
enquire regarding the internal functioning of the company. All that was necessary
for a third party to do was to ensure that the managing director might have the
power to do what he purported to do.
71. Vinod Kumar Mittal v, Kaveri Lime Industries Ltd., (2000) 2 Comp LJ 354
The director made several complaints against the company in various fora. The
concerned authorities found all of them to be misleading. The company removed
him for on the said ground, which was upheld by the Board.
Reports
1. Ministry of Corporate Affairs, J.J. Irani Committee Report, (2004), available at

https://www.mca.gov.in/Ministry/pdf/Report_Companies_Law_Committee_0102
2016.pdf.
Miscellaneous
1. Avirup Bose, Director and Officer Liability for Dishonour of Cheque, (July 31,
2009), available at http://indiacorplaw.blogspot.in/2012/04/implied-authority-of-
managing-director.html, (Last visited on December 4, 2016).

Corporate Law-I

Uploaded by

Copyright:

Available Formats

Corporate Law-I

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Corporate Law-I

Uploaded by

Copyright:

Available Formats

CONTENTS

TABLE OF AUTHORITIES ................................................................................................... 2

Appointment of Managing Directors ...................................................................................... 8

By way of Stock options .................................................................................................... 26

Director’s Right to remuneration ...................................................................................... 28

Manager vis-à-vis a Managing Director .............................................................................. 31

List of Pay Structures in Leading Companies ..................................................................... 37

30. Maksud Saiyed v State of Gujarat, (2008) 5 SCC 668

32. Montreal Public Service Co v Champagne, (1916) 33 DLR 49.

6. Companies Act, 1956.

14. SEBI Guidelines on Corporate Governance, 2005.

DISCLOSURE R EQUIREMENTS ) R EGULATIONS , 2015 available at

Section 1967 contains provisions relevant to the appointment of a managing director. It

The rule of retirement by rotation is generally not applicable, unless circumstances

The appointment of a managing/whole-time director and a manager has to be made only

In case an appointment is made in violation of the conditions mentioned in Schedule V

In order to give a justification for the removal of a managing director on allegations of

Under certain circumstances, removal of a managing director has been held to be

The second of the new condition includes a disqualification of a previous conviction by

 Any misfeasance or breach of a duty, including that is fiduciary in nature.

Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel)

Summarily, a director designated as managing/whole-time director or a manager will

1. An appointee proposed to be appointed not in compliance with Part I of Schedule

Cases (1) and (4) require Central Government’s approval.

Hence, substantial powers have been conferred upon shareholders as regards

B Y WAY OF STOCK OPTIONS

 Director/employee holding 10% or more in the paid-up share capital of the

DIRECTOR ’S RIGHT T O REMUNERATION

MANAGING DIRECTORS AND E XECUTIVE DIRECTORS

A managing director can be perceived as an independent organ of a company only if his

MANAGER VIS -À-VIS A MANAGING DIRECTOR

The position of a managing director has been interpreted as to be inclusive of two

It is submitted that the departmental clarification F. No. 8/16(1)/61-PR195 is mistaken in

MANAGING DIRECTOR AND WTD

NON-E XECUTIVE DIRECTOR

Salary $80,029 - $232,249

In India, the average annual salary of managing director is estimated to be around Rs

Salary Rs 436,584 - Rs 9,687,582

Bonus Rs 8,515 - Rs 3,072,478

Profit Sharing Rs 0.00 - Rs 2,030,992

Total Pay Rs 499,432 - Rs 11,134,296

The average pay structure of a managing structure in an American Investment Bank is

MANAGING DIRECTOR AS PRINCIPLE O FFICER FOR TAX PURPOSES

STATUS O F A MANAGING DIRECTOR

REPRESENTATIVE CAPACITY O F MANAGING DIRECTOR - AGENCY

The MD of a company entrusted with the charge of management of company’s affairs

APPARENT AUTHORITY- T HE PIVOTAL ROLE O F T HE MANAGING DIRECTOR

Nevertheless, if the managing director is terminated from service by virtue of power

OVERALL I NCHARGE OF T HE COMPANY

L IABILITY O F MANAGING DIRECTOR FOR O FFENCES O F COMPANIES

In the context of Scandinavian countries, the question of liability of a managing director

7. L.V.V. Iyer, GUIDE TO C OMPANY DIRECTORS , (4 th edn., 2016).

M ATERIALS IN C OMPANY LAW, (10th edn., 2013).

M ODERN C OMPANY LAW, (9th edn., 2012).

1. Harshawardhan S. Chindhade, Concept of Managing Director - A Draftsman’s

3. K.R. Chandratre, Relevant Provisions of the Companies Act, 2013 -Concerning

4. Pankaj Gupta and Singh Shallu, Evolving legal framework of corporate

5. Rajesh Chakrabarti, Corporate Governance in India – Evolution and Challenges,

7. S. Venugopalan, The Managing Director - His status, powers and duties, 38