This article has been written by Sharanya Ramakrishnan, pursuing a Diploma in General Corporate Practice: Transactions, Governance and Disputes from LawSikho. 

Introduction

The executive division of a company is in charge of its day-to-day functioning. As per the Companies Act. 2013 (hereinafter referred to as “the Act, 2013”), the expression “Key Managerial Personnel” is used to define executive management. They are the point of first contact between the company and its stakeholders. While the board of directors of a company are saddled with the responsibility to exercise oversight over the affairs of the company, it is the Key Managerial Personnel who are empowered to lay down strategies and implement them. 

As per Section 2(51) of the Act, 2013, Managing Director and Whole-Time Director are considered as a company’s Key Managerial Personnel. In general terms, a Managing Director is a person who is responsible for administering the daily operations of a company. He is also liable to plan, direct and control the functioning of the company. On the other hand, a Whole-Time Director includes a director who is in the whole-time employment of the company, commits whole of his time and attention to carry on the affairs of the company in question and has a considerable personal interest in the company as his source of income. 

This article endeavours to explain the meaning of the terms “Managing Director” and “Whole-Time Director”, their roles and responsibilities, provisions pertaining to them under the Companies Act, 2013 and based on the same, analyse the salient differences between the two roles. 

Provisions of Companies Act, 2013 Pertaining To Managing Director

Meaning of Managing Director

As per Section 2(54) of the s Act, 2013, “Managing Director” means a director who, by virtue of:

• the articles of the company; or
• an agreement with the company; or
• a resolution passed in its general meeting; or
• a resolution passed by its board of directors;

is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

The Explanation to the definition expressly provides that the power to perform clerical or administrative acts of a routine nature on being authorised by the board of directors shall not be considered to fall within the substantial powers of management.   Such acts include:

• power to affix the common seal of the company to any document; or
• power to draw and endorse any cheque on account of the company in any bank; or
• power to draw and endorse any negotiable instrument; or
• power to sign any certificate of share or to direct registration of transfer of any share.

In the case of Wasava Tyres v. Printers (Mysore) Ltd, the Managing Director of the respondent company filed a suit on the company’s behalf against the appellant-tenants for possession. The trial court decreed in favour of the company and directed the tenants to vacate and deliver vacant possession of the tenanted premises. The appellants contended that the Managing Director did not have proper authorisation from the board of directors to file the suit so as to make it binding on the company, and thus the suit filed was bad in law.

Rejecting the said contention, the court held that, the institution of the suit on behalf of the company by the managing director is deemed to be within the meaning of “substantial powers of management” as occurring in Section 2(26) of the Companies Act, 1956 [corresponding to Section 2(54) of the Act, 2013] as such power is essential and incidental to manage the day-to-day affairs of the company. Therefore, the institution of suit for the benefit of the company was within the power and authority of the managing director. 

The erstwhile Companies Act, 1956 contained a stipulation in the proviso to Section 2(26) that the managing director shall exercise his powers only under the superintendence, control and directions of the board of directors of the company. Although the Companies Act, 2013 does not contain any such stipulation, it certainly does not augment the position of the managing director as he continues to operate as per the terms of reference set by the Board. 

Prerequisite for Appointment Of Managing Director 

It is important to note that the prerequisite for the appointment of the Managing Director is that he must first be appointed as a director of the company. However, in lieu of the powers vested in him , he cannot be equated with an ordinary director. Moreover, a Managing Director can resign in the capacity of a Managing Director and continue to be the director of the company.

Companies Required to Appoint A Managing Director 

Section 203 of the Act, 2013 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, mandates the appointment of whole-time Key Managerial Personnel and makes it obligatory for every listed company and every other public company having a paid-up share capital of rupees 10 crores or more, to appoint a Managing Director.

Holding of office of managing director 

As a general rule, Section 203(3) of the Act, 2013 provides that a whole-time Key Managerial Personnel shall not hold office in more than one company except in its subsidiary company at the same time. However, an exception has been made with respect to a Managing Director, wherein a company may employ or appoint a person as to its Managing Director, if:

1. if he is the Managing Director or Manager of one, and not more than one, other company; and 
2. such appointment or employment is approved by means of a board resolution passed with the unanimous consent of all directors present at a board meeting, provided that, a specific notice is given to all the directors then situated in India specifying the details of the meeting and the resolution proposed to be moved thereat. 

Filling Up of Vacancy In the Office of a Managing Director 

If the office of a Managing Director is vacated, such vacancy has to be filled within the next 6 months through a board resolution. [Section 203(4) of the Act, 2013]

Appointment of Managing Director 

1. Restriction – A company shall not appoint a Managing Director and a Manager at the same time.

2. Period of appointment – A Managing Director can be appointed for a maximum term of 5 years.

3. Disqualifications for an appointment – No company shall appoint or continue the employment of any person as Managing Director who:

• is below 21 years of age or has reached 70 years of age;
• is an undischarged insolvent or has at any time been adjudged as an insolvent;
• has suspended payment to his creditors or makes or has made a composition with them at any given time;
• has at any time been convicted of an offence by a court and sentenced for a period exceeding 6 months.

However, a person can be appointed as Managing Director even after he has attained the age of 70 years on the passing of a special resolution wherein the explanatory statement annexed to the notice for such motion shall specify the justification for appointing such a person. In cases where the passing of such resolution fails, but the votes cast in favour of the motion exceed the votes cast against the motion, the board may apply to the Central Government for consideration of such appointment. If on being satisfied that such appointment would be beneficial to the company,  the Central Government may approve the same, and the appointment of such person may be made. (Section 196 of the Act, 2013)

4. Conditions to be fulfilled for appointment of Managing Director without the approval of Central Government –

The following additional conditions are required to be fulfilled:

• The person has not been sentenced to imprisonment for any term, or a fine exceeding 1000  rupees for conviction under any of the Acts prescribed in the aforementioned Schedule.
• The person has not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
• The person is a resident of India. (Schedule V of the Act, 2013)

Procedure for appointment of managing director

1. Hold a board meeting after giving due notice to all directors for transacting, inter alia, the following business:-

1. Decide on the person to be employed as Managing Director based on recommendations of the Nomination and Remuneration Committee, wherever applicable, after ensuring that he is not disqualified as per provisions of Sections 164, 196, 203, Schedule V or any other applicable provisions of the Act, 2013;
2. Approve the draft agreement to be signed and executed by and between the company and the proposed Managing Director;
3. Fix time, date and venue for holding a general meeting of the company;
4. Approve notice of the general meeting along with the explanatory statement; and

5. Authorise Company Secretary to issue a notice of the general meeting on the Board’s behalf.

2. Hold a general meeting and obtain approval of shareholders for appointment of Managing Director by means of a resolution.

3. Suppose the appointment of the Managing Director is not as per the provisions of Schedule V. In that case, the company shall obtain approval of the Central Government by filing an application as per Section 201 of the Act, 2013. The following conditions are required to be complied with in order to obtain Central Government’s approval:

1. The company shall give general notice to the members of the company detailing the nature of the application to be made. 
2. The notice has to be published in a newspaper in the principal language of the district and in an English newspaper circulating in the district where the company’s registered office is situated.
3. The copies of the aforesaid notices along with a certificate by the company signifying due publication thereof shall be attached to the application.
4. The application shall be filed electronically in E-Form MR-2 along with the prescribed fees within a period of 90 days from the date of such appointment.

4. Execute the agreement with the Managing Director as approved by the Board.

5. Make appropriate entries in the register of directors and other records and registers of the company.

6. File the following documents with the Registrar of Companies:

1. Return of appointment of Managing Director in E-Form MR- 1 within 60 days from the date of appointment along with the prescribed fees. The mandatory attachments for Form MR- 1 are:

1. Copy of board resolution
2. Copy of shareholders resolution
3. Copy of letter consent to act as managing director 
4. Copy of approval of Central Government, if applicable
5. Copy of certificate by Nomination and Remuneration Committee, wherever applicable

2. Form DIR-12 pertaining to particulars of appointment of Managing Director within 30 days of appointment thereof.
3. Form MGT-14

It is pertinent to note that, if the appointment of the Managing Director is not approved in the general meeting of the company, any act done by him prior to receipt of such approval shall not be held invalid.

Provisions of Companies Act, 2013 pertaining to managing director

Meaning of whole-time director 

In the Companies Act, 1956, the terms “Whole-Time Director” and “director in whole-time employment” were used in several sections. As a result, a request was made seeking clarifications as to whether or not the two terms can be regarded as synonyms.  This position was clarified by the Department of Company Affairs vide letter no. 2/19/63- PR dated 29.06.1964 which stipulated that the two terms are synonymous and can be used interchangeably. 

Furthermore, there was also confusion as to whether a whole-time employee is a Whole-Time Director. The Company Law Board clarified that a whole-time employee appointed as a director of the company is in the position of a Whole-Time Director. 

As per Section 2(94) of the Act, 2013, “Whole-Time Director” includes a director in the whole-time employment of the company. This definition is inclusive and refers to a director who has been in employment with the company on a full-time basis and is entitled to receive remuneration.

Position of a Whole-Time Director 

A Whole-Time Director occupies a significant position under the Act, 2013.  He is recognised as a Key Managerial Personnel [Section 2(51)] as well as an Officer-in-default [Section 2(60)] for any violation of the provisions of the Act.

Companies are required to appoint a whole-time director 

Section 203 of the Companies Act, 2013 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that:

• Every listed company; and 
• Every other public company having a paid-up share capital of rupees 10 crores or more

shall appoint a Managing Director, or Chief Executive Officer or Manager and in their absence, a Whole-Time Director as a whole-time Key Managerial Personnel.

Holding of office of a Whole-Time Director 

As the services are rendered whole-time, rationally, a director cannot be in whole-time employment in more than one company. Nevertheless, the Companies Act, 2013 by virtue of Section 203(3) allows a Whole-Time Director to be appointed as a Whole-Time Director in a subsidiary company at the same time. 

The Company Law Committee, 2015 while considering the provisions of Section 203 of the Companies Act, 2013 noted in its report that, as per Section 13 of the General Clauses Act, 1897, the term “singular” shall include “plural”, unless there is anything repugnant or contrary in the subject or context. Considering the same, the Committee opined that whole-time Key Managerial Personnel may hold office in more than one subsidiary company.  However, as far as the whole-time director is concerned, doing so wouldn’t be practical or feasible given that he has to dedicate his whole time to the conduct of affairs of a particular company. 

Appointment of Whole-Time Director

The conditions for the appointment of a Whole-Time Director are similar to that of the Managing Director as provided hereinbefore as the same is governed by Section 196 read with Schedule V of the Companies Act, 2013.

Resignation by Whole-Time Director 

As per Section 203(4) of the Companies Act, 2013, such vacancy has to be filled within a period of the next 6 months by means of a board resolution.

Difference Between Managing  Director and Whole-Time Director

Taking into consideration the various provisions mentioned above, the position of Managing Director and Whole-Time Director can be distinguished as under:

S.No	Basis	Managing director	Whole-time director
1.	Meaning	The Managing Director represents the Board in the day-to-day activities of the company.	The Whole-Time Director is a director who devotes his whole time to the working of a company.
2.	Power	A Managing Director possesses substantial powers of management.	The powers of a Whole-Time Director are provided in his terms of appointment. He, therefore, does not have discretionary or arbitrary power to take decisions on policy matters.
3.	Holding of office	A person can be appointed as Managing Director of one other company provided the same is approved by a board resolution with unanimous consent.	A person cannot be a Whole-Time Director in more than one company except in a subsidiary company at the same time.
4.	Manager	A person can be appointed as Managing Director of one other company provided the same is approved by a board resolution with unanimous consent.	A company can appoint both a manager and a Whole-Time Director at the same time.

Conclusion 

Although the conditions and procedure of appointment of Managing Director and Whole-Time Director are more or less the same, there are certainly significant differences between the two positions. However, as both are considered to be the company’s Key Managerial Personnel their key role is to oversee a company’s operations, performance, investments and provide strategic guidance and direction to the Board to ensure that the objectives of the company are successfully accomplished. 

References 

• http://reports.mca.gov.in/SearchableActs/Section196.htm
• https://taxguru.in/company-law/appointment-whole-time-director-companies-act-2013.html
• https://taxguru.in/company-law/managing-director-companies-act-2013.html
• https://knovalt.com/company/managing-director-power-or-responsibility-who-is-managing-director/#:~:text=As%20per%20Section%202(54,of%20the%20affairs%20of%20the

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