Section 196: Appointment of managing director, whole-time director or manager
This section regulates the appointment of managing directors, whole-time directors, and managers in companies, including their term, age, and eligibility criteria.
The section, clause by clause
What the section says
In plain terms
(1)No company shall appoint or employ at the same time a managing director and a manager.
A company cannot have both a managing director and a manager at the same time.
(2)No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time:
A company cannot appoint a managing director, whole-time director, or manager for more than five years at a time, with no re-appointment allowed earlier than one year before the term expires.
provisoProvided that no re-appointment shall be made earlier than one year before the expiry of his term.
(3)No company shall appoint or continue the employment of any person as managing director, whole- time director or manager who —
A company cannot appoint someone as managing director, whole-time director, or manager if they are under 21 or over 70 years old, or if they have been insolvent, suspended payment to creditors, or convicted of an offence with a sentence over six months.
(3)(a)is below the age of twenty-one years or has attained the age of seventy years: Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;
proviso1[Provided further that where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy years may be made.]”;
(3)(b)is an undischarged insolvent or has at any time been adjudged as an insolvent;
(3)(c)has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
(3)(d)has at any time been convicted by a court of an offence and sentenced for a period of more than six months.
(4)Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions 2[specified in Part I of that Schedule]:
A managing director, whole-time director, or manager must be appointed by the Board of Directors and approved by the company's general meeting and the Central Government, with a return filed with the Registrar within sixty days.
provisoProvided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any:
provisoProvided further that a return in the prescribed form shall be filed within sixty days of such appointment with the Registrar.
(5)Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.
If a managing director, whole-time director, or manager's appointment is not approved at a general meeting, their actions before approval are still valid.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. The proviso ins. by Act 1 of 2018, s. 66 (w.e.f. 12-9-2018).
- 2. Subs. by s. 66, ibid., for “specified in that Schedule” (w.e.f. 12-9-2018).
- 3. The words “with the approval of the Central Government,” omitted by Act 1 of 2018, s. 67 (w.e.f. 12-9-2018).
- 4. Ins. by s. 67, ibid. (w.e.f. 12-9-2018).
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.