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Managing Director – Power or Responsibility?

HomeCompanyManaging Director – Power or Responsibility?
  • Managing Director
Managing Director – Power or Responsibility?
  • Author
    Rajat Khaneja
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  1. Who is Managing Director?

A Managing Director is someone who is responsible for daily operations of a company, organization, or corporate division. This position is a part of executive management of a company who is responsible for day to day management of the company. Managing Director can be appointed in a corporate entity i.e. Limited Company etc. You might have heard about this position from many sources and must have been fascinated by the powerful role a Managing Director plays. However, this position has many responsibilities to discharge. Thus, the job of Managing Director is not as easy as it looks. In India, this position is defined under the Companies Act, 2013.

As per Section 2(54) of the Companies Act, 2013, a “Managing Director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

In other words, Managing Director is a person who is entrusted with substantial powers of management of the affairs of the company. This position falls under the definition of “Key Managerial Personnel” under the Companies Act, 2013.

2. What is the role of Managing Director in a Company?

In some countries, the term Managing Director is equivalent to CEO (Chief Executive Officer) the executive head of a company. In other countries, managing directors primarily work as the heads of individual business units within a company rather than heading up the company as a whole. As a member of senior management, the managing director is also expected to keep a company solvent and to promote expansion and innovation within the industry.

Managing Director is someone who sees and manages the operations of a company while having substantial power to take decisions on the matters relating to the business of the company.

3. How Managing Director is appointed in a company?

In India, appointment of Managing Director in a company is done in accordance with the provisions of the Companies Act, 2013. Section 196 of the Companies Act, 2013 provides that no company shall appoint or employ at the same time a Managing Director and a Manager. Further, a company shall not appoint or reappoint any person as its Managing Director for a term exceeding five (5) years at a time and no reappointment shall be made earlier than one year before the expiry of his term.

Also, age of Managing Director is mentioned in the Act. A person who is below the Age of Twenty one (21) years or has attained the age of Seventy (70) years cannot become Managing Director of a company in normal course. However, person who has attained the age of Seventy (70) years can become Managing Director if approved by Special resolution passed by members of the company. This provision clearly indicates that Managing Director should be mature enough to assume and discharge the responsibilities of the business effectively and should be productive and add value to the company.

The appointment of Managing Director is first approved by the Board of directors at a meeting and then by an ordinary resolution passed at a general meeting of the company. A return in the prescribed form i.e. MR.1 is required to be filed with Registrar electronically within 60 days from the date of such appointment on the website

4. Who cannot become Managing Director?

A person cannot become Managing Director who:

  • is below the age of Twenty one (21) years and has attained the age of Seventy (70) years (can be appointed if authorized by members)
  • is an undischarged insolvent or has at anytime been adjudged as an insolvent;
  • has at any time suspended payment to his creditors, or makes, or has at any time made, a composition with them; or
  • has at any time been, convicted by a court of an offence and sentenced for a period of more than six months
  • had not been sentenced to imprisonment for any period, or to a fine exceeding one thousand rupees, for the conviction of an offence under various Acts as mentioned under section 196 (3) of the Companies Act, 2013.

5. What is the duty, liability, responsibility of Managing Director?

A Managing Director must:

  • act in accordance with the Articles of Association of the company
  • pursue the best interests of the stake holders of the company, in good faith and to promote the objects of the company.
  • use independent judgement to exercise his duties with due and reasonable care , skill and diligence.
  • always be aware of conflict of interest situations and should try and avoid such conflicts for the interest of the company.
  •  ensure that adequate deliberations are held in connection with related party transactions
  • ensure vigil mechanism of the company and the users are not prejudicially affected on account of such use.
  • ensure confidentiality of sensitive proprietary information, commercial secrets, technologies, unpublished price to be maintained and should not be disclosed unless approved by the board or required by law.
  • not assign his office and any assignment so made shall be void.

There are many other responsibilities and duties of Managing Director. If he contravenes the provisions of the Companies Act, 2013, he shall be punishable with fine, penalty and in some cases jail also.

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