Managing/Whole-time directors ‑ Whether a person initially appointed as additional/alternate director could continue as managing/whole-time director - Companies Law - Letter : No. 8/21(260)/76‑CL‑V,

Letter : No. 8/21(260)/76 ‑ CL ‑ V, dated 17 ‑ 3 ‑ 1977. Subject:- Managing/Whole-time directors ‑ Whether a person initially appointed as additional/alternate director could continue as managing/whole-time director 1. A clarification has been sought as to whether a person initially appointed as additional/alternate director could continue as managing/whole-time director. The terms director and managing director are defined in the Act. On the face of it, a managing director has first to be a director. So long as he is a director and is also appointed as managing director, he continues as managing director, subject to the approval of the Central Government. The moment a person appointed as managing director ceases to be a director, he also ceases to be the managing director irrespective of the approval to his appointment as managing director by the Central Government. 2. An additional director can he appointed by the board of directors of a company under section 260. Such a person continues to be the additional director till the commencement of the next annual general meeting. As soon as the annual general meeting opens, he ceases to be the additional director of the company. If such a person while he was the additional director of a company had been appointed as the managing director, the latter appointment also ceases simultaneously with his cesser of directorship at the commencement of the annual general meeting. However, if such a person is re‑elected as a full‑fledged director at the annual general meeting and thereby he continues as a director of the company, he shall continue as a managing director also for the period for which he is so elected by the annual general meeting and for the period for which his appointment has been approved by the Central Government under section 269. 3. An alternate director has no locus standi, the moment the principal director ushers in, he ceases to be the director immediately. If such an alternate director has been appointed as a managing director also and the approval of the Central Government had been obtained to such appointment, even then the moment he ceases to be a director of the company, he ceases to be the managing director also. 4. Approval of the Central Government under section 269 and approval of the appointment by the annual general meeting of the company under section 255 are two separate issues but compliance of both is indispensable. Normally, the approval of the Central Government is subject to the approval of the annual general meeting; it is clarified in the Government s sanction itself. In any case, if the annual general meeting does not continue a person as a director approved by the Central Government for appointment as managing director for a particular period, say five years, after the expiry of, say one year, he immediately ceases to be the managing director of the company. If, however such a person is re-appointed as director of the company without interruption for a period which is already covered by the approval granted initially by the Central Government under section 269, no fresh approval is necessary. However, if there is an interruption, fresh approval will be necessary. 5. As to the enquiry whether a person who ceases to be a managing director because he has not been re‑elected by the annual general meeting as a director can be continued as an employee of the company and whether such an approval if made in the articles of the company shall be approved by the Central Government, it may be stated that the appointment of a person in the capacity of an employee is a management function for which no approval of the Central Government is necessary. However, any provision in the articles of the company of the nature of continuing a person, appointed as a managing director, to remain as an employee after his appointment as a managing director ceases, will attract section 268 and approval of the Central Government will be necessary. No blank commitment can be given as to whether such a provision will be approved by the Central Government or not; each case has to be examined on its merits.