Monday, July 20, 2015

Age of 70 years isn’t an automatic mid-stream disqualification for Managing Director

Companies Act : Section 196(3) does not operate as an aberration in the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure
Issue :
On 1st April 2014, the Companies Act, 2013 (“the 2013 Act”) was brought into force. It introduced a new clause in Section 196(3)(a) of the 2013 Act that apparently sets a lower and upper age limit of 21 years and 70 years Respectively, on the appointments and ‘continued employment’ of Managing Directors, Whole Time Directors and Managers.
The issue in the instant case was whether there would be a mid-stream disqualification for Managing Director on attaining age of 70 years? , i.e., Whether section 196(3)(a) interrupts an appointment of any Managing Director made prior to the coming into force of the 2013 Act, if such Managing Director crosses the age of 70 years during the term of his appointment?
The High Court held as under :
1) Under Companies Act, 1956, there was no ‘discontinuance’ of Managing Directorship at the age of 70; the section applied only to his appointment and reappointment. Sections 269(2) and 267 of the 1956 Act are now sought to be merged in Section 196(3), and also further modified (to eliminate the previous regime of Central Government’s approval). It shows that the age of 70 years was never an automatic mid-stream disqualification even under the 1956 Act. It only required a certain precautionary measure at the commencement of the term, i.e., at the time of appointment (or reappointment), i.e., a special resolution.
2) There is nothing to suggest that the rationale behind this has in any way changed in the 2013 Act. It cannot be constructed that with the advent of the 2013 Act, every Managing Director at age 70 must, as it were, step down the bus.
3) The only conclusion that one can draw is that the word ‘continue’ is correctly used in its strict sense in relation to clauses (b), (c) and (d) of Section 196(3), i.e., as a cessation eo instante on the occurrence of any of the events those sub-clauses contemplate, but in the context of Section 196(3)(a), it means, and can only mean ‘appointment’ and ‘reappointment’.
4) Section 196(3) does not operate as an aberration in the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure.
5) There is no mid-tenure cessation of Managing Directorship as a result of Section 196(3)(a). All that Section 196(3)(a) does is to sound a note of caution in the public interest and to demand from the company a special resolution when a person who has already crossed the age of 70 at the date is proposed to be appointed or reappointed. - SRIDHAR SUNDARARAJAN V. ULTRAMARINE & PIGMENTS LTD. (2015) TAXMAN.COM 249 (BOMBAY)
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