Chapter 2: Appointment and Remuneration of Managerial Personnel

(Detailed CA Final – Corporate & Economic Laws Notes)

1. Introduction

This chapter deals with:

• Appointment of Managing Director (MD), Whole-time Director (WTD) and Manager
• Appointment of Key Managerial Personnel (KMP)
• Functions of Company Secretary
• Managerial Remuneration
• Calculation of Net Profits
• Recovery of Excess Remuneration
• Compensation for Loss of Office
• Secretarial Audit

Relevant Sections

2. Important Definitions

(A) Chief Executive Officer (CEO)

Section 2(18)

An officer designated as CEO by the company.

(B) Chief Financial Officer (CFO)

Section 2(19)

A person appointed as Chief Financial Officer.

(C) Company Secretary (CS)

Section 2(24)

A Company Secretary under the Company Secretaries Act, 1980 appointed to perform functions under the Companies Act.

(D) Key Managerial Personnel (KMP)

Section 2(51)

KMP includes:

• CEO / Managing Director / Manager
• Company Secretary
• Whole-time Director
• Chief Financial Officer
• Officer one level below Board designated as KMP
• Other prescribed officers

Memory Trick

MCWCOD

• M – Manager
• C – CEO
• W – WTD
• C – Company Secretary
• O – Other Officer
• D – CFO

(E) Manager

Section 2(53)

A manager is:

• an individual,
• having management of whole or substantially whole affairs,
• under supervision of Board.

Important Points

✔ Can be a director or non-director.

✔ Cannot merely head one department.

✔ Company cannot appoint both Manager and MD simultaneously.

(F) Managing Director (MD)

Section 2(54)

A director entrusted with substantial powers of management by:

• Articles
• Agreement
• General Meeting Resolution
• Board Resolution

Not considered substantial powers

Routine administrative powers like:

• Affixing common seal
• Signing share certificates
• Cheque signing
• Share transfer registration

(G) Whole-time Director (WTD)

Section 2(94)

A director employed full-time in the company.

Important:

• Must be a Director.
• Must devote full working time.

(H) Remuneration

Section 2(78)

Includes:

• Salary
• Commission
• Bonus
• Monetary benefits
• Perquisites

Difference between MD, Manager and WTD

3. Appointment of MD/WTD/Manager (Section 196)

Rule 1

Company may appoint:

• MD
• WTD
• Manager

But cannot appoint MD and Manager simultaneously.

Maximum Tenure

Maximum appointment:

5 Years

Reappointment:

Only within 1 year before expiry of existing term.

Eligibility Conditions

Person should:

✔ Not be disqualified u/s 164

Must satisfy:

• Minimum age = 21 years
• Maximum age = 70 years

Above 70 years?

Allowed only if:

Special Resolution is passed.

If Special Resolution fails but ordinary majority exists:

Central Government approval may be obtained.

Other Disqualifications

Cannot be:

• Undischarged insolvent
• Ever adjudged insolvent
• Suspended payment to creditors
• Convicted and sentenced for more than 6 months

Schedule V Conditions

Without Central Government approval:

Person should:

• Be resident in India
• Not convicted under specified Acts
• Not detained under COFEPOSA

Procedure of Appointment

Step 1

Board Meeting

↓

Approve appointment

↓

Approve remuneration

↓

Terms & conditions

Step 2

Shareholders’ Approval

At next General Meeting

Step 3

File Form MR-1

Within 60 days

Step 4

If appointment violates Schedule V

↓

Apply in MR-2

↓

Within 90 days

↓

Central Government approval

Validity of Acts

Even if shareholders later reject appointment,

Acts already done by MD remain valid.

ICAI Exam Point

Private Companies

Section 196(4) & (5)

Not applicable if:

• Financial Statements filed
• Annual Return filed

Quick Revision Chart

Appointment
↓
Board Approval
↓
General Meeting
↓
MR-1
↓
If Schedule V not complied
↓
MR-2
↓
Central Government

Important Numerical Limits

ICAI Exam Questions

Frequently Asked

✔ Difference between MD and Manager

✔ Conditions for appointment

✔ Appointment above age 70

✔ Procedure of appointment

✔ Forms MR-1 & MR-2

✔ Schedule V conditions

End of Part 1 (Sections 196 & Definitions)