“Managing Director and Manager” – An overview

 

Unlike the erstwhile Act of 1956, the Companies Act 2013 (“New Act”), under section 196(1) specifically prohibits the companies in India to appoint, at the same time, Managing Director and ManagerHowever, this leads to a discussion whether a ‘Manager’ and a ‘Managing Director’ are entrusted with similar powers, responsibilities and liabilities under the New Act.

As per section 2(54) of the New Act, the ‘Managing Director’, has, inter-alia, ‘substantial powers’ of management of the affairs of the company. Further, the term ‘substantial powers’ has not been defined under the New Act, however, in ordinary parlance such powers are understood to be vested with such a person who controls overall affairs of an entity. The New Act however, stipulates that a Managing Director shall be a director of the company. Moreover, such director can be appointed as Managing Director by way of an agreement with the company or by way of a resolution passed in the shareholders meeting.

During his appointment in any manner as discussed above, the ‘substantial powers’ can be assigned to the Managing director either by articles, his employment agreement or by a shareholders resolution.  Therefore, it is apparent that in the event if a Managing Director is appointed vide an employment agreement with the company, such agreement will determine the powers, roles and responsibilities of the Managing Director.

Section 2 (53) of the New Act defines a ‘Manager’ as the one who acts under the direction of the board of directors and who is under the control of the board. As per the definition, a Manager has the function of managing the whole or substantially the whole of the affairs of the company. Such functions of managing the affairs of the company are not defined under the New Act. However, such functions can be assigned to the Manager under his employment agreement with the company.

From the above discussions, the following differences between Managing Director and a Manager can be inferred   :

  • One needs to be a director of the company to be appointed as Managing Director, however, a Manager may or may not be a director of the company;
  • In case of a Manager who is also appointed as a director, if for any reason his office of director is vacated the office of Manager held by him is not affected; in case of Managing Director if he ceases to be a Director for any reason whatever his office of Managing Director also will cease along with it.
  • A Managing Director enjoys the ‘substantial powers’ as may be assigned to him during his appointment, however, the Manager has functions limited to managing the affairs of the company.
  • Under the Act, Managing Director may with the approval of the Board be a Managing Director of more than one Company; however a Manager shall not hold office in more than one company except in its subsidiary company at the same time.

It appears that the Act intends to entrust the power of managing the affairs of a company only upon one single officer. After analysing the powers and functions of a Manager and a Managing Director, it can be said that a Managing Director also performs the functions of a Manager.

Therefore, for the purpose of entrusting the management of the company to a single officer, the Act has prohibited the appointment of both Manager and Managing Director at the same time.  The companies can either appoint a Manager or a Managing Director. This discretion can be exercised by the board of directors depending upon the requirements of the company.

 

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