Appointment of Managing Director and Manager Simultaneously

A. SECTION 197A OF THE COMPANIES ACT 1956 read as below:

COMPANY NOT TO APPOINT OR EMPLOY CERTAIN DIFFERENT CATEGORIES OF MANAGERIAL PERSONNEL AT THE SAME TIMENotwithstanding anything contained in this Act or any other law or any agreement or instrument, no company shall, after the commencement of the Companies (Amendment) Act, 1960, appoint or employ at the same time, or after the expiry of six months from such commencement, continue the appointment or employment at the same time, of more than one of the following categories of managerial personnel, namely :

(a) managing director,
*(b) & (c)
(d) manager.

*Clause (b) managing agent and Clause (c) secretaries and treasurers omitted by the Companies (Amendment) Act, 2000 w.e.f. 13-12-2000

B. Interpretation of the above Section:

In a Company, whether Public or Private Company, either there shall be a Managing Director or a Manager (as appointed under Section 269), both the position can not be filled at the same point of time.

It may be taken a note that a Company can have more than one Managing Director by compliance of the required provisions under the Companies Act, but there can not be appointed more than one Manager in a Company.

C. Case Laws:

In the above case, the Hon’ble Allahabad High Court dismissed the appeal of the Complainant stating that the view taken by the learned Sessions Judge is quite correct and the order of acquittal passed by him is perfectly justified. It will be noticed that the section prohibits only a company from doing the acts specified therein and it contains no prohibition directed to anybody else. Plainly there is nothing in the section which may warrant the conclusion that the person who is appointed or employed or whose appointment or employment is allowed to continue contrary to the terms of the section is himself guilty of its breach.

In the said case, the Complainant was Mr. R. S. Mathur and the three accused i.e. Dr. K. L. Endley, H. S. Mathur and K. S. Mathur, who were shareholders of the Co-operative Company Limited (Distillers) Saharanpu, where H. S. Mathur had been working as managing director of the Company since 1943 and K. S. Mathur had been working as its manager since 1945. At the general meeting of the Company held on 30-9-1961 Dr. K. L. Endley proposed and K. S. Mathur seconded the resolution of re-appointment of H. S. Mathur as managing director with retrospective effect from 1-4-1961 although K. S. Mathur was already functioning as Manager or Secretary of the Company on that date.

Both these accused persons also voted in favour of the resolution. These acts of the three accused, according to the complainant, constituted breach of Section 197A of the Companies Act.

The City Magistrate of Saharanpur, who tried the case, acquitted Dr. K. L. Endley, but convicted the two other accused under Section 629A of the Companies Act for contravention of the provisions of Section 197A of the said Act and sentenced each of them to a fine of Rs. 500 and to simple imprisonment for a period of three months in default of payment of fine The Magistrate directed that out of the fine realised the complainant would be paid Rs. 100 for meeting the cost of litigation and Rs. 150 as reward under Section 626 of the Companies Act. H. S. Mathur and K. S. Mathur appealed against their convictions and sentences and the learned Sessions Judge allowed their appeal, set aside their convictions and sentences, and acquitted them, holding that the convicted accused had not contravened Section 197A of the Companies Act. It is against this order of acquittal that the present appeal has been preferred.

In Short: If there was any contravention of Section 197A of the Companies Act 1956, then as per the above Judgement, the person involved that managing director(s) and manager(s) will not be personally convicted and penalized, it will only be the Company and/or its officer-in-default who shall be penalized as specified under Section 629A of the said act.

Under the new companies act 2013, similar provisions are prescribed under section 196(1).