Companies whose managing director, or wholetime director, has crossed the age of 70 will need shareholders' approval for reappointment. The Bombay High Court recently ruled that a managing director and whole-time director who crossed 70 will be automatically disqualified' and companies will have to call a general meeting of shareholders to pass a special resolution enabling them to stay on. More than 120 listed companies will have to approach minority investors in this regard, according to an ET study.
The Bombay High Court in the ruling earlier this month said managing or whole-time directors cannot continue if they have attained the age of 70 years even if they were appointed under the old Act, said experts.
“The Companies Act 2013 was very clear that a MDWTD cannot be appointed or continues after appointment if he has attained an age of 70 years. The confusion was whether this requirement will apply to appointments that were made prior to the Companies Act 2013 coming into force,“ said Dolphy D'Souza, partner in Indian member firm of EY Global.
The case was pertaining to a listed company Ultramarine & Pigments versus Sridhar Sundararajan, an investor. Sundararajan argued that Rangaswamy Sampath who was appointed as the chairman and managing director of the company on August 1, 2012 for a period of 5 ye ars, cannot continue as CMD upon completion of 70 years on 11November 2014.
The single bench of Bombay High Court in November 2015 ruled in favour of the compa ny. However, it was quashed by divisional bench of Bombay High Court on February 8, 2016. Companies will also need to justify the reappointment of these top officials beyond 70 years, as per the Companies Act 2013. Companies, including Auro bindo Pharma, Supreme Indu stries, Jagran Prakashan, Jy othy Laboratories, Gujarat Fluorochemicals, Vardhman Textile and Atul, among others, will soon have to pass a special resolution in this re gard.
MP Taparia, managing direc tor of Supreme Industies; N Srinivasan, MD of India Ce ments; Premchand Godha, CMD of IPCA Lab, and MP Ra machandran, CMD of Jyothy Laboratories and Nimesh Kampani of JM Financial are among the prominent compa ny heads who may need to app roach shareholders. “We shall take such action as may be ne cessary at appropriate time,“ said ML Bansal, company se cretary, Jyothy Laboratories whose chairman and MD MP Ramachandran is in his 70s.
“The provision of section 196 (3)(a) of CA, 2013 applies to those who were appointed as MD or whole-time director before or af ter 1 April 2014. The said provi sion does not permit passing of a special resolution prior to ex piry of the termduring the term, to ensure continuation beyond 70 years,“ said Yogesh Chande, partner, Shardul Amarchand Mangaldas & Co.
Let Them Rock The Boat
Activism is welcome. It will help corporate governance in India to get a boost. An independent director is obliged to look after the interests of all classes of shareholders. In fact, both the Naresh Chandra and the Narayana Murthy panels had envisaged a greater role for independent directors. They should be committed and ready to rock the boat in pursuit of management accountability to shareholders. But in the Indian context, many companies are compelled to fund political parties, but such is funding is kept off the books. This can be resolved only through political reform.
The Economic Times, New Delhi, 29th February 2016
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