Contract of Employment with Managing or Whole Time Directors

February 19, 2023

Contract of Employment with Managing or Whole Time Directors

This article has been written by Pallavi Jindal, a student of NEF Law College, Guwahati

INTRODUCTION:

Contract of employment refers to the agreement between the employer and the employee regarding the terms and conditions of the employment. It basically defines the employer-employee relationship. It is a means of providing security to the employee in the course of employment.

Managing directors are those directors which manage the affairs of the company and helps in growth and diversification ole e company. According to Companies Act, 2013; “Managing director means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called”.

Whole-time director are those director which is in full-time employment of the company and is eligible for the remuneration/salary. A person who is a whole-time director cannot be a whole-time director for more than one company at the same time. According to Companies Act, 2013; “Whole-Time Director” includes a director in the whole-time employment of the company. This definition is inclusive and refers to a director who has been in employment with the company on a full-time basis and is entitled to receive remuneration.

FUNCTIONS OF MANAGING DIRECTOR:

Managing director controls and supervises the overall working of the company and implement their strategies in the company. The other functions of the managing director are as follows:

Formulation of business plan and ensuring the strategies are implemented properly so that the company can work effectively and efficiently.
Maintaining good relations with government departments, main customers, local authorities etc so that the company can provide good quality product and services.
Formulating strategies for marketing to promote their products and services and ensuring good reputation of the company.
Ensuring the preparation of the annual reports and accounts of the company and ensuring approval of the board.

FUNCTIONS OF WHOLE-TIME DIRECTOR:

The whole-time directors perform the overall supervisory functions in the company for full-time basis. The other functions of whole-time directors are as follows:

They need to act within the scope and powers as stated in the articles of the company.
They are responsible to work for the best interest of the company, stakeholders, customers etc.
To formulate strategies for promoting the services of the company. He also ensures that the strategies of the company are imposed effectively and efficiently.
They also help in establishing rules, regulations and policies of the company that every employee of the company needs to follow.
They plan out the budget for the company’s affairs and operations and ensure profit and loss of the company.

PROVISIONS OF CONTRACT OF EMPLOYMENT WITH MANAGING OR WHOLE-TIME DIRECTORS (SECTION 190):

(1) Every company shall keep at its registered office,—

(a) where a contract of service with a managing or whole-time director is in writing, a copy of the contract; or

(b) where such a contract is not in writing, a written memorandum setting out its terms.

(2) The copies of the contract or the memorandum kept under sub-section (1) shall be open to inspection by any member of the company without payment of fee.

(3) If any default is made in complying with the provisions of sub-section (1) or sub-section (2), the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees for each default.

(4) The provisions of this section shall not apply to a private company.

In other words we can say that the companies needs to keep a copy of the contract of service with managing or whole-time director at its registered office and if the contract is not in writing then a written memorandum which states about the terms of employment will be kept. The contract of employment as well as memorandum can be inspected by any member of the company without payment of fee and if there is any default by the company while complying with the provisions then a penalty will be imposed upon the company and its officers.

CASES REFERRED:

Cibatul Ltd. And Ors. vs Union Of India on 9 April, 1980: It was held in this case that the appointment of managing and whole-time directors should not be against the public interest as well as the terms and conditions of the appointment must be reasonable and fair and the approval of central government is necessary in case of a public company and a private company who is a subsidiary of public company.
Dredging Corporation Of India … vs Marrapu Sankara Rao on 28 January, 2022: In this case it was held that the whole-time directors are eligible for re-appointment who have given resignation under clause 7.2A and if they are not re-appointed then they will be compensated by the company.
Wasava Tyres A Partnership Firm … vs The Printers (Mysore) Ltd. A … on 20 November, 2006: Here the managing director of the respondent company filed a suit of vacating possession against the appellant and the trial court gave the decision against the appellant and the appellant appealed and contended that the managing directors cannot file the suit as they have no proper permission from the board of directors so the suit filed is not legally valid and binding.

CONCLUSION:

A contract of employment or a memorandum is necessary to appoint a managing director or a whole-time director and it is stated under Section 190 of the Companies Act, 2013 and if it is contravened, then a penalty will be imposed upon the company. A managing director is one who manages the activities of a company as well as help in growth of the company and a whole-time director is a person who is in full-employment of the company. A contract of employment is necessary as it helps the employees and the directors to have a sense of security regarding their employment and it helps in stating the conditions of the services accordingly.

REFERRENCES:

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February 19, 2023