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January 7, 2016

Sridhar Sundararajan – Plaintiff
Ultramarine & Pigments Limited – Defendant-1
Rangaswamy Sampath – Defendant- 2

The Notice of Motion seeks an order against the 2nd Defendant from functioning or continuing to exercise his powers as Chairman and Managing Director of the 1st Defendant-Company.

Facts: The 1st Defendant is a public limited listed Company. The 2nd Defendant was appointed as a Chairman and Managing Director of the 1st Defendant-Company on 13th August 1990. On 21st May 1998, the Plaintiff was appointed a Director of the 1st Defendant. On 1st August 2012, the 2nd Defendant was reappointed Chairman and Managing Director of the 1st Defendant-Company for a further five year term till 2017. On that date, the Plaintiff was also appointed a Joint Managing Director of the 1st Defendant-Company.

On 1st April 2014, the Companies Act, 2013 (“the 2013 Act”) was brought into force. It introduced a new clause in Section 196(3)(a), one that did not have a corresponding equivalent in Section 267 of the Companies Act, 1956 (“the 1956 Act”). That clause apparently sets a lower and upper age limit of 21 years and 70 years respectively on the appointments and ‘continued employment’ of Managing Directors, Whole Time Directors and Managers. The entire matter turns on an interpretation of this newly introduced statutory provision. For, it is the Plaintiff’s case that since the 2nd Defendant attained the age of 70 years on 11th November 2014, his five year term as Managing Director, one that commenced on 1st August 2012, came to an end by operation of law on 11th November 2014. As per the plaintiff, the 2nd Defendant earned himself statutory disqualification on his 70th birthday.

As per the provisions of Section 196(3):

No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who –

(a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person

Sub-section 3(a) introduces an upper and lower age limit in regard to the appointments of Managing Director, any Whole Time Director or Manager of a public limited company.  As per the plaintiff, once the 2013 Act came into force, even existing appointments of Managing Directors would effectively be interrupted mid-tenure should the holders of these offices cross the age of 70. It would then, require a special resolution by the Company in general meeting to reappoint the person in question as Managing Director. The Plaintiff if of the view that the statutory intent is that the shareholders of the Company should know and be informed of the reasons why somebody over the age of 70 should hold office as a Managing Director. Some compelling reasons must be shown

As per the Defendant, ordinarily, no statute is construed to have retrospective operation. The section, can, therefore, only apply to the appointments done after the 2013 Act came into force, i.e. only to all the appointments of Managing Directors effected after 1st April 2014. Statutory retrospectivity can never be left to a matter of presumption; it must be clearly stated.

Section 196(3) does not operate to interrupt the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; and it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure. There is no mid-tenure cessation of Managing Directorship as a result of Section 196(3)(a). All that Section 196(3)(a) does is to sound a note of caution in the public interest and to demand from the company a special resolution when a person who has already crossed the age of 70 at the date is proposed to be appointed or reappointed. The word ‘continue’, therefore, must be read contextually.

As the continuance of the Managing Director only demands a special resolution. Therefore a general meeting could  be called and a special resolution to be passed in such a way and at such a time that there is no unseating of the Managing Director at all. In other words, a company may well order its affairs to give its Managing Director an advance pass to remain aboard the bus, or to ensure that if he is forced to alight one evening, he is allowed to board the bus again the very next morning.

Decision: The court concluded that it is not possible to grant the Plaintiff the interim relief that he seeks. Therefore the 2nd Defendant cannot be prevented from functioning or continuing to exercise his powers as Chairman and Managing Director. The Notice of Motion was dismissed. There will be no order as to costs.


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