Appointment of NRI/NR/FN as Managing Director/Manager/WTD

Appointment of Non Resident Indian (NRI)/Non Resident (NR)/Foreign National (FN) as Managing Director(MD) or Whole Time Director (WTD) or Manager (as per provisions of the Companies Act, 2013)

Many a times, we come across a query ‘whether NR or NRIs can be appointed as Managing Director (MD) or Whole Time Director (WTD) or Manager in the Company, and whether the Company can pay them remuneration.

Section 196 of the Companies Act, 2013 (Act) deals with the Appointment of Managing Director, Whole-time Director or Manager. Section 196 of the Act provides that

1. No company shall appoint or employ at the same time a managing Director and a manager.
2. No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time:
   Provided that ………………
3. No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who —
   1. is below the age of twenty-one years or has attained the age of seventy years:
      Provided that …………..
      Provided further that ………………….
   2. is an undischarged insolvent or has at any time been adjudged as an insolvent;
   3. has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
   4. has at any time been convicted by a court of an offence and sentenced for a period of more than six months.
4. Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the Company and by the Central Government in case such appointment is at variance to the conditions Specified in Part I of that Schedule.Provided that a notice convening the Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any:
   Provided further that a return in the prescribed form shall be filed within sixty days of such appointment with the Registrar.
5. Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the Company at a generalmeeting, any act done by him before such approval shall not be deemed to be invalid.

Applicability to Private Limited Companies

Through the notification GSR 464E dated 5th June 2015 issued by the Ministry of Corporate Affairs, under Section 462 of the Companies Act, 2013, it was notified that – In case of a private company, Sub-sections (4) and (5) of Section 196 shall not apply.

Hence, approval of the Central Government is not required for the appointment of an NR or NRI as Managing Director or Whole Time Director, or Manager of a Private Limited Company. Even the provisions included in Part I of Schedule V about the criteria for appointment of MD/WTD or Manager are not applicable in the case of Private Limited Companies.

Section 197 relating to payment of remuneration applies to Public Limited Companies and not to Private Limited Companies. Accordingly, A Non-Resident Indian (NRI) can be a Managing Director (MD), Whole Time Director or Manager of an Indian Private Limited Company.

Applicability to Public Limited Companies

But in the case of Public Limited Companies, all the provisions of Section 196 and the provisions of Section 197 and Schedule V of the Act are applicable and need to be followed. Thus, in the case of a Public Limited Company, all the conditions mentioned in Part I of Schedule V are to be followed. Specifically, one of the conditions mentioned in Part I of Schedule V, reproduced below, about the residency in India is required to be fulfilled.

Schedule V Part I – Conditions to be fulfilled for the appointment of a Managing or Whole Time Director or a Manager without the approval of the Central Government

Condition e) he is resident of India.

Explanation I.—For the purpose of this Schedule, resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India, —

1. for taking up employment in India; or
2. for carrying on a business or vacation in India.Explanation II —This condition shall not apply to the companies in Special Economic Zones as notified by Department of Commerce from time to time:Provided that a person, being a non-resident in India, shall enter India only after obtaining a proper Employment Visa from the concerned Indian mission abroad. For this purpose, such a person shall be required to furnish, along with the visa application form, a profile of the company, the principal employer, and the terms and conditions of such a person’s appointment.

   Hence if a foreigner who is fulfilling above residency and business visa criteria, he can be appointed as MD or MTD on Public Company. Otherwise, Company will have to obtain approval of the Central Government for his/her appointment.