Appointment and Remuneration of Executive Chairman of a Company

Dr K R Chandratre
Practising Company Secretary, Past President, The
Institute of Company Secretaries of India

The Companies Acts have always been silent on the subject of a chairman of meetings of the board. This
subject has been left to the companies to be dealt with in the articles. Table F, Schedule I of the 2013 Act
provides model regulations on the subject. According to regulation 70(i) of Table F in Schedule I to the 2013
Act (corresponding to regulation 76(1) of Table A of Schedule I to the 1956 Act), the board may elect a
chairman of its meetings and determine the period for which he is to hold office.

According to regulation 70(ii) of Table F in Schedule I to the 2013 Act (corresponding to regulation 76(2) of
Table A of Schedule I to the 1956 Act), if no such chairman is elected, or if at any meeting the chairman is not
present within five minutes after the time appointed for holding the meeting, the directors present at the
meeting may choose one of themselves to be the chairman of the meeting.

This provision invests the directors with the power to elect a chairman of the board from among themselves
whenever such necessity occurs. The term 'may from time to time' is indicative of the fact that there should be
scope for such an occasion The directors are also invested with the power to choose a chairman for a particular
meeting only if the chairman (of the board) is not present within fifteen minutes of the time appointed for
holding such meeting or if he is unable or unwilling to take chair. Under this article, in the event of the above
contingencies no vacuum will be created. The meeting will continue (if a chairman ceases in the midst of a
meeting) by selecting a chairman for that meeting. Therefore, the board can meet both the situations of
electing a chairman for full tenure or choosing a chairman only for a particular board meeting.

Executive Chairman

Under the Companies Act 2013 (like under the Companies Act 1956), there is no statutorily recognised concept
of Executive Chairman. However, since there is no bar to giving such designation, a Company can give it. The
discussion that follows would indicate that executive chairman is an executive director, either a managing
director or a whole-time director of the company for the purposes of the provisions of the Companies Act.

Meaning of 'executive director' and 'non-executive director'

The word 'executive' has no specific meaning and it is not defined in the Companies Act. In ordinary parlance,
executive means managerial, administrative, supervisory; connected with making decisions and managing and
organizing things, especially within a company or government; connected with managing a business or an
organization, and with making plans and decisions; having the power to put important laws and decisions into
effect. The term 'non-executive' means someone who has a non-executive role and is not involved in the daily
management of a company or other organization but attends board meetings and gives advice; the expression
used to describe somebody who is not employed by a company but takes part in meetings of the board of
directors and gives independent advice. [see Oxford Business English Dictionary; Longman Business English
Dictionary].

In the abovementioned Dictionaries, the term 'executive director' is defined as a member of the board that
controls a company who is also employed as a senior manager of the company' and the term 'non-executive
director' is defined as a director who is also in charge of the daily management of part of an organization

In the context of the Companies Act provisions, executive director means either a managing director or a
whole-time director. The term 'managing director' is defined in section 2(54) of the Act and the characteristics
of the definition of "managing director" are:

(a) a managing director must be a director of the company;

(b) he must be entrusted with substantial powers of management of the company which would not
otherwise be exercisable by a director;
(c) the powers to do administrative acts are not to be deemed to be substantial powers of management;
(d) the powers of management may be entrusted with a managing director by an agreement or a
resolution passed at a general or a Board's meeting or the articles of the company;
(e) the powers of management so entrusted with a managing director are to be exercised by him subject
to the superintendence, control and direction of the Board of directors;

(f) a person who occupies the position of managing director without being designated as such would
also be deemed to be a managing director.
Whether a director is to be regarded as a whole-time director or as a managing director of the company would
depend on the nature and extent of the duties and powers entrusted to him and the designation under which
the appointment is made would not make any difference in this regard. Thus, if a director is entrusted with
managerial functions, he would be in the position of a managing director notwithstanding the fact that he may
be designated as a technical adviser or as a technical director of the company.1

The Act though defines the term 'whole-time director', the present definition does not help to understand the
concept and position of 'whole-time director'. Section 2(94) of the Companies Act 2013 states that, "whole-
time director" includes a director in the whole-time employment of the company. This was the Explanation
appended to section 269 of the Companies Act 1956.

Generally speaking, a whole-time director has, like a managing director, dual capacity, and besides being a
director, he is to be regarded as an employee of the company and the principles enumerated earlier with
regard to the relationship of a managing director would equally, and perhaps with a greater force, apply to a
whole-time director because the position of a whole-time director is more akin to an employee vis-a-vis the
company.

Though the concept of 'whole-time director' is vague because the Act does not provide a precise definition of
this term, in Ramaben A Thanawala v. Jyoti Ltd.,2 Chagla J. had observed:

"In the context of the provisions of sections 309 and 310 of the Companies Act, 1956, it seems that the
expression "whole-time director" must refer to a director who spends his whole-time in the management of the
company in the same sense as a managing director does." But the learned Judge didn't lay down that spending
whole time means not working in another company, not even in a wholly-owned subsidiary which is nothing
but an extended arm of the holding company.

Whether a director is an executive director or a non-executive director depends on the powers of management
conferred on him by the Board, and not on remuneration or designation.

The Department of Company Affairs of Government of India had expressed the following views in the context
of sections 269 Companies Act 1956 (which contained the same definition of whole-time director as in the
Companies Act 2013) and section 309, as follows:
 (1) A whole-time director for the purpose of s. 269 or 309 is a director rendering his services whole-time
to the management of the company and therefore, he is virtually a managing director though not so
designated. A 'director-in-charge' also stands in the same position as a managing director, even if he
does not give his whole-time to management of the company.3
(2) Where technical personnel are appointed to the board, it is necessary to consider whether in
addition to the technical duties, they are also vested with any power of management. In such cases
the approval of the Central Government is necessary under s. 269 to their original appointment. In
the absence of any data to indicate the dividing line between the remuneration payable to them for
rendering technical services and that for managerial services, the entire remuneration payable to
them would be deemed to fall within the purview of ss. 309 and 310.4
(3) A branch manager who is apparently a whole-time employee is appointed as director, he will be in
the position of a 'whole-time director' and the appointment would require the approval of the
Central Government under s. 269.5
(4) A 'whole-time' employee of a company also appointed as a director of the company is in the position
of a 'whole-time' director. The view is equally applicable in the case of an alternate director.
Accordingly, the appointment of an employee as an alternate director will be governed by the
provisions of ss. 314, 269, 309 and 198.6

(5) The appointment of a whole-time company secretary as part-time director on the board of the
company does not require approval of the Central Government under s. 269(1), so long as
substantial powers of management of the affairs of the company are not vested in the incumbent.7
(6) If a director of a company functions as a manager and secretary and draws remuneration therefore,
then, he in fact, is a managing director, and holds office of profit in the capacity of secretary. Section
314 does not apply if a director holds all office as managing director, and ss. 198, 269 and 309, etc.
will be attracted.8
(7) The appointment of a whole-time sales manager or works manager on the Board but his primary
functions remain the same, would attract the provision of s. 269 as from the date of his appointment,
since as a director he will be in the position of a whole-time director. The provisions of ss. 309 and
198 of the Act would also be attracted.9
(8) Whether a director who is a 'whole-time employee' of a company in a capacity other than a director,
such as a secretary or sales manager, etc. and who does not exercise any managerial power, nor
receives any remuneration as such a director, will not come within the scope of the definition of
"whole-time director" or "director in whole-time employment", will would depend on the nature of
the duties and functions entrusted. Section 269 would be attracted if either substantial powers of
management are entrusted or if the person concerned has been appointed on a whole-time basis.10
Whether a director is to be regarded as a whole-time director or as a managing director of the company would
depend on the nature and extent of the duties entrusted to him and that the designation under which the
appointment is made would not make any difference in this regard. Thus, if a director is entrusted with
managerial functions, he would be in the position of a managing director notwithstanding the fact that he may
be designated as a technical adviser or as a technical director of the company.11

It is true that the dictionary meaning of the term 'whole-time' (which is another term used to say 'full-time') is
"occupying or using the whole of someone's available working time and 'full-timer' means a person who does a
full-time job;12however, this is a very general or ordinary meaning and will not be relevant if a company does
not stipulate a condition that the director who is designated as whole-time director shall work on full-time
basis and insists on discharging a particular responsibility rather than a particular amount of time or the
company does allow its whole-time director to engage himself in some other activity or employment on the
condition that that should not affect his contribution to the company. It's a matter of contractual relationship
between the company and the person concerned. In other words, the emphasis is not on the time or hours
spent but on functions, role or responsibility, and the terms of appointment.
Thus, when a director is the chairman of the Board and he is entrusted with powers of management
concerning day-to-day affairs of the company (whole or substantially whole) and designated as Executive
Chairman, then he will be a managing director and if he is entrusted with the powers of management of the
day-to-day affairs of the company less than whole or substantially whole, he will be a whole-time director.
Even with very a few or limited powers of day-to-day management, he will have to be treated as whole-time
director. Consequently, the company will have to comply with the provisions of section 196, 197 and Schedule
V of the Companies Act 2013 and also other requirements applicable as if he was appointed as a
managing/whole-time director (including NRC's approval).

■■

1. Fourth Annual Report on the Working and Administration of Companies Act, 1956 year ended 31 March,
1960.
2. [1957] 27 Comp Case 105 (Bom.).
3. First Annual Report on the Working and Administration of the Companies Act, 1956 for the year ended
31 March, 1957.
4. First Annual Report on the Working and Administration of the Companies Act, 1956 for the year ended
31 March, 1957.
5. Company News & Notes, 1 July, 1963.
6. Circular Letter No. 2/19/63-PR, dated 29 June, 1964.
7. F No. 16/39/CL- 1-111/85, dated 26 June, 1987.
8. Letter No. 8/16(1)- 61-PR, dated 9 May, 1961.
9. Company News & Notes 1 July, 1963.
10. File No. 8/16(1)/61-PR.
11. Fourth Annual Report on the Working and Administration of the Companies Act, 1956 for the year
ended 31 March, 1960.
12. See Shorter Oxford Dictionary, Vol. 2; The New Oxford Dictionary of English.