Appointment of a Non Resident as Managing Director

29 May 2017 • bsamrishindia.com

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29 May 2017 • bsamrishindia.com

Updated as on 26 June 2021

It is mandatory to appoint a Managing Director in case of Listed Companies and the Public limited companies having paid up share capital of INR 100 million (~1.55 m USD). Many Indian subsidiaries of foreign companies follow the general practice of appointing Non-Residents on their Board of Directors. Though it is not mandatory to appoint a Managing Director for a Private Limited Company, it may, sometimes out of its own requirement, may decide to appoint one. In case it does and the proposed appointee is a Non Resident, it may be wise decision to go through this note where we have summarized all the important provisions relating to appointment, duties, Board procedures and disclosures to be done, for informed decision and easy reference.

For appointment of a Managing Director, provisions of Section 196 of the Companies Act, 2013 is to be followed. While provisions relating to appointment as given in Section 196 read with Schedule V are all applicable, limits and provisions relating to remuneration (payable to a Managing Director) is not applicable to a Private Limited company.

S. No. Particulars Details
1. Appointment and Remuneration Appointment and remuneration of Managing Director is prescribed in Section 196 and Schedule V. The eligibility criteria to be appointed as MD is as follows: 

  • MD should be aged between 21 years of age till 70 years of age.
  • He not be undischarged insolvent
  • He has not suspended any payment to creditors
  • He has not been a convict of an offence and sentenced for a period of more than six months
  • He should be a Resident of India

With effect from exemption notification issued on 5th June, 2015, the criteria of residential status has been done away with for private companies. Also provisions w.r.t. managerial remuneration are exempt on private companies.

2. Duties
  • He is required to disclose his interest (including his shareholding) in any other company or companies in the first Board Meeting in which he participates as a Director.
  • And other duties as prescribed under Section 166. Example: –
    • He shall act in good faith in order to promote the objects of the Company.
    • He shall exercise his duties with due and reasonable care, skill and diligence.
    • He shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives.
  • He shall not contravene the provisions of Section 164(2). Disqualification u/s 164(2)

To read more on Disqualification of Directors, please visit Disqualifications of Directors : Non-filing of B/s and Annual Returns

3. Attendance in at least one Board Meeting S 167 (1) (b) requires every Director of the company to be present in at least one Board Meeting during a span of 12 months. A NR-Director can either participate through Video Conferencing or the Company can hold Board Meetings abroad. There is no restriction in the Companies Act, 2013 w.r.t. to holding of Board Meetings outside India.
4. Board Meeting through Video Conferencing (VC) With the omission of Rule 4 of the Companies (Meeting of Board and its Powers) Rules with effect from 15 June 2021, there are no restricted items which cannot be transacted through VC. Hence, a non-resident  Director can now participate in all Board meetings through Electronic mode. 

Please visit Board Meeting through Video Conferencing or other Audio Visual Means, for more information on conducting a Board Meeting through Video Conferencing

5. Signing of Financials and Board’s Report If the company has appointed a MD, it is mandatory for him to sign the financials of the Company and the Board’s Report.
6. Annual Report on CSR Activities (Section 135 of the Companies Act, 2013) The Companies on whom CSR or Corporate Social Responsibility is mandatory have to get their Annual Report on CSR Activities signed by the MD of the Company. This Annual Return forms a part of the Board’s Report.
7. Procedure for Appointment For the appointment as Director, NR is required to obtain 

  • Digital Signature Certificate (DSC) and
  • Directors Identification Number (DIN).

Since the proposed Director is a NR, his documents pertaining to obtaining the DSC and DIN will be apostilled / notarized / concularised as the case may be.

Note: please note that the provisions elaborated are in terms of their applicability on private companies

8 comments

  1. Condition of being Resident of India is required to be met when the person is being considered to be appointed as MD. is there a provision which requires the said person to intimate authorities about his change of residential status later?

    1. Pursuant to Rule 12(1) of the Companies (Appointment and Qualification of Director) Rules, 2014, every individual who has been allotted a Director Identification Number shall, in the event of any change in his particulars as stated in Form DIR-3, shall intimate such change(s) to the Central Government within a period of thirty days of such change(s) in Form DIR-6.

      Thus, in your case, the MD has to intimate about the changes in his/her residential address (present or permanent), nationality, etc. to the Central Government by electronically filing Form DIR-6 within 30 days of such change(s).

      Further, note that the criteria of residential status has been done away with for private companies (which has not committed a default in filing its financial statements and annual return under section 137 and section 92 of the Act respectively) via exemption notification issued by the Ministry of Corporate Affairs dated 5th June, 2015.

  2. if indian resident Managing Director become NRI shift to dubai but business operations carry in india by his relatives who are also a directors of the company. what compliances are to be done by MD..Pls reply

    MD was appointed in 1990 but shifted in january 2020

    1. In the said case, the MD has to intimate about the changes in his residential address (present or permanent), nationality, etc. to the Central Government by electronically filing Form DIR-6 within 30 days of such change(s).
      Further, MD shall also intimate the change(s) in his particulars to the company or companies in which he is a director within 15 days of such change(s). Since the Company has other ‘Resident Directors’ in India, the relocation of MD to Dubai will not hamper the composition of the Board.

  3. You mean no CG approval is required for a public company for the appointment of a foreign national, who is not resident in INDIA, as MD

    1. As per Section 196 (4) of the Act, the MD of the public company shall be appointed by the Board 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 if he is not a resident of India. (Schedule V Part I (e))

      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,—

      (i) for taking up employment in India; or
      (ii) for carrying on a business or vacation in India.

      Therefore, CG Aproval is required in this case.

    1. As per Section 196 (4) of the Companies Act, 2013 read with Schedule V Part I (e), CG approval is not required if the conditions prescribed under the schedule are fulfilled which requires a person to be a resident of India. Hence, for the appointment of a non-resident as a Managing Director of the Company, CG approval is required.

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