Automatic Disqualification is triggered for Managing Director (MD) turning the age of 70 years

This is with reference to Bombay High Court (Division bench ruling), wherein it was held that automatic disqualification is triggered for Managing Director (MD) turning the age of 70 years, even though such appointment was made prior to coming into effect  of Companies Act,2013.

Following is the gist of the ruling in the matter of :

Sridhar Sundararajan…                              Original Plaintiff/Appellant

V/s

Ultramarine & Pigments Limited…             Respondent No.1

Rangaswamy Sampath….                              Respondent No.2

Sridhar Sundaranajan plaintiff of the original case has filed a petition to Hon’ble Bombay High Court for restraining Respondent No.2 from continuing his powers as Chairman and Managing Director (CMD) beyond the age of 70 years. The case was dismissed by single bench of Hon’ble Bombay High Court thereby allowing the Respondent No.2 to continue as CMD

Thereafter the plaintiff has filed an appeal against the said order and Divisional Bench of Hon’ble Bombay High Court has reversed the ruling of single bench and the summary of the same is given below;

• Companies Act, 2013 has become effective from 1^st April 2014. A new clause has been introduced in Section 196(3). By virtue of that, additional disqualification has been added to the disqualifications for MD., viz., Director cannot be appointed as MD or MD cannot continue the office of MD after he has attained the age of 70 years unless he is appointed by the shareholders by passing special resolution.
• Prior to this, Respondent No.2 on 01^st August 2012 was re-appointed as Chairman cum Managing Director of Respondent No.1 for a period of further five years till 2017.
• Now, the Question for consideration is that whether after the introduction of new provision in  Companies Act,2013, any MD who was appointed prior to Companies Act, 2013 becoming effective, would have right to continue to act as MD after attaining age of 70 years without special resolution being passed by the Company in its General Meeting?
•  The legislative intent in introducing Section 196(3) is quiet clear and the language is plain, simple and unambiguous. The Section does not make any distinction between the MDs who have appointed before 01/04/2014 and those after 01/04/2014.
• The disqualifications which have been mentioned are introduced as a matter of public policy and they contain mandatory prohibition/bar for continuing the MD in employment once he attained the age of 70 years
• The Court held that by virtue of the Companies Act of 2013, one additional disqualification was added to the list of disqualifications which were in existence under the old Act under Section 267. Since a new Clause was added as further disqualification for appointment or continuation as MD of the Company it would operate not only at the stage of appointment but also would operate in the case of person who has already appointed and attained the age of 70 years and such as person, therefore by virtue of disqualification, had no right to be continued as MD by operation of Statute unless a Special Resolution was passed by the Company.