The Bombay High Court has held in the case of Sridhar Sundararajan vs Ultramarine & Pigments Limited that Managing Directors and Whole-time Directors (“EDs”) will be deemed to have lost their corner-office jobs if they cross 70 years of age during the tenure of their appointment. Unlike Companies Act, 1956, the new Companies Act 2013 under Section 196(3)(a) prescribes that “no company shall appoint or continue the employment of any person as managing director, whole-time or manager who is below the age of twenty-one years or has attained the age of seventy years.”The proviso to Section 196(3)(a) however states that he can be appointed by passing a special resolution and indicating in the explanatory statement the justification for appointment of such person. Thus, such persons who may already have crossed 70 years on or after 1st April 2014 will be disqualified from holding the position of ED.
In the present case, a Managing Director was appointed for a term of 5 years with effect from 1st August 2012. He had crossed 70 years halfway of his term on 11th November 2014 and consequently, on that day, it was held that he was deemed to have vacated the office of MD. The Court reversed the decision of the Single Judge who had held that such an MD should be allowed to complete his full tenure. The counter-argument made by the MD that this section cannot operate retrospectively was rejected by the court.
The rule, which came into force on April 1, 2014, lacked clarity whether it impacted the tenures of those already elected. The High Court ruling has created a flutter in corporate boardrooms of companies having sexagenarian and septuagenarian board members. The language of section 196(3)(a) is plain, simple and unambiguous and it applies to all the Managing Directors who have attained the age of 70 years and the section does not make any distinction between the Managing Directors who have been appointed before 01/04/2014 and those after 01/04/2014. The moment therefore, a Managing Director attains the age of 70 years, disqualification mentioned in Section 196(3)(a) would operate immediately. The rationale behind the approval through special resolutions is to have younger board members, but at the same time have experienced heads provided a special majority of the shareholders feel that such people can add value and their appointment is in the larger interests of the company.