SML ISUZU LIMITED WAS PENALIZED FOR APPOINTMENT OF WHOLE TIME DIRECTOR WITHOUT CENTRAL GOVERNMENT APPROVAL UNDER SECTION 196 OF COMPANIES ACT ,2013

 SML ISUZU LIMITED WAS PENALIZED FOR APPOINTMENT OF WHOLE TIME DIRECTOR WITHOUT CENTRAL GOVERNMENT APPROVAL UNDER SECTION 196 OF COMPANIES ACT ,2013

SML ISUZU LIMITED Vs ROC, PUNJAB AND CHANDIGARH

FACTS OF THE CASE

In the case of SML Isuzu Limited, the company filed an application seeking Central Government approval under Section 196 read with sub-clause (e) of Part I of Schedule V for the re-appointment of a Whole-time Director Mr. Tadanao Yamamoto, a foreign national, as a Whole-time Director for a period from November 30, 2018, to November 29, 2020. (who was a foreign national) for a period of one year.

NO APPROVAL FOR HIS PRIOR APPOINTMENT

On examination of the application and the company's response to the queries, it was observed that no approval was sought for the previous appointment of the same individual as Whole-time Director.

THE REQUIREMENT:

Under Section 196(4) of the Companies Act, 2013, read with Schedule V, a company must obtain Central Government approval if the terms and conditions of a managerial appointment (including remuneration) are at variance with the conditions specified in Schedule V.

THE VARIANCE:

One of the conditions in Part I of Schedule V is that the appointee must be a "resident of India" (defined as staying in India for a continuous period of not less than twelve months immediately preceding the appointment date).

 Mr. Yamamoto was absent from India for 57 days during the relevant period, which meant the residency condition was not met and the appointment was in variance with Schedule V.

THE PENALTY:

Because SML Isuzu did not seek CG approval for this non-compliant reappointment, the ROC imposed penalties on the company (₹2,00,000) and the officers in default (₹50,000 each).

LESSONS LEARNED

Central Government approval is generally not required for the appointment of a Whole-time Director if the appointment and remuneration comply with all the conditions specified in Schedule V of the Companies Act, 2013. However, such approval becomes mandatory if the appointment or remuneration terms deviate from these specified conditions.

R V SECKAR,FCS,LLB 79047 19295