Companies Bill Draft Confusing On Retirement Age For Mds

The corporate sector has gone into a tizzy over an anomaly in the draft Companies Bill, 1997. While the proposed act restricts the retirement age of managing directors to 65 years, the accompanying schedule in the same act prescribes a maximum age of 70 years.

If accepted, the new recommendation will force several chief executive officers (CEOs) to step down. Corporate sector sources said the reintroduction of the restriction on retirement age was a retrograde step, since it had been virtually done away with in earlier company law.

Sections 280 to 282 of the Companies Act, 1956, which governed the retirement age, were repealed through an amendment in 1965. Subsequently, the government incorporated a provision setting the lower age for managerial appointments at 25 years and retirement age at 70 years, in Schedule XIII of the Act. However, the Act also contained several provisions, allowing for exemptions from the retirement age restriction, exercised liberally by the government. Therefore, the restriction has become virtually meaningless.

 

During a review of Schedule XIII, the government had considered leaving the decision on retirement age to the shareholders of each company. However, the government finally decided to retain the provision on the grounds that since this restriction was drawn from the Schedule, any change or deletion was possible at any time. In case of changes to the Act, however, amendments would have to be moved in Parliament, which is a time-consuming process.

Interestingly, the new provisions in the draft bill have added to the confusion since the Section on the retirement age does not state whether it applies to all companies. In case the provision extends to all companies, then the managing directors of government companies will reap a bonanza as their retirement age will be extended to 65 years from 58 years at present.

Similarly, if the provision also covers private limited companies, then it would affect a large number of companies since the directorial posts in such companies are usually held by family members and friends.

In that case, the issue of the interest of shareholders does not arise and the need for setting a threshold on the retirement age of managerial professionals is not valid.

Interestingly, 85 per cent of the companies registered with the Registrar of Companies are private limited companies.

Of the remaining 15 per cent, only 8,000 companies are listed companies while the rest of the firms are public unlisted companies, where again the requirement of retirement age has little validity.

In another interesting deviation, the draft Companies Bill has provided that managerial appointments will henceforth have to be passed by a special resolution. At present, these appointmrnts are cleared through an ordinary resolution and a special notice.

This new provision in the draft bill means that even a promoter holding a controlling interest in a company will not be able to get himself appointed as the company's managing director unless he has the backing of 75 per cent of the shareholders.