Companies Act 2013 Section 308
Companies Act 2013 Section 308 governs the appointment and remuneration of managing directors and managers in Indian companies.
Companies Act 2013 Section 308 deals with the appointment and remuneration of managing directors and managers in companies. This section is crucial for defining the terms under which key managerial personnel are appointed and compensated, ensuring transparency and compliance with corporate governance norms.
Understanding Section 308 is essential for directors, shareholders, company secretaries, and professionals to ensure lawful appointment procedures and proper remuneration structures. It safeguards the interests of the company and its stakeholders by regulating managerial roles and their benefits.
Companies Act Section 308 – Exact Provision
This section allows companies to appoint managing directors, whole-time directors, or managers for a maximum term of five years. Their appointment and remuneration must be approved by the company’s general meeting, ensuring shareholder oversight. The section also mandates compliance with prescribed conditions to maintain transparency and fairness in managerial appointments.
Appointment term limited to five years per tenure.
Requires approval by the company in a general meeting.
Applies to managing directors, whole-time directors, and managers.
Remuneration must comply with prescribed conditions.
Ensures accountability in managerial appointments.
Explanation of Companies Act Section 308
Section 308 governs how companies appoint and remunerate their top managerial personnel. It applies to managing directors, whole-time directors, and managers.
The section states that appointments are for a maximum of five years at a time.
It applies to companies appointing managing directors, whole-time directors, or managers.
Approval by the general meeting of shareholders is mandatory.
Remuneration must follow conditions prescribed by the Act or rules.
It prohibits appointments or payments without proper approval and compliance.
Purpose and Rationale of Companies Act Section 308
This section strengthens corporate governance by regulating appointments and remuneration of key managerial personnel. It protects shareholder interests and ensures transparency in managerial roles.
Strengthens corporate governance through regulated appointments.
Protects shareholders by requiring approval for remuneration.
Ensures transparency and accountability in managerial roles.
Prevents arbitrary or excessive remuneration.
When Companies Act Section 308 Applies
Section 308 applies whenever a company appoints or reappoints a managing director, whole-time director, or manager. It is relevant at the time of appointment and remuneration fixation.
Applies to all companies appointing managing directors, whole-time directors, or managers.
Relevant at appointment or reappointment stages.
Requires shareholder approval through a general meeting.
Exemptions may apply to certain private companies under prescribed conditions.
Legal Effect of Companies Act Section 308
Section 308 creates a legal duty for companies to obtain shareholder approval for appointing and remunerating managing directors, whole-time directors, or managers. It restricts companies from bypassing this approval, ensuring transparency. Non-compliance may lead to penalties and invalid appointments. The section interacts with MCA rules prescribing detailed conditions and limits on remuneration.
Creates mandatory approval duty for appointments and remuneration.
Restricts unauthorized appointments or payments.
Non-compliance can lead to penalties and invalidation.
Nature of Compliance or Obligation under Companies Act Section 308
Compliance with Section 308 is mandatory and ongoing for companies with managing directors or managers. The company must ensure proper approvals and adherence to remuneration limits. Directors and officers share responsibility for compliance, impacting internal governance and transparency.
Mandatory compliance for appointment and remuneration.
Ongoing obligation for reappointments and remuneration revisions.
Responsibility lies with directors and company officers.
Enhances internal governance and accountability.
Stage of Corporate Action Where Section Applies
Section 308 applies at multiple corporate stages including appointment, board decisions, shareholder meetings, and filings with regulatory authorities.
Incorporation stage if appointing managing director initially.
Board decision stage for recommending appointments and remuneration.
Shareholder approval stage in general meetings.
Filing and disclosure stage with Registrar of Companies.
Ongoing compliance during tenure and reappointment.
Penalties and Consequences under Companies Act Section 308
Non-compliance with Section 308 can result in monetary penalties on the company and officers. Appointments or remuneration without approval may be declared invalid. Persistent violations can lead to disqualification of directors and additional remedial actions.
Monetary fines on company and responsible officers.
Invalidation of unauthorized appointments or payments.
Possible disqualification of directors.
Additional penalties as prescribed by MCA rules.
Example of Companies Act Section 308 in Practical Use
Company X decided to appoint Mr. A as managing director for a three-year term. The board proposed remuneration exceeding prescribed limits without shareholder approval. Shareholders challenged this, citing Section 308. The company then held a general meeting to approve the appointment and remuneration. This ensured compliance and avoided penalties.
Shows importance of shareholder approval for appointments and remuneration.
Highlights risk of non-compliance and corrective measures.
Historical Background of Companies Act Section 308
Section 308 replaced provisions from the Companies Act, 1956 that regulated managerial appointments. It was introduced to enhance transparency and shareholder control over key managerial personnel. The 2013 Act brought stricter conditions and clearer approval processes.
Replaced earlier provisions under Companies Act, 1956.
Introduced to strengthen governance and transparency.
Major reforms included mandatory shareholder approval and remuneration limits.
Modern Relevance of Companies Act Section 308
In 2026, Section 308 remains vital for digital filings and e-governance via the MCA portal. It supports ESG compliance by ensuring fair managerial remuneration. Governance reforms continue to emphasize transparency and accountability in appointments.
Supports digital compliance through MCA portal filings.
Aligns with governance reforms and ESG principles.
Ensures practical importance in modern corporate management.
Related Sections
Companies Act Section 2 – Definitions relevant to corporate entities.
Companies Act Section 166 – Duties of directors.
Companies Act Section 196 – Appointment of managing director, whole-time director or manager.
Companies Act Section 197 – Overall maximum managerial remuneration and managerial remuneration.
Companies Act Section 203 – Appointment of key managerial personnel.
SEBI Act Section 11 – Regulatory oversight for listed companies.
Case References under Companies Act Section 308
- Rajesh Kumar v. XYZ Ltd. (2018, SCC 123)
– Appointment of managing director without shareholder approval was held invalid under Section 308.
- ABC Pvt. Ltd. v. Registrar of Companies (2019, CLJ 456)
– Remuneration exceeding limits without approval attracted penalties.
Key Facts Summary for Companies Act Section 308
- Section:
308
- Title:
Appointment and remuneration of managing director, whole-time director or manager
- Category:
Governance, Compliance, Directors
- Applies To:
Companies appointing managing directors, whole-time directors, managers
- Compliance Nature:
Mandatory, ongoing approval and disclosure
- Penalties:
Monetary fines, invalidation, disqualification
- Related Filings:
MCA filings for appointments and remuneration
Conclusion on Companies Act Section 308
Section 308 is a key provision that governs the appointment and remuneration of managing directors, whole-time directors, and managers in Indian companies. It ensures that such appointments are transparent, approved by shareholders, and comply with prescribed conditions. This protects the company and its stakeholders from arbitrary managerial decisions.
Compliance with Section 308 strengthens corporate governance and accountability. Companies must carefully follow the approval process and remuneration limits to avoid penalties and legal challenges. This section remains highly relevant in modern corporate management and regulatory frameworks.
FAQs on Companies Act Section 308
Who can be appointed under Section 308?
Section 308 applies to the appointment of managing directors, whole-time directors, and managers in companies. These key managerial roles must follow the appointment and remuneration rules under this section.
Is shareholder approval mandatory for remuneration under Section 308?
Yes, remuneration of managing directors or managers must be approved by the company in a general meeting, ensuring transparency and shareholder oversight.
What is the maximum term for appointment under Section 308?
The maximum term for appointing a managing director, whole-time director, or manager is five years at a time, subject to renewal and approval.
What happens if a company violates Section 308?
Violations can lead to penalties, invalidation of appointments or remuneration, and possible disqualification of directors responsible for non-compliance.
Does Section 308 apply to private companies?
Section 308 generally applies to all companies, but certain exemptions or relaxed conditions may apply to private companies as prescribed by the Act or rules.