Contract of Employment With a Managing Director: s. 190

A contract of employment with a managing director has to be kept where members can read it. Section 190 of the Companies Act, 2013 requires every company to keep at its registered office a copy of the contract of service with a managing or whole-time director where the contract is in writing, or a written memorandum setting out its terms where it is not, and to open that document to inspection by any member without fee.

What does section 190 require of a contract of employment with a managing director?

Two things, and the second is what makes the first useful. Sub-section (1) is the keeping obligation, and it is drafted so that an oral arrangement cannot escape it. Where the contract of service with a managing or whole-time director is in writing, the company keeps a copy of the contract. Where such a contract is not in writing, the company keeps a written memorandum setting out its terms. There is no third option.

Sub-section (2) is the inspection right: those copies or memoranda are open to inspection by any member of the company without payment of fee. Many inspection rights in the Act permit a fee prescribed by the articles. This one does not.

Sub-section (3) sets the penalty: twenty-five thousand rupees on the company and five thousand rupees on every officer in default, for each default. Sub-section (4) removes private companies from the section entirely.

What the section does not cover

The scope limits are as important as the obligation, because each one is a place a reader might expect the section to reach and it does not.

Compare that last row with the register under section 189, where the position differs, and with the independent-director position, where Schedule IV paragraph IV(6) requires the terms and conditions of appointment to be posted on the company's website. Schedule IV, the code for independent directors covers that requirement, and the contrast is worth holding: an independent director's terms are published, a managing director's terms are inspectable.

How does this read with the rest of the appointment machinery?

Section 190 is the record of the bargain. Two neighbouring sections set what the bargain may contain, and one sets what happens when it ends.

• Section 196(4) requires the terms and conditions of the appointment and the remuneration payable to be approved by the Board and then by the members at the next general meeting. Appointment of a managing director under section 196 covers that sequence, including the sixty-day return to the Registrar.
• Section 197 caps what the contract may promise, at eleven per cent of net profits in aggregate and five per cent for a single managing director. Managerial remuneration under section 197 covers the ceilings and the Schedule V route where profits are absent or inadequate.
• Section 202 governs a payment made when the office ends, and section 202(3) measures the cap partly by the remainder of the term, which is a term the contract records. Compensation for loss of office under section 202 covers that calculation.

That last link is the practical reason the contract matters to an outsider. A severance cap stated as "the remuneration he would have earned if he had been in office for the remainder of his term or for three years, whichever is shorter" cannot be checked without knowing the term, and the term is in the document section 190 requires the company to keep.

Where a contract with a managing director shows up in a filing

Not directly. Section 190 creates an inspection right at the registered office, not a filing, so the contract itself does not reach a public database. What reaches the record is derivative: the general meeting resolution approving the terms under section 196(4), the sixty-day return to the Registrar for the appointment, and for a listed company the remuneration disclosures in the Board's report under section 197(12) and the auditor's statement under section 197(16). The contract is the primary document behind all three, and a member is the only person the Act gives a right to read it.

Board composition and the identity of key managerial personnel are separately reported by listed companies, and key managerial personnel under section 203 covers the category that a managing director falls into.

Where this sits in the disclosure picture

• Appointment of a managing director under section 196 covers the approval sequence for the terms this contract records.
• Managerial remuneration under section 197 covers the ceilings the contract must sit inside.
• Compensation for loss of office under section 202 covers the payment measured against the remainder of the contract's term.
• Key managerial personnel under section 203 covers the statutory category the role sits in.
• The register of contracts under section 189 covers the neighbouring record of contracts in which directors are interested.
• Schedule IV, the code for independent directors covers the letter of appointment that must instead be posted on the company's website.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.