CAN AN INDIVIDUAL BE BOTH MANAGING DIRECTOR AND CHAIRPERSON OF THE SAME COMPANY?

The question of whether the roles of Chairperson and Managing Director (MD) can be held by the same individual often arises in the context of corporate governance. To answer this, it is essential to examine the relevant provisions under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) and the Companies Act, 2013.

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1. PERSPECTIVE UNDER LODR REGULATIONS

According to Schedule II, Part E, Clause D of the LODR Regulations, it is recommended that the Chairperson of the board and the Managing Director or Chief Executive Officer (CEO) should be separate individuals. This provision is part of the Discretionary Requirements under the Corporate Governance framework.
Key Point:

Since it is a discretionary requirement, companies are not mandatorily required to separate the roles of Chairperson and MD under LODR. However, adhering to this recommendation is encouraged as a good governance practice, especially for listed entities.
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2. PERSPECTIVE UNDER THE COMPANIES ACT, 2013

SECTION 203 OF THE COMPANIES ACT, 2013, READ WITH RELEVANT NOTIFICATIONS, GOVERNS THE APPOINTMENT OF KEY MANAGERIAL PERSONNEL, INCLUDING MD AND CHAIRPERSON.

As per the Act:

> “An individual shall not be appointed or reappointed as the Chairperson of the company, in pursuance of the articles of the company, as well as the Managing Director or Chief Executive Officer of the company at the same time, unless:

(a) the articles of such a company provide otherwise; or

(b) the company does not carry multiple businesses.”

Further, the following clarification has been issued by the Ministry of Corporate Affairs:

> The restriction shall not apply to public companies having:

• A paid-up share capital of ?100 crore or more, and Annual turnover of ?1,000 crore or more, provided they are engaged in multiple businesses and have appointed Chief Executive Officers for each such business.

The paid-up share capital and turnover are to be determined based on the latest audited balance sheet.

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CONCLUSION
FROM A REGULATORY STANDPOINT:

Under LODR Regulations, the separation of the roles of Chairperson and MD is optional, not mandatory. Under the Companies Act, 2013, the same individual can hold both roles if:

• The Articles of Association of the company allow it, or
• The company is not engaged in multiple businesses, or

If engaged in multiple businesses, the company falls under the specific exemption notified by the Central Government (i.e., large public companies with designated CEOs for each business).
Thus, yes, an individual can be both the Chairperson and Managing Director of the same company, subject to satisfying the conditions laid down in the Companies Act, 2013.

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From the desk of CS Sharath