Compliances

Appointment of Key Managerial Personnel under Companies Act, 2013

Key Managerial Personnel is responsible for laying down the strategies as well as its implementation. They are the people who hold key positions in the Company and posses greater responsibility for the overall functioning of the Company including the duty to protect the interest of the stakeholders.

These inclusions are in line with the global trends. “Company Secretary” has also been brought within the ambit of Key Managerial Personnel giving them the long-deserved recognition of a Key Managerial Personnel of the Company. The exclusive feature of these management roles is that they are considered as a cluster of a team rather than emphasizing on a single individual.

In the current write up, we have explored this concept of Key Managerial Personnel as put forth in the Companies Act, 2013 read with the relevant rules made thereunder.

Definition of Key Managerial Personnel as per Companies Act

Key Managerial Personnel is defined by the Companies Act, 2013 as follows:

“Key Managerial Personnel”, in relation to a Company, means a person who holds the designation of or is appointed as:-

• Chief Executive Officer or Managing director or Manager,
• Chief Financial Officer
• Whole time director
• Company Secretary
• Such other officer as may be prescribed.

The last point gives power to the legislature to include some other person within the purview of Key Managerial Personnel as when they deemed it fit and necessary from time to time.

Definition of Key Personnel

Let us now proceed to understand how these six personnel are defined under the Act.

1. CEO: – Chief executive officer means an officer of a company, who has been designated as such by it.
2. Chief Financial officer: – Chief financial officer means a person appointed as the Chief financial officer of a company.
3. Company secretary or secretary: –means a person who has been qualified as such and holds a valid qualified certificate issued by Institute of Company Secretary of India as prescribed under Company secretaries act 1980.
4. Manager:- means a person appointed as such who is in charge of control and direction of the Board of Director and is entrusted with the substantial powers of management of the affairs of the Company and it is inclusive the position of managing director or by whatever name called.
5. “Managing Director”: – means a person who is appointed as such by passing a resolution in general meeting, or by its Board of Directors and has the substantial power of management of the affairs of the Company.
6. “Whole time director”: – includes a director in the whole-time employment of the Company,

The above definitions depict that in the case of CEO and CFO, the designation is crucial to deem the person as CEO and CFO whereas in the case of MD and Manager the functions discharged or the role performed by an individual is taken as the test to deem them as the MD or Manager. The definition of whole time director is an inclusive definition, and CS is defined to mean a CS as per the Company Secretaries Act, 1980 who is duly appointed to perform the functions of a company secretary.

List of Companies that are required to Mandatorily require to appoint Key Managerial Personnel

Following Companies are needed to appoint Key Managerial Personnel mandatorily:

1. Listed Companies,
2. All such public companies with paid-up share capital of Rs. 10 crores or more should have the following:

• Chief financial officer,
• Managing Director, Chief Financial Officer or Manager and in their absence, a whole time director,
• Company Secretary.

All such Companies which are having paid up share capital of Rs. 5 crore or more shall appoint a whole time company secretary. All such details are provided under Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rule, 2014.

Appointment of Key Managerial Personnel

• Key Managerial Personnel is appointed in the whole-time employment of a Company by means a resolution passed by Board, and it should also include terms, conditions, and remuneration.
• In the case of vacancy of the office of Key Managerial Personnel, then it is the responsibility of the Board to fill such position within a period of 6 months from the date of such vacancy.

Few Limitations in case of Appointment of Key Managerial Personnel:

• Any individual shall not be appointed as Chairperson and Managing Director or Chief Executive Officer at the same time except In case of the following circumstances, there is an exception to the above:

1. If articles of association of the Company, contain provision for appointment of the same person, or
2. The Company carries only single business, or
3. If Company is in multiple business and more than one or more Chief Executive Officers for each such business or as may be notified by the Central Government.

• A KMP which is in whole time employment shall not hold office in more than one company as provided under the Act, however, KMP may hold office in its subsidiary company at the same time.
• With the permission of the board only KMP can be appointed as director in any other Company.
• A Company may appoint or employ a person as its managing director If he is Managing Director of only one Company and such appointment is made by passing resolution and all directors present at the meeting has consented.

Other Provisions Regarding Key Managerial Personnel

• Key Managerial Personnel is included in the meaning of “Officer in Default.”
• If authorized by Board of directors any Key Managerial Personnel can authenticate a documents, proceeding or contracts on behalf of the Company.
• Annual Return of the Company shall include the details if changes are made in the remuneration or any shifts in the KMP itself.
• Any financial interest or concern should be disclosed in the explanatory statement in the respective individual business to be transacted at a general meeting.
• A person cannot be appointed as an auditor if his relative is appointed as KMP in the Company.

• Further, a person cannot be appointed as the independent director if any of his /her relatives are appointed as KMP in the Company.
• A register as prescribed under the Act is required to be maintained by the Company, and it should give the details such as securities held by each of them in the company or its holding, subsidiary, subsidiary company’s holding company or associate companies.

• Any appointment or change in KMP should be filed with ROC within 30 days from such change or appointment.
• Company shall have remuneration policy recommended by the Nomination and Remuneration Committee to ensure that policies involve a balance between fixed and incentive pay reflecting short and long-term objective appropriate to the working of the Company and goals. These policies are included in the Board’s report.
• KMP shall give details of his concern or interest in other associations, and all such details are to be included in the register required to be maintained under the Companies Act, 2013^[1]
• Key Managerial Personnel is prohibited from making forward dealings and insider trading in securities of the company.

Punishment for Contravention

In case where any company doesn’t comply with the provisions of the section, then such company will be liable for a penalty of 5 lakhs and every director and KMP of the company who makes such default will be liable to a penalty of 50000 rupees.

Conclusion

 Key Managerial Personnel are vested with some of the most essential roles and responsibilities. They are key players when it comes to operation of the company.

Read our article: Non-receipt of Subscription Money under Companies Act, 2013