Key Managerial Personnel Companies Act 2013

Narendra Kumar

06 Sep, 2022

The Companies Act, 2013 has introduced the concept Key Managerial Personnel. This concept main aim is to bring together a group of the company under one title. In Companies Act 1956 managing director, whole time director was recognized as a Managerial person. With the introduction of KMP under Companies Act, 2013 apart from above the functions head also added in the title. In this article, we will discuss the role and importance of the KMP in an Organisation.

Who is considered as Key Managerial personnel?

As per the Section 203 of the Companies Act 2013, Key managerial personnel means:

• The Chief Executive Director or Managing Director or Manager; and in their absence Whole-time Director
• The Company Secretary; and
• The Chief Financial Officer.

After the commencement of this act, an individual cannot be appointed or reappointed as Chairman as well as Managing Director or CEO of the Company at the same time unless such appointment is in pursuance of the articles of the Company or the Company is not carrying multiple businesses.

The company who carries multiple businesses can have different CEO for each of the Business as stipulated by Central Government.

The word ‘or’ used between the CEO or Managing Director or Manager arises many queries. Section 196 clarifies the doubt amongst many people. The section states that no company shall appoint Managing Director and Manager at the same time. This doesn’t stop any organization to have CEO and Managing Director or CEO and Manager together at the same time. To comply with the provisions of Section 203 anyone can be designated as KMP of the Company.

Mandatory Requirement of Appointment of KMP:

As per section 203 of the Act read with the rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following classes of the Company shall appoint KMP:

• Every Listed Company; and
• Public Company having paid up share capital 10 crore rupees or more.

Further, the rule 8Aof the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 states that apart from the above companies any company whose paid up capital is 5 crore or more shall appoint whole time company secretary. Apart from the above-mentioned category of the Company can voluntary appoint KMP.

What is the Procedure to Appoint KMP?

• As per Section 179(3) of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014, appointment or removal of the Company shall be transacted by the Board at the Board Meeting, hence the appointment of KMP as defined above shall be made by passing resolution at Board Meeting.
• As per Section 203 of the acting appointment of whole time KMP shall be made at a board meeting by passing a resolution. The resolution shall contain the terms and conditions of the appointment along with the detail of remuneration.
• As per Section 196 of the Act, the appointment of a manager, MD or WTD by a public company shall be approved by shareholders in general meeting after the appointment approved in Board Meeting. Here the public company is other than government and a private company.

Role and responsibility of KMP:

By introducing a new concept of KMP under Companies Act 2013, the KMP’s are cast onerous responsibilities, obligations, and liabilities. KMP is also included under the definition of ‘officers in default’ and ‘related party.’ Below are some provisions under which KMP are being outlined.

• The KMP is included under the definition of an officer, officer who is in default, a related party which itself brings responsibility on the head.
• As per section 102 of the Act, any interest or concern of KMP on a proposed matter to be transacted at the meeting shall be disclosed by KMP.
• As per section 170 of the Act, the details of securities held by KMP in the Company or its holding, subsidiary, a subsidiary of company’s holding company or associate companies shall be disclosed and recorded in the Registrar of the Books.
• KMP shall attend Audit Committee while consideration of Audit Report but shall not have the right to vote at the Meeting.
• KMP shall give a declaration of his appointment, or relinquishment of office, or any interest or concern appointment, or relinquishment within 30 days.
• KMP shall not deal in securities of the Company as per Section 194 of the Act.
• Any vacancy shall be fulfilled within six months from the date of vacancy.

Penalties:

Any contravene with the provisions of Section 203 of the Companies Act 2013, the Company shall be punishable with fine 1 lakh to 5 lakh, and every director and KMP in default shall be punishable with fine up to 50K rupees. If the contravene continues than 1K every day till it continues.