Appointment of Key Managerial Personnel as per the Companies Act, 2013

The Companies Act, 2013 has first time recognized the concept of key management personnel (KMP) to define the executive management. Key Managerial personnel are the employees of the Company who hold significant and top positions in the Company and have a greater responsibility for the overall functioning of the Company including the duty to protest the interest of all stakeholders and are accountable to ensure that the Company is in compliance with various laws. Let’s discuss the provisions:

Q - Who is Key Managerial Personnel (KMP)?

As per section 2(51) of companies Act, 2013, the following person shall be KMP:
Key Managerial personnel in relation to a company means-
i.                  The Chief executive officer (CEO) or the Managing director (MD) or the manager;
ii.                  The company secretary (CS);
iii.                The whole time director (WTD);
iv.                The chief financial officer (CFO)
v.                Such other officer, not more than one level below the directors who is in whole time employment, designated as key managerial personnel by the Board; and
vi.                Such other officer as may be prescribed;

Appointment of Key Managerial Personnel (KMP)

As per Section 203 of Companies Act, 2013 and Companies (appointment and remuneration of managerial personal) Rules, 2014.

Section 203 says that:

(1) As prescribed in Rule 8 and 8A:

Every listed company

Every other public company having a paid-up share capital of Rs. 10 crore or more shall have whole-time KMP

Every private company which has a paid up share capital of Rs. 10 Crores or more shall have a whole time KMP

Shall have the following whole-time KMP:-

(i) Managing director (MD), or Chief Executive Officer (CEO) or manager and in their absence, a whole-time director (WTD);

(ii) Company Secretary (CS); and

(iii) Chief Financial Officer (CFO):

Exceptions:

I. 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 MD or CEO of the company at the same time after the date of commencement of this Act unless,—

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

(b) the company does not carry multiple businesses:

However, this exception shall not apply to such Public companies:

a)      having paid-up share capital of Rs. 100 crore or more and

b)      Annual turnover of Rs. 1000 crore or more

Which are engaged in multiple businesses and have appointed one or more CEOs for each such business as may be notified by the CG. (MCA notification (S.O. 1913(E) dated 25^th July, 2014)

Rule 8: Appointment of Key Managerial Personnel:-

Every listed company and every other public company having a paid-up share capital of Rs. 10 crore or more shall have whole-time KMP.

Rule 8A:  Every private company which has a paid-up share capital of Rs. 10 Crores or more shall have a whole-time KMP.

(Amended by MCA notification no. 13(E) dated 3^rd January 2020, effective from 1^st of April, 2020)

Download: http://www.mca.gov.in/Ministry/pdf/AmdtRules_06012020.pdf

Manner of appointment of KMP

(2) Every whole-time KMP of a company shall be appointed by Board Resolution containing the terms and conditions of the appointment including the remuneration.

(3) A whole-time KMP shall not hold office in more than one company except in its subsidiary company at the same time:

Exception

        i.            A KMP can be a director of any Company with the permission of the Board of director.

      ii.            Whole-time KMP holding office in more than one company at the same time on the date of commencement of this Act, within 6 months from such commencement, shall choose one company, in which he wishes to continue to hold the office of key managerial personnel.

    iii.            A Company may appoint or employ a person as its MD,

If he is the MD or manager of one, and of not more than one, other Company

and

such appointment or employment is made or approved by a Board Resolution with the consent of all the directors present at the meeting (i.e Unanimous Resolutions) and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

Vacancy of KMP

(4) If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled-up by the Board at a Board Meeting within 6 months from the date of such vacancy.

Punishment for Contravention:

(5) In case of contravention this section, the penalties are as follows:

Defaulting Company	Penalty of Rs. 5 lakh and
Every Director and KMP of the company who is in default	Penalty of Rs. 50,000 & Where the default is a continuing one, with a further penalty of Rs. 1000 for each day after the first during which such default continues but not exceeding 5 lakh rupees.

Exception for Government Company:

(4A) The provisions of sub-sections (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government Company.  Inserted by Notification dated 5th June, 2015.

Functions of Company Secretary

Section 205 says that:        

The functions of the company secretary shall include:

(a) To report to the Board about compliance with the provisions of this Act, the rules made thereunder and other laws applicable to the company;

(b) To ensure that the company complies with the applicable secretarial standards;

(c) To discharge such other duties as may be prescribed in rule 10.

Rule 10: Duties of Company Secretary.-

(1)   to provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities and powers;

(2)   to facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings;

(3)   to obtain approvals from the Board, general meeting, the government and such other authorities as required under the provisions of the Act;

(4)   to represent before various regulators, and other authorities under the Act in connection with discharge of various duties under the Act;

(5)   to assist the Board in the conduct of the affairs of the company;

(6)   to assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices; and

(7)   to discharge such other duties as have been specified under the Act or rules; and

(8)   such other duties as may be assigned by the Board from time to time.

The provisions contained in section 204 and section 205 shall not affect the duties and functions of the Board of Directors, chairperson of the company, managing director or whole-time director under this Act, or any other law for the time being in force.

Explanation:

The expression “secretarial standards” means secretarial standards issued by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government.

Other Provisions for KMP

Appointment of Managing Director, Whole-time Director or Manager 

Section 196 says that:

(1) No company shall appoint or employ at the same time an MD and a manager.

(2) Company shall not appoint or re-appoint any person as its MD, WTD or manager for a term exceeding 5 years at a time:

However, such re-appointment shall not be made earlier than 1 year before the expiry of his term.

(3) No company shall appoint or continue the employment of any person as MD, WTD or manager who:-

(a) is below the age of 21 years or has attained the age of 70 years:

Exceptions:

1.     Appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;
 
2.     Where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast against the motion and the Central Government is satisfied, on an application made by the Board, that such appointment is most beneficial to the company, the appointment of the person who has attained the age of 70 years may be made.
 

(b) is an undischarged insolvent or has at any time been adjudged as an insolvent;

(c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or

(d) has at any time been convicted by a court of an offence and sentenced for more than 6 months.

(4) Subject to the provisions of section 197 and Schedule V, MD, WTD or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions [Specified in Part I of that Schedule]

Provided that

A notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any.

A return in form MR-1 shall be filed within 60 days of such appointment with the ROC.

No requirement to file form MR-1 for CEO, CS, CFO - Notification no. G.S.R. 646(E) dated 30^th June, 2016

Note: Form MGT-14 is required to file within 30 days of passing of any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director as per section 117(3)(c).

(5) where an appointment of a MD, WTD or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.

Exceptions:

1.      In case of private company - Sub-section (4) and (5) of Section 196 shall not apply - Notification dated 5th june, 2015.

2.  In case of government company - Sub-section (2), (4) and (5) of Section 196 shall not apply . - Notification dated 5th june, 2015.

3. In case of Specified IFSC Public Company - Sub-section (4) of section 196 shall not apply. - Notification Dated 4th January, 2017.

Register of Directors and KMP and their Shareholding  

Section 170 says that:

(1) Every company shall keep at its registered office a register containing such particulars of its directors and KMP as prescribed in Rule 17, which shall include the details of securities held by each of them in the company or its holding, subsidiary, subsidiary of company’s holding company or associate companies.

(2) A return containing such particulars and documents of the directors and the KMP shall be filed with the Registrar within 30 days from the appointment/ any change therein of every director and KMP in Form DIR-12.

Rule 18: Return Containing the Particulars of Directors and the KMP

A return containing the particulars of appointment of director or KMP and changes therein, shall be filed with the Registrar in Form DIR-12 along with such fee as may be provided in the Companies (Registration Offices and Fees) Rules, 2014 within 30 days of such appointment or change, as the case may be.

Exceptions

1. Section 170 shall not apply to Government Company in which the entire share capital is held by the Central Government, or by any State Government or Governments or by the Central Government or by one or more State Governments. - Notification dated 5th June, 2015.

2. In case of Specified IFSC Private/IFSC Public Company- Form DIR-12 shall be filed with the Registrar within 60 days from the appointment/ any change therein of every director and KMP - Notification Dated 4th January 2017. 

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