CLG:MCA:2016 Dated: February 15 , 2016
Shri Tapan Ray
Ministry of Corporate Affairs
New Delhi 110001
Sub: Para no. 13.13 of Part I of the Report of Companies Law Committee
This is with reference to subject captioned above, wherein Ministry has invited comments from the stakeholders in Report of Company Law Committee. In order to avoid repetition/duplication of comments/suggestions, the Ministry desired the members/ patrons of the Professional Institutes/ Councils/ Industry Chambers to route their comments/ suggestions through respective Institute/Council/Chamber.
In this regard, the ICSI has invited comments from its members and other stakeholder. After receiving the comments, the said comments / suggestions were placed before Special Meeting of the Central Council of ICSI and after due deliberations, we hereby submit as under:
1. Para no. 13.13 of Part I of the Report of Companies Law Committee reads as under:
“Section 203(3) provides that “whole-time” Key Managerial Personnel shall not hold office in more than one company except in its subsidiary company at the same time. The Committee noted that Section 13 of the General Clauses Act, 1897 provides that ‘singular’ shall include the ‘plural’, unless there is anything repugnant in the subject or the context. Thus, “whole-time” Key Managerial Personnel may hold office in more than one subsidiary company as per the present law. Accordingly, the Committee recommended no change in this regard.”
2. ICSI submissions with reference to Para no. 13.13 is that the provisions of section 13 of the General Clauses Act, 1897 has to be read keeping in view the words “unless there is anything repugnant in the subject or context” The most common rule of interpretation is that every part of the statute must be understood in a harmonious manner by reading and construing every part of it together. The maxim “A Verbislegis non estrecedendum” means that you mustnot vary the words of the statute while interpreting it.
The object of interpretation of statutes is to determine the intention of the legislature conveyed expressly or impliedly in the language used. In Santi swarup Sarkar v pradeepkumarsarkar, the Supreme Court held that if two interpretations are possible of the same statute, the one which validates the statute must be preferred.
Further, Supreme Court in M.T. Khan & Ors V. Government of Andhra Pradesh & Ors  RD-SC 10 (5 January 2004) granting the Leave in the appeal against order of High Court clarified that the decisions of the High Courts including the impugned judgment, as noticed hereinbefore, have proceeded on the basis that having regard to the provisions of Section 13 of the General Clauses Act and Article 367 of the Constitution of India, a singular would include a plural. The High Courts while adopting the said view, in our opinion, committed an error insofar as they failed to take into consideration the crucial words occurring in Article 367 of the Constitution “unless the context otherwise requires”.
It is a well-settled principle of law that the provisions of the Constitution shall be construed having regard to the expressions used therein. The question of interpretation of a constitution would arise only in the event the expressions contained therein are vague, indefinite and ambiguous as well capable of being given more than one meaning. Literal interpretation of the Constitution must be resorted to. If by applying the golden rule of literal interpretation, no difficulty arises in giving effect to the constitutional scheme, the question of application of the principles of interpretation of a statute would not arise only. It is to be noted that the definition of Key Managerial Personnel is given in section 2(51) of the Act. The same is reproduced as under:
“key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;”
However, when seeing it in the context of section 203 of the Act, it is “whole time key managerial personnel” and not a key managerial personnel. It is pertinent to point out that a whole time key managerial personnel may be a key managerial personnel in other companies but when it is to be seen in the context of “whole time key managerial personnel, the legislature in it wisdom has restricted to only one subsidiary and not all the subsidiaries. If one sees above, whole time director is independently defined as one of the key managerial personnel under section 2(5 1) of the Act but in the context of section 203, whole time director is clubbed and will be categorised only as whole time key managerial personnel if there is no managing director or manager or chief executive officer. Further under section 2(51) of the Act, key managerial personnel may include such other persons as may be prescribed but there is nothing as such in section 203 of the Act. Accordingly, there is a clear distinction provided between “key managerial personnel” and “whole time key managerial person”.
Therefore it is respectfully submitted that the Committee’s presumption that “singular includes “plural” under the General Clauses Act is erroneous in the law and is not in the context, which the legislature has seen.
3. ICSI submits that the appointment of Key Managerial Personnel should not be extended to ‘subsidiaries’. The justification is as under:
a. Legislative intent is that whole time KMP should not serve in more than one Company
We invite your kind attention to section 316 of the Companies Act, 1956 wherein it is provided that no public company and no private company which is a subsidiary of a public company shall appoint or employ any person as managing director (one of the KMP under Companies Act, 2013), if he is either the managing director or the manager of any other company (including private company which is not a subsidiary of a public company), except as provided in sub-section (2).
b. KMP is whole time employee, which is also ‘officer in default’ under section 2(60).There are many companies which are joint venture companies which are subsidiaries of holding companies. In addition, there are companies where holding company and its subsidiary companies are listed entities. Further it is seen that one holding company has layer of subsidiaries, both horizontally as well as vertically. If the concept of one whole time KMP is also extended to all the subsidiaries, it will impact the work of the whole time KMP and the possibilities of his devoting time and attention will get hampered. He should not be held responsible and thereby should not become officer in default for the non-compliances of more than one company.
c. Appointment of KMP of a holding Company in more than one subsidiary is not possible unless it is a chain of subsidiaries.
When a person holds position in more than one subsidiary, then his position would be that he is a company secretary in holding company, and of subsidiary company and of other subsidiary company. Section 203 is violated when the first and second subsidiary does not hold holding-subsidiary relationship.
d. Notes on clauses in Companies Bill refers to appointment of KMP in one Subsidiary
The Notes on Clauses in Companies Bill, 2011 relating clause 203 dealing with Appointment of Key Managerial Personnel reads as under:
‘This is a new clause and seeks to provide that every company belonging to such class or description of companies, as prescribed by the Central Government, shall have managing director, or chief executive officer or manager and in their absence, a whole time director and a Company Secretary, as whole-time key managerial personnel. It also seeks to provide that a whole-time key managerial personnel shall not hold office in more than one company (expect in a subsidiary) at the same time except that of a director if company permits him in this regard. This clause further provides for punishment in case of contravention. It indicates that a person can hold position as Key Managerial Personnel in maximum one subsidiary.’
e. Appointing a KMP in more than one subsidiary may not justify his position The purpose of Section 203 is promotion of compliance and governance by requiring companies to have Key Managerial Personnel who have specified obligations under the Act. KMPs have specific responsibilities. Appointing a person as KMP in more than one subsidiary may not justify his position considering his role and
f. Section 165 of Companies Act 2013 and Other Regulations restricts number of directorships
There are restrictions with respect to number of directorships and their membership in board committees under the Companies Act.
Regulation 25 of SEBI(LODR) Regulations, 2015 also restricts a person to serve as independent director in more than seven companies. It further provides that if such person is serving as whole time director in any listed company, shall not be independent director in more than three listed companies.
g. Each subsidiary is a separate legal entity.
Each subsidiary is reckoned as separate legal entity for the purpose of compliance of CSR provisions under Section 135 of the Companies Act, 2013.
h. Ceiling on number of statutory Audits does not exclude subsidiary.
Thus, it is requested that it may be clarified by way of suitable amendment in the Companies Act that the interpretation of ‘plural’ with reference to subsidiaries relating to appointment of Key Managerial Personnel in this report, is to be construed as ‘singular’ i.e. only one subsidiary.
(CS Mamta Binani)
Shri Amardeep Singh Bhatia
Ministry of Corporate Affairs