According to Section 2(51) of the Companies Act 2013, Key Managerial Personnel in a Company are:
-Chief executive Officer (CEO) OR the Managing Director.
-Chief Financial Officer (CFO).
-Manager
-Company Secretary (CS).
-Whole-Time Director.
These are a group of people who are in charge of managing the operations of a Company; they are responsible for the planning, directing and controlling the functioning of a Company. They are the first point of contract between the company and its Stakeholders.
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Which Companies are obligated to Appoint KMP (Key Managerial Personnel)?
According to section 203(1) read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the following companies are mandated to appoint a Whole-time KMP:
- Every Listed Company
- Public Companies having paid-up share capital of 10 Crore rupees or more.
- Public Companies Having paid-up share of 5 Crore rupees or more.
- Companies having paid-up share capital of 10 Crore rupees or more are mandated to appoint a Company Secretary.
What are the Roles and Responsibilities of Key Managerial Personnel?
The Management function of implementing important decisions comes under the responsibilities of Key Managerial Personnel. Here are some of the main Roles and Responsibilities of KMP:
- As per Section 170 of the Act, the details of Securities held by the Key Managerial Personnel in the company or its holding, subsidiary, a subsidiary of the company or associated companies should be disclosed and recorded in the registrar of the Books.
- KMP has a right to be heard in the meetings of the Audit Committee while considering the Auditor’s Report; however they do not have the right to vote.
- According to Section 189(2), Key Managerial Personnel should disclose to the company, within 30 days of appointment, relating to their concern or interest in the other associations, which are required to be included in the register.
What is the Non- Eligibility for Appointment?
Section 196(3) of companies Act,2013 sates that a Company shall not appoint or continue the employment of a Managing Director, Whole-Time Director or Manager if such person:
- Hasn’t attained the age of 21 years or has exceeded the age of 69 years (a person can be handed over the roles at the age of 70 years on the fulfillment of certain conditions).
- Has been an uncharged insolvent or was adjudged as an insolvent.
- Has a record of holding payments to his/her creditors.
- Has been convicted by a court for an offence and imprisoned for a period of more than six months.
- Has been sentenced to imprisonment or has been fined with more than Rs.1000 for the Conviction of an offence under certain acts.
- Wasn’t detained under the Conservation of foreign Exchange and Prevention of Smuggling Activities Act, 1974(Subject to further conditions).
- Is an Indian Resident.
- Key Managerial Personnel :
- Managing Director or Whole-Time Director or Manager:
Section 2(54) of the Companies Act,2013 defines Managing Director as a Director who is responsible for substantial powers of the management of the company and its affairs and is appointed by an agreement or a resolution passed in its General Meeting.
- Whole-Time Director :
Whole-Time Director of a Company is defined under Section 2(94) of the Act which means a director in whole-time employment of the Company.
- Manager:
Manager as defined under Section 2(53) of Companies Act, 2013 is any individual who works under the control and direction of the Board of Directors and is entrusted with the management of whole the affairs of the Company.
A manager is appointed by the Board of Directors at a meeting which shall be subject to resolution to be passed at the next general meeting of the company. The resolution consists of terms and conditions for the appointment and remuneration to be paid to the manager which has to be initially approved by the Board of Directors.
Any act done by the manager before the approval of the Board of Directors and passing of resolution shall be deemed to be invalid.
- Company Secretary:
A Company Secretary or Secretary under Section 2(24) of the Act whose function is to report the Board about the compliance of the provisions of the Act and other rules in relation to this Act. It also ensures that whether or not the company is complying with the secretarial standards.
The Central Government under Clause (c) of Section 205 has prescribed the role of company secretary in a company. He/she has to ensure the following things:
- To facilitate the meetings of the Board members and the General meeting and maintain the minutes of the meeting.
- To assist the Board members in the conduct of the affairs of the Company.
- To perform duties as prescribed by the Board of Directors.
- To represent company before different Tribunals, regulators and other authorities.
- Chief Financial Officer :
Chief Financial Officer under Section 2 (19) of Companies Act,2013 is a person who leads the finance and treasury functions of a business enterprise is designated as “CFO”,a CFO of the company should be the person who us appointed as CFO and not engaged in any other manner (retainer or consultant) or by any other designation.
- Chief Executive Officer :
Chief Executive officer under Section 2(18) of Companies Act, 2013 is a person appointed as Chief Executive Officer of a Company.
What is the Procedure of Appointment of KMP?
- The appointment of key managerial personnel is prescribed under Section 203 of the Act. Every member of managerial personnel is appointed through a resolution adopted by the Board with terms and conditions of appointment and remuneration.
- A member of managerial personnel can hold the position in one company at a given time. However a member of managerial personnel of a company can be a member of managerial personnel of its subsidiary company.
- In case of vacancy the Board has the responsibility of filling up within six months from the date of such vacancy.
- If the company or its Board tries to violate the provision of appointment of managerial personnel, then the company has to suffer from penalty. The company shall be punishable with fine of rupees one lakh which may extend up to rupees five lakh
- Every Director and other key managerial personnel shall also be punishable with a fine of Rs.50, 000. If the contravention is continuing, then they would be charged with Rs. 1000 per day after the first offense.
Who is the officer in default?
According to section 2(60) of the Act, an ‘officer who is in default ‘shall be liable for any penalty or punishment by way of imprisonment or fine. The officers may include:
- Key Managerial Personnel
- Whole-Time director’
- Any person who is responsible for maintenance, filing or distributing records or accounts.
- Any Director who is aware of the activities taking place is in contravention of the law or the provisions and yet indulges in or participates in it.
Maintenance of Register:
Every Company falling under this provision is required to maintain a register comprising particulars of its Directors and KMPs, which is to be placed at the registered office of the Company. The documents should include the details of securities held by each of them in the company or its holding, subsidiary, subsidiary of a company’s holding company or associate companies. Further requirements of its contents have been mentioned in Rule 17 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
Notes:
If during the course of business, any Key Managerial Personnel resign from a company, the Company shall be filled up by the board at a meeting of the Board within a period of six (6) months from the date of such vacancy.
A Whole-time Key Managerial Personnel shall not hold office in more than one company except in its subsidiary company at the same time.
Key Managerial Personnel can be appointed as a director of any company with the permission of the Board.
Disclaimer:The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.
Author- CS Aakansha Negi and can be contacted at [email protected]
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