In the dynamic realm of corporate governance, the identification and appointment of Key Managerial Personnel (KMP) play a pivotal role in steering the course of a company. As delineated by Section 2(51) of the Companies Act, 2013, KMP includes crucial roles such as Chief Executive Officers, Managing Directors, Company Secretaries, and more. This article delves into the intricacies of their roles, eligibility criteria, and the stringent regulations outlined in the Companies Act, providing a comprehensive understanding of the vital positions that shape the corporate landscape.
Key managerial Personnel- Section 2(51) of the Companies Act, 2013
A Key Managerial Personnel, in relation to a company, means:
1. The Chief Executive Officer or the Managing Director or Manager
2. The Company Secretary
3. The Whole-time Director
4. The Chief Financial Officer and
5. Such other officer as may be prescribed.
Managing Director- Section 2(54) of the Companies Act, 2013:
A director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
Whole Time Director- Section 2(94) of the Companies Act, 2013:
Whole Time Director means a director in the whole-time employment of the company. In other words, a director employed to devote the whole of his time and attention in carrying on the affairs of the Company. A person, who is proposed to be appointed as a managing director or whole-time director, can’t be appointed unless he is already a director in the company. So, holding of office of a director is a prerequisite for holding of office of managing or whole-time director.
Manager- Section 2(53) of the Companies Act, 2013:
This section defines “Manager” as an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of the Company and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not.
Chief Executive Officer & Chief Financial Officer- Section 2(18)/(19) of the Companies Act, 2013:
This section defines “Chief Executive Officer/ Chief Financial Officer” as an officer of a company, who has been designated as such.
Company Secretary- Section 2(24) of the Companies Act, 2013:
This section defines “Company Secretary” or “Secretary” as defined in clause (c) of Section 2(1) of the Company Secretaries Act, 1980.
As per Section 2(1) (c) of the Company Secretaries Act, 1980, “Company Secretary” means a person who is a member of the Institute of Company Secretaries of India (ICSI).
Applicability:
Appointment of Key Managerial Personnel Section 203 of the Companies Act, 2013 read with Rule 8 mandates the appointment of Key Managerial Personnel and makes it obligatory for a listed company and every other public company having a paid-up share capital of rupees ten crores or more, to appoint following whole-time key managerial personnel:
- managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;
- company secretary; and
- Chief Financial Officer
Terms of appointment:
A company is not allowed to appoint or employ at the same time a managing director and manager. The maximum term of appointment of a managing director, whole-time director or manager has been fixed at five years at a time;
PROVIDED that no re-appointment shall be made earlier than one year before the expiry of his term.
Disqualifications– Section 196(3)
The section lays down that no company shall appoint or continue the employment of any person as its managing director, whole-time director or manager who—
(a) is below the age of twenty-one years or has attained the age of seventy years;
PROVIDED that 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;
(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;
(d) has at any time been, convicted by a court of an offence and sentenced for a period of more than six months.
Eligibility- Part I of Schedule V
This part contains five conditions which must be satisfied by a person to be eligible for appointment as managing director, whole-time director or manager without the approval of the Central Government. These conditions are as below:
(a) he had not been sentenced to imprisonment for any period, or to a fine exceeding one thousand rupees, for the conviction of an offence under any of the following Acts, namely:
(i) the Indian Stamp Act, 1899,
(ii) the Central Excise Act, 1944,
(iii) the Industries (Development and Regulation) Act, 1951,
(iv) the Prevention of Food Adulteration Act, 1954,
(v) the Essential Commodities Act, 1955,
(vi) the Companies Act, 2013,
(vii) the Securities Contracts (Regulation) Act, 1956,
(viii) the Wealth-tax Act, 1957,
(ix) the Income-tax Act, 1961,
(x) the Customs Act, 1962,
(xi) the Competition Act, 2002,
(xii) the Foreign Exchange Management Act, 1999,
(xiii) the Sick Industrial Companies (Special Provisions) Act, 1985,
(xiv) the Securities and Exchange Board of India Act, 1992,
(xv) the Foreign Trade (Development and Regulation) Act, 1992;
(xvi) the Prevention of Money Laundering Act, 2002; 6 Appointment and Remuneration of Key Managerial Personnel
(b) he had not been detained for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974;
PROVIDED that where the Central Government has given its approval to the appointment of a person convicted or detained under subparagraph (a) or sub-paragraph (b), as the case may be, no further approval of the Central Government shall be necessary for the subsequent appointment of that person if he had not been so convicted or detained subsequent to such approval;
(c) he has completed the age of 21 years and has not attained the age of 70 years:
PROVIDED that where he has attained the age of 70 years and where his appointment is approved by a special resolution passed by the company in a general meeting, no further approval of the Central Government shall be necessary for such appointment;
(d) where he is a managerial person in more than one company, he draws remuneration from one or more companies subject to the ceiling provided in section V of Part II;
(e) he is a resident of India.
Explanation: For the purpose of above, a resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India:
(i) for taking up employment in India, or
(ii) for carrying on a business or vocation in India.
But this condition shall not be applicable to the companies in Special Economic Zones, as may be notified by the Department of Commerce from time to time.
Appointment to be approved in General Meeting:
Section 196(4) of the Companies Act, 2013 provides that subject to the provisions of Section 197 and Schedule V, a managing director, whole-time director 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 an Special 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 Schedule V.
Note: Section 196(5) provides that subject to the provisions of this Act, where an appointment of a managing director, whole-time director 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.
Exemptions to Private Company- Section 196(4) & (5)
In case of a private company, the appointment of MD, WTD or manager does not require approval of the Board/ general meeting and subsequently, the approval of the Central Government is also not required, even if the conditions of appointment are not as per the requirements of Schedule V of the Act.
Filing of Return of Appointment
A company shall return of appointment of a managing director, whole-time director or manager within sixty days of the appointment, with the Registrar in Form MR.1 along with such fees as may be specified.
Conclusion:
Understanding the intricacies of Key Managerial Personnel is vital for corporate compliance. Companies Act, 2013, meticulously defines roles, eligibility, and appointment procedures, ensuring transparency and accountability in corporate governance. Adhering to these regulations is essential for seamless operations and legal compliance within the corporate landscape.
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DISCLAIMER:- This Blog is for the purposes of information/knowledge and shall not be treated as solicitation in any manner or for any other purposes whatsoever.
Feel free to contact the author for further clarification at 9953808432 or via mail at cssinghaniaandassociates@gmail.com. The author is the founder of SINGHANIA & ASSOCIATES (Practicing Company Secretaries Firm) based in Delhi.
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