KEY MANAGERIAL PERSONNEL

(Note)
Introduction:
Section 2(51) of the Companies Act 2013, defines Key Managerial Personnel (herein after
referred to as KMP) , as consisting of the Chief Executive Officer or the managing director or
the manager; the Company Secretary, the whole time Director and the Chief Financial
Officer. In addition a provision has also been made to include any other such officer that may
be prescribed later. Although the term KMP had not been used in the pre- 2013 Act
discourse,companies have always appointed persons for the positions of Whole time Director
and, MD, Manageretc. It is pertinent to note that through the means of this new introduction
the legislature has recognized the role of traditionally functional figure heads like CEOs and
CFOs as vital managerial posts in addition to the previously recognized managing directors,
managers and whole time directors. In addition to this the essential managerial role of the
Company Secretary has also been recognized for the first time. One of the primary objectives
of the introduction of the conception KMP is to recognize the managerial roles of the
aforementioned personnel as a cluster or a team rather than persons working in isolation to
each other discharging their duties independently.

Salient Features of KMP:

Section 203 of the Act, read with the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014 mandates that all listed companies and other public
companies having paid up share capital of Rs 10 crores or more must have a Managing
Director, or Chief Executive Officer or manager and in their absence, a whole-time director;
and a Company Secretary and a Chief Financial Officer. Under section 2(71),a private
Company which is a subsidiary of a public company is considered as a public company as
well and therefore such a company with paid up share capital of Rs 10 crore or more would
also be required to adhere to the directions under section 203.
Through the notification of Rule 8A of Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014 a provision was introduced that a company other than the
companies already referred to must have a whole time Company Secretary if they have paid

up share capital of Rs 5 crores or more. The reason for the introduction of rule 8A was
because section 203 as it originally stood on the date of its notification had made redundant
the old provision of mandatory appointment of a full time company secretary for all
companies having paid-up share capital of Rs 5 crore or more 1 leading to hue and cry by the
fraternity of Company Secretaries who would have otherwise been rendered jobless.
Section 203 also provides that individuals are not to be appointed or reappointed as the
chairperson as well as the MD or CEO of the company at the same time unless the articles of
the Company provide otherwise or where the company does not carry on multiple businesses.
Even in the case where multiple businesses are carried on an exception has been made that if
the company appoints one of more CEO for each such business as is notified by the Central
Government.
Section 203(5) makes penalties for noncompliance with the provisions laid down in the same
section and states that the company shall be liable with a fine of not less than Rs 1 lakh but
which can be extended to Rs 5 lakhs in the case of non-compliance. In addition, every
director and KMP who is in default would be liable to a fine which could be extended up to
Rs 50,000/-.In the event that the contravention is continuous in nature a penalty of Rs 1000/
per day would be imposed.
Provisions related to KMP and Departure from the Companies Act, 1956 in relation to
Company Responsibilities.
Section 203(4) of the Act, explicitly states that when there is a vacancy in the office of a
KMP, the company must fill up such a vacancy within 6 months. Therefore there is now a
responsibility on companies to ensure that the post of the Chief Executive Officer, the
managing director, the manager, the Company Secretary, the whole time Director and the
Chief Financial Officer is filled within a period of 6 months in the case of a vacancy.
Section 195 of the Act prohibits KMP from indulging in insider trading and makes it
punishable with a term of up to 5 years imprisonment or a fine which may extend to 25 crore
or three times the amount of profits made out of insider trading, whichever is higher, or both.
Similarly forward dealings in securities of the company by KMPs has been prohibited under
section 194 of the Act.

1Section 383 A , The Companies Act, 1956.

Section 92 of the Act expands the range of information that must be included in the Annual
Return and states that details regarding KMP along with changes therein since the close of the
previous financial year must be included. Remuneration of the KMP must also be mentioned.
The company secretary in practice (a KMP) is also mandated to certify the annual return in
the prescribed form stating that the return discloses the facts correctly and adequately and the
company has complied with all the provisions of the Act. In the event of the failure of the
company secretary in complying with the provisions under the section, he/she is liable to be
punished with a fine of not less that Rs 50,000/- and which can extend up till Rs 5,00,000/-.
Section 21 entrusts the KMP or any officer of the company duly authorised by the Board in
this behalf, with the power and the responsibility of signing documents or proceedings
requiring authentication of the company and contracts made by or on behalf of the company.
All companies are also to keep a registrar in their registered office containing all the
particulars related to the KMP as may be prescribed including the details of securities held by
each of them in the company or its holding, subsidiary, subsidiary of companys holding
company or associate companies as per section 170 of the Act
Lacunae in KMP Provisions:
The KMP provisions have been criticised for exonerating Private Limited Companies with a
capital base of Rs 10 crore or more (which are not subsidiaries of public limited companies)
from the need of appointing KMPs (with the exception of the requirement to appoint a
Company Secretary in cases where the paid up capital exceeds 5 lakhs as perRule 8A of
Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014,
introduced due to the demands made by the fraternity of Company Secretaries).
Some have suggested that keeping in mind that the role played by a KMP is of immense
importance, provisions should have been made stipulating minimum education and
professional qualifications for determining the eligibility of such an office rather than leaving
it to the discretion of the Nomination and Remuneration Committee as per the provisions
under section 178 of the Act.2

2http://www.lawyersclubindia.com/articles/Appointment-of-key-Managerialpersonnel-under-Section-203-of-the-Companies-Act-2013-Some-perspectives6386.asp#.VYndcvmqpBc

Lastly it has also been observed that compliance to KMP provisions was to be effective from
1st April, 2014, the date of the notification for application and not from a prospective date.
This made it very difficult for companies to properly comply with all the KMP provisions
within such a short period of time , bearing in mind that processes like appointment of CFO
and CEO are not simple and require a great deal of deliberation.