Appointment of Key Managerial Personnel

Every company is required to appoint key managerial personnel as per provisions laid down under the companies act, 2013 after getting the approval for company registration. These managerial staffs are top decision-maker of a company and take care of day to day activities to further growth of the company. This personnel is appointed by the board of directors. Directors of the company are accommodated with numerous responsibilities, and one of the duties is an appointment to top-level managerial personnel. As bigger is the company bigger is the vision of directors.  Top companies appoint top managerial personnel as bigger is the company bigger is the role of officers.

Which companies are required to appoint key managerial personnel?

As per the provisions of Section 203(1) of the Companies Act, 2013^[1] and as per Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules of 2014, every company is required to appoint key managerial personnel who have:

• Any listed companies
• Any public limited company which have paid-up capital of INR 10 Crores (Rupees Ten Crore) or above. Those companies are required to appoint full-time managerial person  as Managing director of the company or CEO or full-time director; and Chief Financial Officer (CFO); and Company Secretary

Further, every company, as mentioned above, shall appoint a full-time company secretary as per Further, as per the Rule 8 A of Companies (Appointment and Remuneration of Managerial Personnel) Rules of 2014.

Who all are referred as Key managerial personnel’s (KMP)?

KMP is to be appointed by the board of directors who are responsible for running day to day activities of the company. These officers are selected as per their areas of expertise, depending on the vision of the company. These officers may or may not be directors of the company, but they have to work as per directors given by the board of directors. The term ‘Key managerial personnel’s (KMP)’ has been defined under section 2(51) and section 203 of the Companies Act, 2013, which shall include from following:

• The Managing Director; or Chief Executive Officer (CEO); or the manager of the company
• Chief Financial Officer (CFO) of the company
• Full-time director of the company
• The company secretary
• Any other officer not below the rank of full-time director
• Any other such officer as prescribed by law

Procedure of appointment of key managerial personnel:

All full-time key managerial staff to be appointed by the board of directors. The selection is to be made by passing board resolution, which contains several terms & conditions of appointment of managerial personnel along with mentioning about their remuneration.

Important provisions w.r.t. key managerial personnel:

Companies act, 2013 have provided certain important provisions that deal with appointment and other key requirements related to key managerial personnel. One of the important provisions in section 196 and section 203 of the companies act, 2013, which deals with appointment and other key provisions of managing director of the company; Full-time director, or any manager of the company.

 “203. Appointment of key managerial personnel

(1) Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel,—

(i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;

(ii) company secretary; and

(iii) Chief Financial Officer”

As per the said provisions following apprehensions can be made:

• A Managing director; or a Fulltime director; or a Manager of a company can be appointed only for a period of 5 years;
• They can be reappointed by board of directors for another term. But that appointment is to be made before the expiry of current term but not exceeding 1 year before expiry of current tenure.
• Disqualification of Key Managerial personnel: A Managing director; or a Fulltime director; or a Manager of a company can be disqualified, and no company shall appoint them in case:
• If have not attained the age of 21 years or have turned 70 years on the date of appointment;
• In case person has turned 70, his appointment can be made by passing a special resolution by the board of directors justifying the reasonable statement of such appointment;
• A person who is undischarged insolvent or declared as insolvent anytime;
• In case suspended payment to its creditors anytime;
• Person who has been convicted by the court of law for sentence more than period of 6 months.

Role and responsibilities of key managerial personnel:

Certain roles and responsibilities of key managerial person are as mentioned below and described:

• All the financial statements to be affixed and signed by key managerial personnel such as CEO, or CFO; or Company secretary of the company;
• Key managerial personnel to sign and execute all contracts, agreements or any important document on behalf of the company
• Key managerial personnel is prohibited from dealing in any trading activities or dealing in any securities
• There is mentioning of name and designation of key managerial personnel in annual report or documents submitted with ROC
• Shareholding registration in company or its subsidiaries
• Every Key managerial personnel is required to disclose its interest in any company before the board within 30 days from date of its appointment

• Key managerial personnel has right to attend audit committee meeting but shall not have right to vote
• A person cannot be appointed as director of said company who has family member or relative as appointed as key managerial position in the company
• The nomination of committee to recommend policies related to remuneration or other provisions w.r.t. Key managerial personnel
• Discharge of personal liability in case of any undue influence or undue benefit proved against company
• To ensure company complies with important provisions and standards as prescribed by law;
• To discharge other such duties as assigned
• To provide director of company such guidelines as required in order to discharge their duties
• To facilitate conduction of such meetings as required.
• To assist board of directors in conducting affairs of company properly
• To assist board of directors in ensuring and complying with policies as required by company such as good governance, corporate governance and such other policies as required
• To discharge other such duties as assigned by board and law

Penalty amount in case of contravention with provisions of law:

Any company or its officer who contravenes the provisions as laid down w.r.t. Key managerial personnel shall be liable to pay penalty. Every defaulting company shall be liable to pay penalty amount of Rs. 100000 (rupees one lakh) which may extend to amount of Rs. 500000 (rupees five lakh). In case of director or any officer in default penalty amount may extend to Rs. 50000/- (rupees fifty thousand). In case of continuing default, the penalty may extend to Rs. 1000/- (rupees thousand) per day till default continues.

Conclusion:

In order to facilitate smooth functioning of the company, Key managerial personnel play an important role and also hold a very important position in the company. Companies act, 2013 has provided certain provisions which describe appointment, roles and responsibilities of key managerial personnel. Further via amendment of 2017 provisions has been laid w.r.t. Managerial remuneration, as earlier approval of central government, was required which is no longer required.

Read our article:Appointment of Additional Director in a Company as per Companies Act, 2013