COMPREHENSIVE ANALYSIS OF SECTION 203 OF COMPANIES ACT, 2013 RELATING TO KEY MANAGERIAL PERSONNEL

A COMPREHENSIVE ANALYSIS OF SECTION 203 OF COMPANIES ACT, 2013 RELATING TO KEY MANAGERIAL PERSONNEL

BY

CS K VINOTH AND CS D HEM SENTHIL RAJ

As per Section 203 of Companies Act, 2013, every Company belonging to such class or classes of Companies as may be prescribed shall have the following whole-time key managerial personnel.

1.      MD or CEO or Manager and in their absence, a whole-time director.

2.      Company Secretary and

3.      CFO.

 Such class or classes of Companies prescribed for the Section 203 of the Companies Act, 2013 as per The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are:

Rule 8:

 Listed company and every other public company having a paid-up share capital of ten crore rupees or more.

The Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014:

Rule 8A:

A company other than a company covered under rule 8 which has a paid up share capital of five crore rupees or more shall have a whole-time company secretary.

             Summary of the above provisions:

Mandatory Appointment of KMP:            

Whole Time Key Managerial Personnel	Every listed Company and every other public Company having a paid-up share capital of ten crore rupees or more.
Whole-time Company Secretary	Every company who is having a paid-up share capital of five crore or more.

PRACTICAL ANALYSIS OF SECTION 203:  

A Company is having both CEO and MD; can the Company designate both of them as KMP?

A Company can designate either a CEO or MD as KMP and they cannot designate both CEO and MD as KMP as per the provisions of Section 203 (1) (i) of Companies Act, 2013. However, the CA, 2013 does not restricts the Company to appoint both MD and CEO in the Company but restricts the Company to declare any one among them as the KMP for the purpose of Companies Act and the personnel who have been declared has the KMP shall fall under the definition Officer in Default.    

Note:

The same stand shall be taken in case of Company having MD, CEO and Manager.

Whether a Whole-time director falls under the category of KMP?

Scenario – 1

In case of Companies not having MD, CEO or Manager, the whole time director of the Company will be classified under the category of KMP.

Scenario – 2

In case of Companies having MD or CEO or Manager or all of them, in such a scenario the whole time Director shall not be classified under the category of KMP.

Can a company secretary hold an office in the position of company secretary in other companies?

Since the Company Secretary is the whole-time KMP of the Company, he cannot hold the office in the position of Company Secretary of other Companies other than one of the Subsidiary Company, where he holds the position as CS.

Whether the concept of appointment of Group - CFO or Group - Company Secretary permitted under Companies Act, 2013?

The Concept of appointment of Group – Company Secretary or Group – CFO is permitted under the Companies Act, 2013 up to the extent the designation of Group – CFO and Group – CS are used only for the purpose of holding office in Parent Company and one of the subsidiary company.

However, the Group-CFO and Group – CS shall not take the responsibility of managing the affairs of not more than the parent company and one of its subsidiary.

Can a Company Secretary of the holding Company shall hold the position of CFO or vice-versa in the Subsidiary Company?

Yes.

Whether a KMP can be appointed as a Director in the Subsidiary Company?

Yes.

Can a KMP be a Director in some other Company; if so any approval is required?

Yes a KMP can hold the office in the position of Directorship (Except whole-time director) in other Companies. However, the prior approval of Board of Directors of the Company is required in which he/she holds office in the position of KMP.

Note:

Now MD, CEO, CS, CFO and Whole-Time Director of the Company who are declared as KMP are required to obtain prior approval from the Board before giving their consent to act as the Director (Including independent Directorship) of the other Company.

Can a KMP hold a KMP position in Step-down subsidiary?

Yes.

Can a KMP hold two KMP position in the same Company?

If we interpret the provisions strictly, this is not permitted. Similarly in Section 203 the term used is ‘whole-time’ and therefore, different individuals are required to hold the key positions. However certain Companies have appointed the same person as CS & CFO. The legality of which may be clarified only by MCA.

Can a KMP hold some other additional position in the same company and its subsidiary company?

Yes a KMP can hold additional position in the same company and its subsidiary.

Example:

CS cum GM – Finance

CFO cum Legal Head etc.

In how many number of companies a person can serve as a Managing Director?

As per section 203(3) of the Companies Act, 2013, which provides that a whole time KMP shall not hold office in more than one company except in its subsidiary company, whereas the Managing Director shall hold the office in two companies which shall be a holding and its subsidiary company or other company with the prior approval of the Board, where he/she acts as a Managing Director.

BY

CS K VINOTH

CS D HEM SENTHIL RAJ

PLACE OF KEEPING BOOKS OF ACCOUNT, OTHER RELEVANT BOOKS & PAPERS AND FINANCIAL STATEMENT

PLACE OF KEEPING BOOKS OF ACCOUNT, OTHER RELEVANT BOOKS & PAPERS AND FINANCIAL STATEMENT

 By

CS K VINOTH

CS D HEM SENTHIL RAJ

INTRODUCTION

As per Section 128 of the Companies Act, 2013, every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting.

Books of Accounts include the following

ü  Records maintained in respect of all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place.

ü  Records maintained in respect of all sales and purchases of goods and services by the company.

ü  Records maintained in respect of the assets and liabilities of the company.

ü  Records maintained in respect of the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section.

Note:

Books of accounts also include the Cost Records maintained by the Company.

 Relevant books and papers include the following

      

Books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form.

Branch Office includes the following

Any establishment described as Branch Office by the company.

In case of Foreign Company

It is required to keep at its principal place of business in India, the books of account, with respect to monies received and spent, sales and purchases made, and assets and liabilities, in the course of or in relation to its business in India.   

ALTERNATIVES AVAILABLE FOR THE COMPANY

A Company can keep all its books of account and other relevant books and papers and financial statement for every financial year including its branch office or office.

          Option – 1

At the registered office of the Company.

Option – 2

At such other place in India as the Board of Directors may decide.

         

PROCEDURAL ASPECTS INVOLVED FOR KEEPING BOOKS OF ACCOUNTS IN A PLACE OTHER THAN THE REGISTERED OFFICE OF THE COMPANY

The Following are the procedure involved in keeping books of account and other relevant books and papers and financial statement for every financial year including its branch office or offices in the place other than the Registered Office of the Company:

Step: 1

To Obtain Board Consent either through Physical Board Meeting or Board Meeting through video conferencing or through circular resolution.

Step: 2

To file notice with Registrar of Companies in E-form AOC – 5 within seven days from the date of decision taken by Board by specifying the full address of the place where the books of accounts, records etc are to be kept including the details pertaining to police station under whose jurisdiction the place of the address at which the books of account are to be maintained falls.

Note:

A company having a branch office in India or outside India can keep their book of accounts, records etc relating to the transactions effected at the branch office at that office and proper summarised returns shall be periodically sent by the branch office to the company to its registered office or other place where the books of accounts or records are kept.

Period of Keeping Books of Accounts:

Books of account of the company relating to a period of not less than eight financial years immediately preceding a financial year, or where the company had been in existence for a period less than eight years, in respect of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in good order.

However, in case of any investigation has been ordered in respect of the company under Chapter XIV, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit.

Penalty For Non – Compliance:

Managing director, the whole-time director in charge of finance, the Chief Financial Officer, person of a company charged by the Board shall be

Punishable with a imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.

Comparison of Provisions in Companies Act, 1956 and 2013:

Particulars	Section 163 of Companies Act, 1956	Section 128 of Companies Act, 2013
Register and Returns – Place of Keeping	Within the city, town or village in which the registered is situated by passing a Special Resolution in General Meeting.	At any place in India by Boards Approval.
Books of Accounts – Place of Keeping	At any place in India by Boards approval.	At any place in India by Boards Approval.

FLAWS IN COMPANIES ACT, 2013

Under the New Companies Act, 2013, the Corporate are provided with the freedom of fixing the place at which the Books of accounts, records, registers of the Company to be kept at any place in India without obtaining any prior approval from the shareholders of the Company and we feel that it shall indirectly effect the interest of the shareholders at large in case of a Listed entity whose shares are listed in the recognised stock exchange.

Further we feel that it may not be practically possible for a shareholder to visit the place other than the registered office of the Company to access the register and records of the Company.

FREQUENTLY ASKED QUESTIONS

1.      Whether the Minutes, Statutory Registers and Records of the Company are required to be maintained for more than 8 (Eight) Years?

As per sub section 5 of section 128 of the Companies Act, 2013, the books of accounts of every company relating to a period of not less than 8 (Eight) financial years immediately preceding a financial year shall be maintained.

However with regard to minutes and statutory registers and records it shall be maintained by the company since inception, since the minutes and statutory records are the principal documents of the company that needs to be maintained and preserved.

2.      Can a Company keep its part of Books of Accounts and other papers in some other place in India other than the registered office of the Company?

Yes, the Company has the option to prepare, preserve and maintain the Books of Accounts and other papers in any place in India other than the Registered Office of the Company after obtaining the Board’s Approval. Provided the Board Resolution shall clearly specify that such part of the books and papers shall be kept at those places respectively.

3.      Can a Company keep its Books of Accounts and other papers in multiple places in India?

Yes, there is no such restriction under the provisions of Section 128 of CA, 2013 and rules framed thereunder, for keeping the Books of Accounts and other papers in multiple places in India.

However the Board Resolution shall clearly specify that such part of the books and papers shall be kept at those places respectively.

REAL TIME CASE STUDY

1.      What would be the remedy available for a listed/limited company, when a shareholder of the company walks in to the registered office of the company for inspection of statutory registers and records, when the company had kept its statutory registers and records in any other place other than the registered office?

As per the provisions of section 171 of the CA, 2013, every shareholder of the company has the right to inspect the statutory registers and records of the company during the business hours and is entitled to take extracts there from and copies thereof of the registers.

In such a case where the shareholder has visited the registered office of the company where the records are kept at such place other than registered office, the company shall explain the shareholder that the registers and records are being maintained in such place other than the registered office and shall guide the shareholder to go to such place and inspect the registers and records.

BY

CS K VINOTH

CS D HEM SENTHIL RAJ

DISCLOSURES AND OTHER PARTICULARS TO BE PLACED ON THE WEBSITE OF THE COMPANY UNDER COMPANIES ACT, 2013 AND SEBI LISTING AGREEMENT.

DISCLOSURES AND OTHER PARTICULARS TO BE PLACED ON THE WEBSITE OF THE COMPANY UNDER COMPANIES ACT, 2013 AND SEBI LISTING AGREEMENT
S.No	Section/Rule	Disclosure	Remarks
01	13 (8) (i)	Publication of special resolution on the website relating to change of objects for which the Company has raised the money through prospectus and still has any unutilized amount out of the money so raised.	Optional
02	124 (2)	Statement containing the names, last known addresses and the unpaid dividend to be paid to each person (within a period of ninety days of making any transfer of an amount to the Unpaid Dividend Account)	Optional
03	135 (4) (a) and Rule 9 of The Companies (Corporate Social Responsibility Policy) Rules, 2014	Disclosure of Corporate Social Responsibility Policy.	Optional
04	136 (1)	Financial Statements including consolidated financial statement and all other documents attached to it. (Applicable to Listed Entities only)
05	136(1) (a)	Every company shall place separate audited accounts in respect of each of its subsidiary.	Optional
06	177 (10)	Details of Vigil Mechanism Policy             (If any).	Optional
07	230 (3)	Notice and other documents relating to proposed compromise or arrangement.	Optional
08	Schedule IV (IV) (6) and Clause II 49 (B) (4) (b)	Terms and conditions of appointment of independent directors.
09	Rule 13 (2) of The Companies (Appointment and Qualification of Directors) Rules, 2014	Notice of candidature of a person for directorship.	Optional
10	Rule 10 of The Companies (Management and Administration) Rules, 2014	Closure of register of members or debenture holders or other security holders (Both for listed company and for the Company intends to get its securities listed)
11	Rule 18 of The Companies (Management and Administration) Rules, 2014	Notice of the general meeting of the company                                                           (if the Company sends the notice through e-mail)	Optional
12	Rule 20 (3) (ii) of The Companies (Management and Administration) Rules, 2014	Notice of general meeting providing e-voting facility.	Optional
13	Rule 20 (3) (xiv) of The Companies (Management and Administration) Rules, 2014	The results declared along with scrutinizer’s report.                                          (For General Meeting)
14	Rule 22 (4) of The Companies (Management and Administration) Rules, 2014	Notice of postal ballot.	Optional
15	Rule 22 (13) of The Companies (Management and Administration) Rules, 2014	The results declared along with scrutinizer’s report.                                             (For Postal Ballot)
16	Rule 23 of The Companies (Management and Administration) Rules, 2014	Special Notice.	Optional
17	Clause 47 (F)	The company shall display the e-mail ID and other relevant details prominently on their websites and in the various materials / pamphlets / advertisement campaigns initiated by them for creating investor awareness.
18	Clause 49 II (B) (7) (b)	The details of such familiarisation programmes for Independent Directors
19	Clause 49 II (E) (1) and 49 VIII (D) (3)	Code of conduct for all Board members and senior management of the company.
20	Clause 49 V (D)	Policy for determining the material subsidiary.
21	Clause 49 VII (A) (2)	Policy on dealing with related party transactions.
22	Clause 49 VIII (c) (3)	Criteria of making payments to non-executive directors.	Optional
23	Clause 53	Entering into agreements with media companies and/or their associates.
24	Clause 54	Basic information about the company e.g. details of its business, financial information, shareholding pattern, compliance with corporate governance, contact information of the designated officials of the company who are responsible for assisting and handling investor grievances, details of agreements entered into with the media companies and/or their associates, etc.
BY CS D HEM SENTHIL RAJ CS K VINOTH