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
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