Appointment of Key Managerial Personnel (Section 203 of the Companies Act, 2013) :
Section 203 of the Companies Act, 2013 lays down the provisions for appointment of Key Managerial Personnel of companies.
(i) Who is KMP [section 203(1)]: Every company belonging to such class or classes of companies as may be prescribed, shall have the following whole time key managerial personnel:-
(a) Managing Director, or Chief Executive Officer or Manager and in their absence, a Whole – time Director;
(b) Company Secretary; and
(c) Chief Financial Officer.
According to Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 every listed company and every other public company having a paid up share capital of ` 10 crore or more shall have whole-time key managerial personnel.
Further, as per the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014, a company other than a company covered under Rule 8 above, which has a paid up share capital of ` 5 crore or more shall have a whole-time company secretary.
With the insertion of Rule 8 A to the above rules, it is now mandatory of every other company to have a whole time company secretary if it’s paid up share capital is Rs 5 Crores or more.
(ii) Prohibition on individual to be appointed as chairperson as well as Managing Director or Chief Executive Officer at the same time [Proviso to section 203(1)]:
After the date of commencement of this Act, an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time unless,—
(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses. [First proviso to section 203(1)]
Provided that the above mentioned prohibition shall not apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government. [second proviso to section 203(1)]
The MCA vide Notification No. S.O. 1913(E) dated 25th July, 2014 notifies that public companies having paid-up share capital of ` 100 crore or more and annual turnover of ` 1,000 or more which are engaged in multiple businesses and have appointed Chief Executive Officer for each such business shall be the class of companies for the purpose of the second proviso to sub-section (1) of section 203 of the said Act.
Explanation- For the purpose of this notification, the paid-up share capital and the annual turnover shall be decided on the basis of the latest audited balance sheet.
(iii) Conditions for appointment:
(a) Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration. [Section 203 (2)]
(b) A whole-time key managerial personnel shall not hold office in more than one company at the same time except in its subsidiary company [Section 203 (3)]
Provided that nothing in the above sub section shall disentitle a key managerial personnel from being a director in any company with the permission of the Board.
(iv) Transitional period: If the whole-time KMP is holding office in more than one company at the same time on the commencement of this Act, he shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hol d the office of KMP.
(v) Managing Director or manager in more than one company [Third proviso to section 203(3)]:
(a) A company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company.
(b) Such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting.
(c) It is further provided that specific notice of such meeting, and of the resolution to be moved thereat has been given to all the directors then in India.
(vi) Casual Vacancy [section 203(4)]: If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.
(vii) Penalty for contravention [Section 203(5)]:
(a) On company: If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than ` 1 lac but which may extend to ` 5 Lacs.
(b) On director and KMP: Every director and KMP of the company who is in default shall be punishable with fine which may extend to ` 50,000 and where the contravention is a continuing one, with a further fine which may extend to ` 1,000 for every day after the first during which the contravention continues.
Note: In case of Government companies, after sub-section (4), the following sub-section shall be inserted vide Notification No. G.S.R. 463(E) dated 5th June, 2015, namely:
“(4A) The provisions of sub-section (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government company.