Appointment of Key Managerial Personnel
Introduction : Under companies act, there is specific provision which describes which entities are required to appoint Key Managerial Person and how they are to be appointed. It is important to understand that whether every entity is required to appoint Key Managerial Person, which are the entities that are being exempted, who can act as Key Managerial Person and what are the provisions that are to be complied on recurring basis. In this article we will cover all the relevant points and provisions relating to Key Managerial Person.
Which are the persons that are covered under the term of Key Managerial Person?
The term includes
- a) Managing Director b) Chief Executive Officer c) Manager d) Whole-time director e) Company Secretary and f) Chief Financial Officer.
Which are the companies that are required to appoint Whole-time Key Managerial Personnel? Who can act as whole-time Key Managerial Personnel?
(a) Every listed company; and
(b) Every other public company having a paid-up share capital of 10 crore rupees or more.
Shall be required to appoint a Whole time Key Managerial Personnel which may be as follows
(a) Managing Director, or Chief Executive Officer or Manager and in absence of them, a Whole-time Director;
(b) Company Secretary; and
(c) Chief Financial Officer.
Further, every private company to have a whole-time company secretary if it has paid up share capital is 10 crore rupees or more.
Whether individual can be appointed as chairperson as well as Managing Director or Chief Executive Officer at the same time?
It shall be noted that no person shall be appointed as chairperson of company as well as Managing Director or Chief Executive Officer (CEO) of the company at the same time.
Exception to above rule:
(a) the articles of such a company provide otherwise; or
(b) the company is engaged in carry multiple businesses.
i.e., if company is following under above two exception than in that case, they can appoint Individual as Chairperson and CEO at the same time.
How it can be said that company is engaged in multiple businesses?
If company is public company and it has paid-up share capital of 100 crore rupees or more and annual turnover of 1,000crorerupeesor more which are engaged in multiple businesses and have appointed Chief Executive Officer for each such business will be treated as company engaged in multiple class of business.
Which resolution is required to be passed for appointment of KMP?
Every whole-time key managerial personnel of a company can be appointed by means of a resolution passed at meeting of Board of Directors.
Whether there are any other restrictions?
It has been specified that Whole-time key managerial personnel shall not hold office in more than one company at the same time except in its subsidiary company.
If any person is Managing Director or Manager in some other company it is permissible for a company to appoint him as its Managing Director.
Mr. T is Manager in Z Ltd.; he is willing to be appointed as CFO of S Ltd. whether he can be appointed?
It shall be noted that person is allowed to be appointed as Whole-time key managerial personnel in more than one company at the same time except in its subsidiary company. Here S Ltd. is not subsidiary of Z Ltd. and therefore Mr. T is not allowed to be appointed as CFO of S Ltd. otherwise if he wants such appointment than he will be required to resign from his current position in Z Ltd.
What if S Ltd. is subsidiary company?
In case S Ltd. is subsidiary company than Mr. T will be eligible to be appointed as CFO of S Ltd.
What if S Ltd. is holding company?
In case S Ltd. is holding company than; if we carefully interpret the situation Z Ltd. will be treated as subsidiary company and holding position in subsidiary at same time is not prohibited and therefore, Mr. T will be eligible to be appointed as CFO of S Ltd.
Mr. R is managing director of SV Ltd. at the same time he is willing to be appointed as managing director of RV Ltd., Whether Mr. R will be eligible to be appointed?
It has been specified that if Managing Director or Manager in some other company wants to be appointed as Managing Director in another company than he will be allowed to be appointed. Therefore, Mr. R can be appointed as managing director of RV Ltd.
What if Mr. R is will be appointed as CFO of RV Ltd.?
In case if Mr. R is willing to be appointed as CFO of RV Ltd. than in such case he will not be allowed to appointed as CFO unless he resigns from his current position of Managing Director in SV Ltd.
What if RV Ltd is Joint Venture of SV Ltd. and TV Ltd.
It shall be noted that exception is applicable only in case where the company is a subsidiary company, in above case SV Ltd. and TV Ltd. is having RV Ltd. as Joint venture and therefore, Mr. R will not be eligible to be appointed as CFO of RV Ltd.
What if there is vacancy for the place of Key Managerial Personnel?
If the position of any whole-time KMP is vacated, then resulting vacancy shall be filled-up by the Board of Directors at a meeting of the Board of Directors within a period of six months from the date of such vacancy.
What will be the amount of penalty in case of non-compliance?
|Default by||Quantum of Penalty|
|Company||If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of 5 Lakh rupees.|
|Director and Key Managerial Personnel||Every defaulting director and KMP shall be liable to a penalty of50,000rupees. Further in case of continuing default they will be liable with an additional penalty of1,000rupeesfor each day after the first day during which such default continues, amount of additional penalty shall not exceed Rs. 5 Lahks.|