What procedure to be followed for the appoint key managerial personnel in a company?

Introduction

The new concept of “key managerial personnel” (KMP) was created by the Companies Act of 2013, with the intention of merging all company heads under a single head. It makes a significant contribution to the company’s daily operations and helps in achieving its objectives. So, the appointment of KMP is essential for any company. The legal definition of KMP is provided in section 2(51) of the Companies Act, 2013, but section 203 of the Companies Act, 2013 specifies the class of individual of the company who can be a whole-time KMP and the appointment of the same. In this blog, first we will discuss the definition of KMP and then the procedure to appoint a KMP.

Who is key managerial personnel?

It refers to the whole-time director of the company who holds significant responsibilities and duties. They are in charge of developing and implementing strategies and serve as the company’s first way to contact its stakeholders. Key managerial personnel are defined under section 2(51) of the Companies Act, 2013, which says that:

A Key Managerial Personnel in relation to a company, means-

• The Chief Executive Officer or the Managing Director or the Manager
• The Company Secretary
• The Whole-Time Director
• The Chief Financial Officer
• Such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
• Such other officer as maybe prescribed.

Source: Companies Act, 2013

Appointment of KMP (Key Managerial Personnel)

Section 203 of the Companies Act, 2013 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) 2014, authorize the appointment of KMP and makes it obligatory for every listed company and every other public company having a paid-up share capital of INR 10 crore or more, to appoint the following whole-time KMP:

• Company secretary;
• Chief financial officer and;
• Managing director, or Chief executive officer or manager and in their absence a whole time director.

Further, the Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) 2014 makes it mandatory for every Private Limited Company having a paid -up share capital of INR 10 crore or more to appoint a whole-time company secretary.

After the commencement of the Companies Act, 2013 a person cannot be appointed or reappointed as a chairperson and MD or CEO at the same time. But there are some exceptions in which a person can be chairperson as well as MD or CEO at the same time, which are as follows:

• Provision for the appointment of the same person is included in the company’s articles.
• The company runs only a single business.
• The company runs multiple businesses and for each business they have appointed a CEO as may be notified by the Central Government.

Roles and responsibility of KMP

• The KMP will be held responsible for non-compliance of the provisions provided under the Companies Act,2013.
• The KMP is responsible for managing the affairs of company.
• According to the section 170, the details of the securities held by KMP in the company should be disclosed and recorded in the registrar of the books.
• According to section 189 (2), the KMP is responsible to disclose all the concern and interests within 30 days of his appointment.

Manner of appointment of KMP

The appointment procedure for KMP is specified under section 203 of the Companies Act, which is as follows:

• The Board must pass a resolution before appointing any whole time key managerial personnel, and the resolution must include the terms and conditions of the appointment as well as remuneration.
• A whole-time key managerial personnel is not permitted to hold office in more than one company, excluding its subsidiary company. He can become a Director of any other company with the consent of the board.
• A person might be selected or recruited by the company to serve as its managing director. Providing they are the MD or manager of many companies and the resolution is sanctioned at the board meeting with all the directors present.

What happens when the KMP office is vacant?

In the case, the seat of whole-time KMP is vacant then the board shall conduct a board meeting and appoint a successor within six months form the date on which the position became vacant.

Penal provisions for the infringement of the provision of section 203;

• If a company breaches the provision for the appointment of managerial personnel, that company will be punished. The maximum penalty is one lakh rupees, and it can go up to five lakhs.
• In case, KMP or director breaches the provision of section 203 then they are liable to pay the fine of Rs. 50,000 and if the breach continues, then the said person need to pay fine of Rs.1000 per day.

Final thoughts

The KMP manages the day-to-day operation and plays a very important role in the company. The Ministry of Corporate Affairs and SEBI made it mandatory to appoint a KMP for a company. In order for the company to operate in accordance with the spirit of the law, the authorities have implemented a specific law for the appointment of KMP in the Companies Act, 2013.