Key Managerial Personnel under the companies Act,2013

This Article is authored by Ms. Shweta Tewari (Managing Partner) & Ms. Nidhi Bohra (Associate Partner) at SGT Associates (Lawyers &
Advocates) | January 4, 2024

The Companies Act, 2013 introduced a landscape change with the definition of ‘Key Managerial Personnel’ which encompasses independent individuals who play a pivotal role in conducting the affairs of the company and ensuring adherence to the norms encapsulated under the Companies Act, 2013. It also stipulates the appointment procedure for such Key Managerial Personnel, the roles and responsibilities to be performed by such Key Managerial Personnel, the eligibility criteria to be met for appointment of such Key Managerial Personnel and the penalties in the event of contravention of the provisions of the Companies Act, 2013 in relation to such Key Managerial Personnel.

Definition: Section 2 (51) of the Companies Act, 2013, defines Key Managerial Personnel to mean (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; (v) 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 (vi) such other officer as may be prescribed.
Appointment Criteria: Section 203 of the Companies Act, 2013 in conjunction with Rule 8 (Appointment and Remuneration of Managerial Personnel), 2014 provides that the listed companies and public companies with a paid-up share capital of 10 crore or more shall appoint the following whole-time Key Managerial Personnel: (i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; (ii) company secretary; and (iii) Chief Financial Officer. Also, under Rule 8A (Appointment and Remuneration of Managerial Personnel), every private limited company with a paid-up share capital of 10 crore or more is required to appoint a whole-time company secretary.
Roles and Responsibilities: (i) Manage the affairs of the company in accordance with the charter documents; (ii) Oversee the company’s operations, financial performance, investments and ventures; (iii) Ensure compliance with applicable laws; (iv) Disclosure of the securities held by it in the company or in the holding, subsidiary, subsidiary of company’s holding company or associate companies (Section 170 of the Companies Act, 2013); (v) Disclose all the concerns and interests it holds in other associations within a period of 30 days of his appointment or relinquishment of office (Section 189 (2) of the Companies Act, 2013); and (vi) Such other functions as may be necessary.
Mode of Appointment and Filling up Vacancy: (i) 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 (ii) the company does not carry multiple businesses (Section 203 (1) of the Companies Act, 2013); (ii) The Board must pass a resolution containing the terms and conditions of the appointment, including the remuneration of the Key Managerial Personnel prior to his/her appointment (Section 203 (2) of the Companies Act, 2013); (iii) The whole-time Key Managerial Personnel shall not hold office in more than one company, except in its subsidiary company at the same time. Provided however, that such Key Managerial Personnel can become a director in any other company, with the permission of the Board. Further, the company may appoint or employ a person as a managing director, even if such person is the managing director or manager of another company, provided that such appointment or employment is approved by a resolution passed at a meeting with consent of all the directors present (Section 203 (3) of the Companies Act, 2013); and (iv) The vacancy in the office of any whole-time Key Managerial Personnel must be filled within a period of 6 (six) months from the date of such vacancy by the Board at the meeting of the Board (Section 203 (4) of the Companies Act, 2013).
Penalties: If the Company contravenes the provisions of Section 203 of the Companies Act, 2013, it shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and Key Managerial Personnel in default shall be punishable with fine upto fifty thousand rupees and in case of a continuous contravention, a further fine to the extent of rupees one thousand for each day during which the contravention continues.

SGT Takeaway: Companies Act, 2013 has coined the term ‘Key Managerial Personnel’ to define the executive management of the company who shall be responsible for the conduct and affairs of the company and have included related provisions which are substantial to ensure professionalism and accountability in the operations of the company.