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Key Managerial Personnel as per Companies Act,2013 And SEBI (LODR)Regulations, 2015

August 31, 2021

Introduction:

The Board of Directors sets goals and objectives for the company. The Key Managerial Personnel monitor and achieve the goals and objectives targeted by the Board of Directors of the Company. The Board members of the Company are not mandatorily required to be involved in the day-to-day operations.

Key Managerial Personnel ("KMP") refers to the whole-time employees of the company who are vested with the most important roles and responsibilities. They are the first point of contact between the company and its stakeholders and are responsible for the formulation of strategies and their implementation. The Companies Act,2013 ("Act") mandates certain classes of companies to include such personnel on its Board.

Relevant Provisions

  1. Section 2(51) of the Companies Act, 2013;
  2. Section 203 of the Companies Act, 2013 and relevant rules
  3. SEBI(LODR)Regulations 2015

Key Managerial Personnel under Companies Act, 2013

Under sub-section 51 of section 2 of the Companies Act 2013, Key Managerial Personnel includes the following:

Companies that are required to appoint Key Managerial Personnel

According to section 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 below mentioned companies are required to appoint the Whole-time KMP’s

Further, under Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company other than the companies stated above is required to appoint a Whole-time Company Secretary which is having a paid-up share capital of Rs. 10.00 Crores or more.

Compliances required for the appointment of KMP's as per Companies Act,2013:

  1. The KMP shall be appointed by passing a resolution subject to ratification by members of the Company in the Board Meeting by determining its terms and conditions of appointment including remuneration.
  2. The Company should file form MGT-14 & DIR-12 with the Registrar of Companies (ROC) with 30days of the passing of such resolution.
  3. In case of appointment of Whole-time Director and Managing Director, the Public Company is required to file form MR-1 with the ROC within 60 days of such appointment.
  4. The listed company are also required to comply with the SEBI (LODR) Regulation 2015 concerning the appointment or resignation of KMP's.

Appointment of KMP by Private Limited Companies:

The Companies Act, 2013 does not mandate a Private Company to appoint a Managing director, Whole-Time Director or Manager. It also does not prohibit the voluntary appointment of Managing Director, Whole-Time Director or Manager by the Private Companies for efficient management of their businesses.

The Company has to file DIR-12 & MGT-14 for the Appointment and re-appointment of MD, WTD & Manager within 30 days of such appointment or re-appointment. [(Section 117(3)(c)]

Compliances required for the appointment of KMP as per SEBI (LODR) Regulations,2015:

  1. The Nomination & Remuneration Committee shall formulate the criteria for determining the qualifications, positive attributes, and independence of a director and recommend to the board of directors a policy relating to, the remuneration of the directors, key managerial personnel, and other employees
  2. Procedure for appointment of KMP in a listed entity is as per the Companies Act, 2013
  3. Corporate announcement of such appointment should be done to the stock exchange within 24 hours of the conclusion of the Board meeting
  4. Publish the same on the website of the Company within 2 working days.
  5. In case of appointment of Manager: Listed Companies shall disclose the proceedings of General Meeting to the Stock Exchange within 24 hours from the conclusion of General Meeting and same shall be posted on the website of the company within two (2) working days.

Points to be taken care of before appointment of KMP's:

  1. No company shall appoint or employ at the same time a Managing Director and a Manager.
  2. No company shall appoint or re-appoint any person as its Manager for a term exceeding five years at a time.
  3. No re-appointment shall be made earlier than one year before the expiry of his term.
  4. Whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time.
  5. Key managerial personnel may become a Director of any other company with the permission of the Board
  6. In case of appointment of Managing Director or Whole-time Director, the term of appointment shall not exceed 5 years at a time.
  7. If the office of any KMP is vacated, the resulting vacancy shall be filled up within a period of 6 months from the date of such vacancy
  8. A whole-time KMP shall not hold office in more than one (1) company except in its subsidiary company at the same time.
  9. With the permission of the Board of a company, KMP can act as a Director of any other company
  10. Managing Director can be appointed in more than one Company if he is the Managing Director or Manager of one, and not more than one, other company, by passing a resolution at the Board meeting and obtaining the consent of all the directors present at the meeting.

Resignation of KMP:

The Companies are required to file DIR-12, within 30 days from the date of resignation, for particulars of its key managerial personnel of the Company with the Registrar of Companies (ROC).

Under regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR Regulations’) a listed entity shall disclose to stock exchange(s) all events or information, which are material, as soon as reasonably possible and not later than twenty-four hours from the occurrence of event or information.

Disqualifications of Managing Director, Whole Time Director, or Manager

No company shall appoint or continue the employment of any person as managing director, whole-time director, or manager who –

  • is below the age of twenty-one years or has attained the age of seventy years.
  • an individual shall be appointed who has attained the age of seventy years by passing a special resolution and the notice of such General Meeting shall indicate the justification for appointing such person;
  • is an undischarged insolvent or has at any time been adjudged as an insolvent;
  • has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
  • has at any time been convicted by a court of an offense and sentenced for a period of more than six months.

Penalty for contravention

  1. On Company: Fine which shall not be less than Rs. 5,00,000/-
  2. Every Director and Key Managerial Personnel of the company who is in default: Fine which may extend to Rs. 50,000/- and where the contravention is a continuing one, with a further fine which may extend to Rs. 1,000/- for every day after the first during which the contravention continues but not exceeding five lakh rupees.

Whether KMP can be considered as Officer in Default

According to sub-section 59 of section 2 Key Managerial Personnel is considered as an officer under whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act.

According to sub-section 60 of section 2 of the Companies Act,2013 Key Managerial Personnel is considered as an officer in Default for any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise.

Conclusion:

The Key Managerial Personnel play an important role in the management of the day-to-day operations of the Company. Further, the Ministry of Corporate Affairs and the Securities Exchange Board of India has mandated certain companies to appoint the KMP's so that the companies operate in true letter and spirit of the law.

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