Corporate Law

Key Managerial Personnel: Section 203 of the Companies Act, 2013

CA Adityavikram Banka

Key Managerial Personnel: Section 203 of the Companies Act, 2013

Statutory Framework

The expression key managerial person is defined in section 2(51) of the Act. Section 203 of the Act, Deals with the manner of appointment of a whole time key managerial personnel in the companies prescribed under that section. It also lays down the abilities and disabilities in respect of appointment of a whole time Key Managerial Personnel (KMP).

Section 203(1) of the Act states that every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time KMP:

(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.

According to subsection (3), a whole-time KMP shall not hold office in more than one company except in its subsidiary company at the same time.

As per 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 ten crore rupees or more
shall have whole-time KMP.

Analysis

While section 203 is the key operating provision, the definition in section 2(51) is only to define the meaning of the expression; the term KMP used in first and second proviso to subsection (3) of section 203 will mean nothing but a KMP appointed on whole time basis as per
the requirement of that section. In my opinion, the term ‘key managerial personnel’ wherever it occurs in the Act
or Rules must be understood to mean whole-time key managerial personnel.

All the KMPs of a listed company and a public company having a minimum paid-up share capital of Rs. 10 Crores or more, must be appointed as such only on whole-time basis and such companies are required to comply with section 203 with respect to such appointment; they must
also comply with the restrictions stated in that section regarding appointment of KMP of the company as KMP of another company on whole-time basis.

Classes of companies to which section 203 applies

While section 203 provides that every company belonging to such class or classes of companies as may be prescribed shall have the KMP.

Rule 8 prescribes two classes of companies, i.e.

(i) every listed company; and

(ii) every other public company having a paid-up share capital of ten crore rupees or more.

All the listed company and a public company having a minimum paid-up share capital of Rs. 10 Crores or more, must appoint whole-time basis Key Managerial Personnel (KMP) to comply with section 203 & rule 8.

Issue 1 : Are private companies required to appoint KMP?

Reading section 203(1) and Rule 8 together
clearly indicates that private companies (which are not subsidiaries of public companies) are not obliged to comply with the requirement of mandatory appointment
of KMP.

Appointment of Company Secretaries by Private Company

As per Rule 8A Every private company which has a paid up share capital of ten crore rupees or more shall have a whole -time company secretary.

Conclusion

As per Rule 8 of Companies Act, 2013, Private Companies are not required to appoint Key Managerial Personnel (KMP), However, by virtue of Rule 8A, a private company which has a paid up share capital of ten crore rupees or more is required to appoint whole -time company secretary.

Thus a private company which has a paid up share capital of ten crore rupees or more is required to appoint only whole -time company secretary and need not appoint any other KPM. 

CA Adityavikram Banka
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