AN INSIGHT INTO KEY MANAGERIAL
PERSONNEL (KMP) IN COMPANIES ACT 2013
By: CS. Ashwin Jayagopal
Ø
The
new Act has introduced the term Key Managerial Personnel. This is to take
within its ambit a wider set of officials who are in today’s corporate
framework playing an important role in the affairs of the companies.
WHO
ARE TERMED AS KMP
1.
CEO
/ MD / MANAGER
2.
COMPANY
SECRETARY
3.
WHOLE
TIME DIRECTOR
4.
CHIEF
FINANCIAL OFFICER
APPOINTMENT
OF KMP
According to Sec 203(1) and
Rule 13.6 every listed Company and every other company having a paid -up share
capital of five crore rupees or more shall have whole-time key Managerial
Personnel.
Please note that the Company
must have appointed full time KMP as per the 4 categories mentioned above.In
other words the Company can either have CEO/MD/Manager and it should
mandatorily appoint CS, WTD and CFO.
As far as CS in employment are
concerned, the 5 crore limit is similar to the limit given in erstwhile Sec.
383 A of the Companies Act 1956. However this limit is now given in the Draft
Rules and we need to wait and watch what will be the final amount in this
regard.
ROLE
OF KMP:
Ø
KMP
is treated as an ‘officer’ of the
Company as well as ‘officer in default’.
Thus he is entrusted with the task of ensuring that the provisions of the Act
are complied with.
Ø
In
certain cases, the role of each KMP is defined. For instance, in case of
financial statement the role of CFO and CS is distinctly mentioned.
Ø KMP
AS AN AGENT OF THE COMPANY
KMP can enter into
contracts on behalf of the Company
and has ostensible authority to act on behalf of the Company.
It
is certainly a provision which has to be welcomed with open arms as Company
Secretary and CFO are entrusted with powers to sign the contracts on behalf of
the Company and legislation gives this recognition to them.
Further
there are instances where some clients used to insist for a Board resolution to
show that the concerned (Director,
Company secretary or the Authorized signatory) is entitled to sign on behalf of
the Company. Now, whenever such a question is raised, this provision can be
shown and explained to them. Thus, every
contract need not be taken to the Board for its consideration.
POINTS
ON APPOINTMENT OF KMP
Ø
Every
KMP shall be appointed by means of a resolution of the Board containing the terms
and conditions of appointment including remuneration.
Ø
A
whole time KMP shall not hold office in more than one company at the same time.
Two exceptions to this
·
He
can act as KMP in the subsidiary Company at the same time.
·
He
can be a director in any other company with the permission of the Board.
Ø
If
a whole time KMP is holding office in more than one company at the same time on
the date of the commencement of the Act, he has to choose one company and
resign from the other companies within 6 months from the commencement of the
Act.
Ø
This
provision gives raise to a situation where a Company Secretary of the Holding
Company can be the Secretary of its Subsidiary also. Currently both the Holding
& Subsidiary Companies will have different Secretaries; but going forward
corporate may prefer to have a single Secretary for the Holding &
Subsidiary Company as well. Apart from affecting the employment opportunity to
certain extent, a same person acting as Secretary can give raise to conflict of
interest at times. So it will be better if MCA comes out with a clarification
KMP AS
A RELATED PARTY
A KMP is now included within
the definition of related party. This has dual implications namely he cannot
enter into certain transaction and his relative’s interests and holding will
have to be considered for determining qualifications of Independent director
and auditor.
Ø
Relative
of KMP shall not be eligible for appointment as an auditor of a company.
Ø
An
Independent director cannot be a person who, either himself or any of his
relatives, inter alia - holds or has held the position of KMP in the company in
the three financial years immediately preceding the financial year in which he
is proposed to be appointed.
Ø
The
company is prohibited to give loan to KMP for purchasing or subscribing for
fully paid- shares in the company or its holding company to be held by him by
way of beneficial ownership.
PENALTY
FOR NON- COMPLIANCE :
PARTY
|
PENALTY
|
Company
|
Minimum
- One Lakh and Maximum- Rs.Five Lakh
|
Every
director and KMP who is in default
|
Fifty
Thousand
For
continuing offence - Further fine of Rs.1000 per day from the first day of
the contravention.
|
OBSERVATIONS:
This Section along
with its rules should bring smiles to the Company Secretaries in Employment
because though Companies Act, 1956 had section 383 A the loophole in the
section namely “it shall be a defence to
prove that all reasonable efforts to comply with the provisions were taken or
that the financial position of the company was such that it was beyond its
capacity to engage a whole time secretary”. This provision was misused by
the Companies. That is the reason we have seen very few compounding under
Section 383A.
Also it has to be
noted that the penalty under the earlier Sec. 383 A was only Rs. 500 per day,
while the penalty here has been substantial.
The Ministry by
removing those wordings has done a world of good to CS who are in employment.
Thus KMP provision is a step in the right direction in the Companies Act 2013.
Good Work Ashwin. Keep writing.
ReplyDeleteis it necessary to file like Form 32 for appointment/resignation of KMP?
ReplyDeleteMadhavan: You raised a valid point, which made me to check Sec. 203 fully, then the Draft Rules and the Draft forms also.
ReplyDeleteInterestingly none of them talk about the form for filing with regard to KMP. Form 13.1 which is the Form being filed with regard to the appointment of Whole Time Director, Manager , etc. I cannot locate the form for appointment of CS or a KMP
Members may kindly correct if my understanding is not correct.
In my view it is not necessary to file a form to ROC for the appointment of CEO / CFO. Since MD/ WTD/ CS appointments are more or less at par with that of a director, it is necessary and hence sec 190 specifically emphasis such filing. CEO / CFO though treated as a KMP they are appointed by the Board only like any other appointment. ALL MANAGERIAL PERSONNEL ARE KMP AND THE REVERSE IS NOT TRUE. The form 13.1 is pursuant to Sec 196 ie for Managerial personnel alone.
ReplyDelete