SECTION 203: APPOINTMNET OF KMP
SECTION 203: APPOINTMNET OF KMP
SECTION 203: APPOINTMENT OF KEY MANAGERIAL PERSONNEL
Section 203 of the Act, and Rule 8 as well as Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 contain the provisions for the appointment of Key Managerial Personnel in the prescribed companies.
(i) Appointment of Key Managerial Personnel [Section 203(1)]: Every company belonging to the prescribed class or classes of companies shall have the following whole-time key managerial personnel:
According to Rule 8 following companies shall have whole-time key managerial personnel:
(a) every listed company; and
(b) every other public company having a paid-up share capital of 10 crore rupees or more.
Requirement of Company Secretary in certain other companies:
According to Rule 8A, every private company which has a paid-up share capital of 10 crore rupees or more shall have a whole-time company secretary. In other words, it is now mandatory for every private company to have a whole-time company secretary if its paid-up share capital is 10 crore rupees or more.
(ii) Prohibition on individual to be appointed as Chairperson as well as Managing Director or Chief Executive Officer at the same time [Proviso to Section 203(1)]:
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 (CEO) of the company at the same time, unless —
(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses. [First proviso to Section 203(1)]
Exemption from restriction:
However, the above-mentioned prohibition shall not apply to such class of companies which is engaged in multiple businesses, and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government. [refer Second proviso to Section 203(1)]
In other words, a person appointed as Chairperson of a company cannot be appointed as MD or CEO at the same time in that company. This prohibition is not applicable in the following cases: [Second proviso to Section 203(1)]
• Where the articles of such company provide otherwise i.e., they allow the Chairperson to be appointed as MD or CEO.
• Where the company belongs to the prescribed class of companies is engaged in multiple businesses; and has appointed Chief Executive Officer for each such business.
Notified Public Companies: The MCA vide Notification No. S.0. 1913(E) dated 25" July, 2014 has notified that public companies having paid-up share capital of 100 crore rupees or more and annual turnover of 1,000 crore rupees or more which are engaged in multiple businesses and have appointed Chief Executive Officer for each such business shall be the class of companies for the purposes of the second proviso to sub-section (1) of section 203.
Explanation-For the purpose of this notification, the paid-up share capital and the annual turnover shall be decided on the basis of the latest audited balance sheet.
(iii) Conditions for Appointment:
(a) Requirement of Board Resolution’: Every whole-time key managerial personnel of accompany shall be appointed by means of a resolution of the Board. The resolution shall contain the terms and conditions of the appointment including the remuneration. [refer Section 203 (2)]
(b) Bar on multiple appointments: A whole-time key managerial personnel shall not hold office in more than one company at the same time except in its subsidiary company. [Section 203 (3)]
However, key managerial personnel shall not be disentitled from being a director in any company with the permission of the Board. [refer Proviso to Section 203 (3)]
Provided further those whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel.
(iv) Managing Director or Manager in more than one company [Third Proviso to Section 203(3)]:
If a person is MD or manager in some other company, it is permissible for a company to appoint him as its managing director. The modus operandi is as under:
Person so appointed / employed as MD:-
• should be MD/M in one company, and of not more than one other company
• made/approved by Board resolution
• passed with the consent of all the directors present at the meeting
• specific notice of such meeting, and of the resolution to be moved thereat has been given to all the directors then in India.
(v) Filling of Vacancy of Key Managerial Personnel (KMP) [Section 203(4)]:
If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.
(vi) Penalty for non-compliance [Section 203(5)]:
(a) Company: If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of 5 Lakh rupees.
(b) Director and KMP: Every defaulting director and KMP shall be liable to a penalty of 50,000 rupees. Where the default is a continuing one, they shall be liable with a further penalty of 1,000 rupees for each day after the first during which such default continues but not exceeding 5 Lakh rupees.
Exemptions
In case of Government companies, after sub-section (4) of Section 203, the following sub-section shall be inserted vide Notification No. G.S.R. 463(E), dated 5'" June, 2015 as amended by Notification No. G.S.R. 582 (E), dated 13 June, 2017, namely:
“(4A) The provisions of sub-section (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government company.”
The sub-section (4A) shall be applicable to a Government company only if it has not committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 with the Registrar.
