Provisions of Appointment of Key
Managerial Personnel under the Companies Act 2013
As per Section 203 (1)
read with Rule 8 of 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
the following whole-time key managerial personnel’s,—
(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:
In
this regard the following points to be noted:
(1)
An individual shall not be appointed or reappointed as the
chairperson 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 (b) the company does not carry multiple
businesses:
(2) Appointment
of whole-time key managerial personnel should be in a Board meeting and by way
of passing a Board resolution. The Board resolution should contain the terms
and conditions of the appointment including the remuneration of such personnel.
(3)
If the office of any whole-time key managerial
personnel is vacated (by resignation or otherwise), the resulting vacancy shall
be filled-up by the Board of directors at a Board meeting within six months
from the date of such vacancy.
(4) Whole-time
key managerial personnel can’t hold office in more than one company except in
its subsidiary company at the same time. However, with the permission of the
Board of directors, such key managerial personnel may be appointed as a director
in any other Company. To clarify, a whole time key managerial person can’t hold
any office in other companies at the same time (either as a director or
otherwise) except (a) in its subsidiary company (b) as a director in any other
company with the previous approval of Board.
(5) A
person can’t be appointed as a managing director of a company if he is the
managing director or manager of another company except if such person is the
managing director or manager of NOT MORE THAN ONE COMPANY he
can be appointed as a managing director if his appointment is approved by a
resolution passed at a meeting of the Board with the consent of all the
directors present at the meeting. For such Board meeting specific notice should
be been given to all the directors then in India.
PENALTY
If a company contravenes
the aforesaid provisions (contained in Section 203 of the Companies Act), the
company shall be punishable with a minimum fine of Rupees one lakh and
maximum of Rupees five lakh. In addition every director and key managerial
personnel of the company who is in default shall be punishable with fine which
may extend to fifty thousand rupees and where the contravention is a continuing
one, with a further fine which may extend to one thousand rupees for every day
after the first during which the contravention continues.
ROC FILING
FOR APPOINTMENT OF KEY MANAGERIAL PERSONNEL AND/OR CHANGES IN KEY MANAGERIAL
PERSONNEL:
The Company is required
to file a form MR. 1 for appointment of key managerial
personnel (i.e. Managing Director, Whole Time Director or Manager, Chief
Executive Officer (CEO), Company Secretary and Chief Financial Officer (CFO)).
Form MR 1 should be
filed within sixty days from the date of appointment.
In addition to the
aforesaid, form DIR 12 should also be filed with the Registrar of Companies for
appointment and/or changes in the key managerial personnel(s) within thirty
days of such appointment or change, as the case may be.
DISCLOSURES
AND STATEMENT RELATED TO KEY MANAGERIAL PERSONNEL (KMP), DIRECTORS AND OTHER
EMPLOYEES IN THE BOARD REPORT
(1) EVERY
LISTED COMPANY shall make the following
disclosures in its Board report related to key managerial personnel ’s:
a) the ratio
of the remuneration of each director to the median remuneration of the
employees of the company for the financial year; (NOTE: “median” means
the numerical value separating the higher half of a population from the lower
half and the median of a finite list of numbers may be found by arranging all
the observations from lowest value to highest value and picking the middle one)
b) the
percentage increase in remuneration of each director, Chief Financial Officer,
Chief Executive Officer, Company Secretary or Manager, if any, in the financial
year;
c) the percentage
increase in the median remuneration of employees in the financial year;
d) the number of
permanent employees on the rolls of company;
e) the explanation
on the relationship between average increase in remuneration and company
performance;
f) comparison of
the remuneration of the Key Managerial Personnel against the performance of the
company;
g) variations in
the market capitalisation of the company, price earnings ratio as at the
closing date of the current financial year and previous financial year and
percentage increase over decrease in the market quotations of the shares of the
company in comparison to the rate at which the company came out with the last
public offer in case of listed companies, and in case of unlisted companies,
the variations in the net worth of the company as at the close of the current
financial year and previous financial year;
h) average
percentile increase already made in the salaries of employees other than the
managerial personnel in the last financial year and its comparison with the
percentile increase in the managerial remuneration and justification thereof
and point out if there are any exceptional circumstances for increase in the
managerial remuneration;
i) comparison
of the each remuneration of the Key Managerial Personnel against the
performance of the company;
j) the key
parameters for any variable component of remuneration availed by the directors;
k) the ratio of
the remuneration of the highest paid director to that of the employees who are
not directors but receive remuneration in excess of the highest paid director
during the year; and
(l) affirmation
that the remuneration is as per the remuneration policy of the company.
(2) The
board’s report shall include a statement showing the name of every employee of
the company, who:
a) if employed
throughout the financial year, was in receipt of remuneration for that year
which, in the aggregate, was not less than sixty lakh rupees;
b) if employed for
a part of the financial year, was in receipt of remuneration for any part of
that year, at a rate which, in the aggregate, was not less than five lakh rupees
per month;
c) if
employed throughout the financial year or part thereof, was in receipt of
remuneration in that year which, in the aggregate, or as the case may be, at a
rate which, in the aggregate, is in excess of that drawn by the managing
director or whole-time director or manager and holds by himself or along with
his spouse and dependent children, not less than two percent of the equity
shares of the company.
d) The
said statement shall also indicate –
- designation
of the employee;
- remuneration
received;
- nature
of employment, whether contractual or otherwise;
- qualifications
and experience of the employee;
- date
of commencement of employment;
- the
age of such employee;
- the
last employment held by such employee before joining the company;
- the
percentage of equity shares held by the employee in the company within the meaning of clause (iii) of sub-rule
(2) above; and
- whether
any such employee is a relative of any director or manager of the company and if so, name of such director or
manager:
e) Particulars of
employees posted and working in a country outside India, not being directors or
their relatives, drawing more than sixty lakh rupees per financial year
or five lakh rupees
per month, as the case may be, as may be decided by the Board, shall not be
circulated to the members in the Board’s report, but such particulars shall be
filed with the Registrar of Companies while filing the financial statement and
Board Reports. Such particulars shall be made available to any shareholder on a
specific request made by him in writing before the date of such Annual General
Meeting wherein financial statements for the relevant financial year are proposed
to be adopted by shareholders and such particulars shall be made available by
the company within three days from the date of receipt of such request from
shareholders. In case of request received even after the date of completion of
Annual General Meeting, such particulars shall be made available to the
shareholders within seven days from the date of receipt of such request.
RECORDS
TO BE MAINTAINED AND KEPT BY A COMPANY IN RELATION TO KEY MANAGERIAL PERSONNEL
Rule 17 of Companies
(Appointment and Qualification of Directors) Rules, 2014 requires a register of
its directors and key managerial personnel to be kept by every company at its
registered office. Such register shall have the following details:
a) Director Identification Number (optional for key managerial personnel);
b) present name and surname in full;
c) any former name or surname in full;
d) father’s name, mother’s name and spouse’s name(if
married) and surnames in full;
e) date of birth;
f) residential address (present as well as permanent);
g) nationality (including the nationality of origin, if
different);
h) occupation;
i) date of the board resolution in which the
appointment was made;
j) date of appointment and reappointment in the
company;
k) date of cessation of office and reasons therefor;
l) office of director or key managerial
personnel held or relinquished in any other body corporate;
m) membership number of the Institute of Company Secretaries
of India in case of Company Secretary, if applicable; and
n) Permanent Account Number (mandatory for
key managerial personnel if not having DIN);
In addition to the
details of the directors or key managerial personnel, the company shall also
include in the aforesaid Register the details of securities held by them in the
company, its holding company, subsidiaries, subsidiaries of the company’s
holding company and associate companies relating to- (i) the number,
description and nominal value of securities; (ii) the date of acquisition and
the price or other consideration paid; (iii) date of disposal and price and
other consideration received; (iv) cumulative balance and number of securities
held after each transaction; (v) mode of acquisition of securities; (vi) mode
of holding – physical or in dematerialized form; and (vi) whether securities
have been pledged or any encumbrance has been created on the securities.
Disclaimer: This writing is not an opinion. Prior advise should be
obtained before acting on the same.
