CA Final Corporate & Economic Laws – Chapter 2

Part 2: Appointment of Key Managerial Personnel (KMP) & Functions of Company Secretary

(Sections 203 & 205 – ICAI Exam-Oriented Notes)

4. Appointment of Key Managerial Personnel (Section 203)

Meaning of KMP

Section 2(51) defines Key Managerial Personnel (KMP) as:

1. Chief Executive Officer (CEO) or Managing Director (MD) or Manager
2. Company Secretary (CS)
3. Whole-time Director (WTD)
4. Chief Financial Officer (CFO)
5. Officer one level below the Board designated as KMP
6. Other officers as may be prescribed.

Memory Trick

“MCWCOD”

• M – Manager
• C – CEO
• W – Whole-time Director
• C – Company Secretary
• O – Other Officer
• D – CFO

Companies Required to Appoint Whole-time KMP

According to Rule 8, the following companies must appoint whole-time KMP:

(1) Every Listed Company

Compulsory.

(2) Every Other Public Company

Having Paid-up Share Capital ≥ ₹10 Crore

Must appoint:

• MD/CEO/Manager (or WTD in their absence)
• Company Secretary
• CFO

Requirement for Private Companies

According to Rule 8A:

Every Private Company

having

Paid-up Share Capital ≥ ₹10 Crore

must appoint a Whole-time Company Secretary.

Summary Table

Whole-time KMP Structure

Whole-time KMP
        │
 ┌──────┼──────────┐
MD / CEO / Manager
Company Secretary
Chief Financial Officer
(If no MD/CEO/Manager → WTD)

Chairperson cannot be MD/CEO simultaneously

General Rule

Same individual cannot be both:

• Chairperson

AND

• Managing Director

OR

• Chief Executive Officer

at the same time.

Exceptions

This restriction does not apply if:

Exception 1

Articles of Association permit it.

OR

Exception 2

Company:

• carries multiple businesses, and
• has separate CEOs for each business (as notified).

Notified Companies

Applicable to Public Companies having:

• Paid-up Capital ≥ ₹100 Crore
• Turnover ≥ ₹1000 Crore
• Multiple businesses
• Separate CEO for each business.

Appointment Procedure of Whole-time KMP

Whole-time KMP shall be appointed:

✔ By Board Resolution

The resolution should mention:

• Terms of appointment
• Conditions
• Remuneration

Important Exam Point

Appointment of KMP cannot be made merely through circulation.

It must be approved in a Board Meeting.

Holding Office in More Than One Company

General Rule

Whole-time KMP

cannot hold office in more than one company simultaneously.

Exception

May hold office in:

✔ Subsidiary Company

Additional Relaxation

Whole-time KMP

may also become

Director in another company

with

Board’s permission.

Existing Multiple Appointments

If KMP held office in more than one company when the Act commenced,

he had to choose one company within 6 months.

Managing Director in More Than One Company

A person already serving as MD/Manager in another company may also become MD of one more company only if all of the following conditions are satisfied:

1. Specific notice of the Board Meeting is given to all directors in India.
2. Board Resolution is passed at the meeting.
3. All directors present consent to the resolution.
4. Shareholders approve the appointment, where required.

ICAI Illustration

If 8 directors attend a Board Meeting and only 6 vote in favour while 2 abstain, the appointment is not valid because unanimous consent of the directors present is required in such a case.

Filling Casual Vacancy of KMP

If office of any whole-time KMP becomes vacant,

Board must fill it

within

6 months from date of vacancy.

Penalty (Section 203)

Company

Penalty:

₹5,00,000

Every Defaulting Director/KMP

Penalty:

• ₹50,000

Continuing default:

• ₹1,000 per day

Maximum:

₹5,00,000

Quick Revision Chart

Listed Company
↓
Whole-time KMP
------------------------
Public Company
Paid-up Capital ≥ ₹10 Cr
↓
Whole-time KMP
------------------------
Private Company
Paid-up Capital ≥ ₹10 Cr
↓
Whole-time CS

Functions of Company Secretary (Section 205)

Company Secretary is the Chief Compliance Officer of the company and performs statutory as well as advisory functions.

Functions

1. Compliance Reporting

Report to Board regarding compliance with:

• Companies Act
• Rules
• Other applicable laws

2. Secretarial Standards

Ensure compliance with:

• SS-1 (Board Meetings)
• SS-2 (General Meetings)

3. Guidance to Directors

Advise directors regarding:

• Duties
• Responsibilities
• Powers

4. Meetings

• Convene Board Meetings
• Convene Committee Meetings
• Convene General Meetings
• Attend meetings
• Record Minutes

5. Obtain Approvals

Obtain approvals from:

• Board
• Shareholders
• Government
• Other Authorities

6. Representation

Represent company before:

• ROC
• MCA
• Regulatory Authorities

7. Assist the Board

Help Board in conducting affairs of company.

8. Corporate Governance

Advise Board on:

• Good Governance
• Legal Compliance
• Best Practices

9. Other Duties

Perform duties assigned:

• under Companies Act
• under Rules
• by Board of Directors.

Secretarial Standards

Approved Secretarial Standards:

Important Provision

Performance of functions by Company Secretary does not reduce the responsibility of:

• Board of Directors
• Chairperson
• Managing Director
• Whole-time Director

These officers continue to remain responsible under the Companies Act.

Memory Trick for CS Functions

“CRG MORA”

• C – Compliance Reporting
• R – Representation
• G – Governance
• M – Meetings & Minutes
• O – Obtain Approvals
• R – Report to Board
• A – Advise Directors

One-Page Revision

ICAI Exam Focus

Frequently Asked Questions

• Meaning and composition of KMP
• Companies required to appoint KMP
• Chairperson–MD/CEO restriction and exceptions
• Conditions for appointment of KMP
• Vacancy and penalties under Section 203
• Functions of Company Secretary under Section 205
• Secretarial Standards (SS-1 & SS-2)