KEY MANAGERIAL

PERSONNEL
Session learning objectives
■ Who are Key managerial personnel (KMPs)
■ Legal provisions with respect to appointment of KMPs
■ Managing Director
– Meaning
– Appointment
– Qualifications/ disqualifications
■ Manager
– Meaning
Distinction between Managing Director and Manager
Key Managerial Personnel (KMPs)
■ According to section 2(51), KMPs in relation to a company means
– The Chief Executive Officer (CEO) or the Managing Director (MD) or the Manager
– The Company Secretary (CS)
– The Whole – Time Director (WTD)
– The Chief Financial Officer (CFO)
– Such other officer as may be prescribed
■ These people are appointed to assist the BOD in managing the business of the company.
■ The complexity in business affairs with the growth of the company requires specialized
people to handle them.
Mandatory requirement to appoint
KMPs (section 203 rule 8)2014
■ Only listed companies and such public companies which have paid – up capital of
Rs 10 crores and more are required to appoint whole – time KMPs mandatorily.
■ Appointment of MD/CEO/Manager and in their absence a whole – time director.
■ Appointment of CS and CFO is also required
■ For other companies, such appointment of KMPs is discretionary
Appointment of KMPs – Common Aspects
■ Can be appointed by a Board Resolution , mentioning terms and conditions of
appointment and remuneration
■ KMP cannot hold office in more than one company at the same time. But she/he
may hold office in the subsidiary of company simultaneously
■ Subject to board’s permission, a KMP can hold Directorship in any other company
■ A company may appoint a person as MD, even if he is and MD/Manager of any other
company (only one). However, such appointment can be made by a Board resolution
with all the Directors. The notice of such meeting should be given to all Directors
present in India. This is only applicable for appointment of MD.
Appointment of KMPs – Common Aspects

■ Appointment of same person as Chairperson as well as MD/CEO of the company,

not allowed unless Articles of Association provides otherwise. MCA vide its
notification S.O. 1913(E) dated 25-7-2014 notified that public companies having
paid up Share capital of Rs. 100 Cr or more and annual turnover of Rs. 1000 Cr or
more which are engaged in multiple businesses and have appointed Chief Executive
Officer for each such business can appoint an individual as Chairperson and
Managing Director.
■ If the office of any whole-time key managerial personnel 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.
■ Failure to appoint KMPs, if it is mandatory to do so, the following penalties are
prescribed
■ Company: Between Rs 1 lakh and 5 Lakh
■ Defaulting Director and KMP: Fine upto Rs 50,000 and Rs 1,000 per day during the
period of default
Managing Director (MD)
■ A director who is responsible for day –to-day overall management of the company.
■ As defined under section 2(54) ‘managing director’ means a director who,
– By virtue of the articles of a company or
– By an agreement with the company or
– By a resolution passed in its general meeting, or
– By a resolution passed by its Board of Directors,
■ is entrusted with substantial powers of management of the affairs of the company
and includes a director occupying the position of managing director, by whatever
name called.
■ So, a director who is required to perform managerial functions in the company shall
be managing director even if called by some other name. So the status of MD is
determined by position and not designation
Managing Director (MD)
■ Acts not deemed to be included within the substantial powers of management
■ The power to do administrative acts of a routine nature when so authorised by the
Board such as
– The power to affix the common seal (if any) of the company to any document or
– Power to draw and endorse any cheque on the account of the company in any
bank or
– Power to draw and endorse any negotiable instrument or
– Power to sign any certificate of share or
– Power to direct registration of transfer of any share
■ Managing director is first a director who is the part of the Board.
■ So a managing director must hold and continue to hold the office of a director.
■ For appointment of non – director as MD she/he must be appointed as ‘additional
director’ by BOD (section 161(1))or as a director in general meeting (Sec 52(2))
Restrictions on Appointment
■ Section 196 of the Companies Act, 2013 provides that no company shall appoint or
employ at the same time a Managing Director and a Manager.
■ Further, a company shall not appoint or reappoint any person as its Managing
Director, Whole Time Director or manager for a term exceeding five years at a time
■ and no reappointment shall be made earlier than one year before the expiry of his
term.
Disqualifications for Appointment as MD
■ No company shall appoint or continue the employment of any person as managing
director, whole-time director or manager who —
– is below the age of twenty-one years or has attained the age of seventy years:
– is an undischarged insolvent or has at any time been adjudged as an insolvent;
– has at any time suspended payment to his creditors or makes, or has at any time
made, a composition with them; or
– has at any time been convicted by a court of an offence and sentenced for a period
of more than six months.
– Has been detained for any period under the Conservation of Foreign Exchange and
Prevention of Smuggling activities Act, 1974
– Is not a resident of India (not applicable to companies in SEZs)
■ Appointment of a person who has attained the age of seventy years may be made by
passing a special resolution in which case the explanatory statement annexed to the
notice for such motion shall indicate the justification for appointing such person;
■ Where no such special resolution is passed but votes cast in favour of the motion exceed
the votes, if any, cast against the motion and the Central Government is satisfied, on an
application made by the Board, that such appointment is most beneficial to the
company, the appointment of the person who has attained the age of seventy years may
be made.
Procedure for appointment of MD
■ Section 196(4) of the Companies Act, 2013 provides that subject to the provisions
of section 197 and Schedule V, a managing director, whole-time director or manager
shall be appointed and the terms and conditions of such appointment and
remuneration payable be approved by the Board of Directors at a meeting which
shall be subject to approval by a resolution at the next general meeting of the
company and by the Central Government in case such appointment is at variance to
the conditions specified in Schedule V.
■ Approval of the Central Government is not necessary if the appointment is made in
accordance with the conditions specified in specified in Part I of Schedule V to the
Act.
■ The appointment of a managing director or whole-time director or manager and the
terms and conditions of such appointment and remuneration payable thereon must
be first approved by the Board of directors at a meeting and then by an ordinary
resolution passed at a general meeting of the company.
Important Aspects and exemptions
■ Rule 3 of Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014
■ A company shall file a return of appointment of a Managing Director, Whole Time Director
or Manager within sixty days of the appointment, with the Registrar in Form No. MR.1
along with such fee as may be specified for this purpose.
■ Section 196(5) provides that subject to the provisions of this Act, where an appointment
of a managing director, whole-time director or manager is not approved by the company
at a general meeting, any act done by him before such approval shall not be deemed to
be invalid.
■ Section 196(4) and Section 196(5) is not applicable to Private Company
■ A private company may appoint managing director, Whole time Director or Manager in
the manner prescribed in its Articles of Association.
■ Section 196 (2), (4) & (5) shall not apply to Government Company
■ A government company may appoint managing director, Whole time Director or Manager
in the manner prescribed in its Articles of Association. The term of appointment of
managing director, Whole time Director or Manager may exceed five years.
Manager
■ According to Sec 2(53), a Manager means an individual who,
– Subject to the superintendence, control and directions of the Board of
Directors,
– Has the management of the whole or substantially the whole of the affairs of
the company, and
– Includes a director or any other person occupying the position of a manager, by
whatever name called and whether under a contract of service or not.
■ A departmental manager or branch manager in not deemed to be a manager in this
sense.
■ Only an individual can be appointed as a manager of company.
Distinction between managing director
and manager
Basis Managing Director
Limit on numbers Can be more than one
Directorship Must be a director
Powers Is entrusted with substantial
powers of management
Removal of directorship Automatically ceases to be a
managing director if cease to
be a director
Manager
Cannot be more than one for
whole company
May or may not be a director
Has the management of whole
or substantially the whole of
the affairs of the company
Continues to be a manager
even after cessation of
directorship
Thank You