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PROVISIONS RELATING TO APPOINTMENT OF KEY MANAGERIAL PERSONNEL- LAW AND PROCEDURE UNDER THE COMPANIES ACT 2013

PROVISION RELATING TO APPOINTMENT OF KEY MANAGERIAL PERSONNEL-  LAW AND PROCEDURE UNDER THE COMPANIES ACT 2013

1. Appointment of Key Managerial Personnel :

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

A. 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

  •  The articles of such a company provide otherwise; or
  •  The company does not carry multiple businesses.

B. 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.

C. 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.

D. Whole-time key managerial personnel cannot 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:

  •  in its subsidiary company.
  •  as a director in any other company with the previous approval of Board.

E. 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 given to all the directors  in India.

2. 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 lakhs. 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.

3. 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.

3. 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 capitalization 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

  • Affirmation that the remuneration is as per the remuneration policy of the company.
  • 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 withinthe 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.

4. 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:

  • Director Identification Number (optional for key managerial    personnel);
  • present name and surname in full;
  • Any former name or surname in full;
  • Father’s name, mother’s name and spouse’s name(if married) and surnames in full;
  • Date of birth;
  • Residential address (present as well as permanent);
  • Nationality (including the nationality of origin, if different);
  • Occupation;
  • Date of the board resolution in which the appointment was made;
  • Date of appointment and reappointment in the company;
  • Date of cessation of office and reasons therefore;
  • Office of director or key managerial personnel held or relinquished in any other body corporate;
  • Membership number of the Institute of Company Secretaries of India in case of Company Secretary, if applicable; and
  • 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-

  • the number, description and nominal value of securities;
  • the date of acquisition and the price or other consideration paid;
  • date of disposal and price and other consideration received;
  • cumulative balance and number of securities held after each transaction;
  • mode of acquisition of securities;
  • mode of holding – physical or in dematerialised form; and
  • whether securities have been pledged or any encumbrance has been created on the securities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@caindelhiindia.com or call at 011-23343333.

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