Appointment of KMP in a Company

Introduction

A new concept of "Key Managerial Personnel" (KMP) was created by the Companies Act of 2013, with the intention of merging all heads of companies under one head. It contributes significantly to the daily operations of the company and helps in achieving its objectives. Hence, the appointment of KMP is essential for any company. The legal definition of KMP is provided in Section 2(51) of the Companies Act, 2013, but Section 203 of the Companies Act, 2013 specifies the class of persons of a company who may be whole-time KMP and similar. In this article, first, we will discuss the definition of KMP and then the process of designating a KMP.

Who are the key managerial personnel?

It refers to a full-time director of a company who has significant responsibilities and duties. They are in charge of developing and implementing strategy and serve as the first line of contact with company stakeholders. Key managerial personnel are defined under Section 2(51) of the Companies Act, 2013, which states:

A Key Managerial Personnel in relation to a company, means-

• the Chief Executive Officer or the Managing Director or the Manager
• the Company Secretary
• the Whole-Time Director
• the Chief Financial Officer
• such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
• such other officer as maybe prescribed.

Who can be Appointed as KMP?

Section 203 Companies Act, 2013 read along with Company Rule 8 (Appointment and Remuneration of Managerial Personnel) 2014 authorizes the appointment of a KMP and makes it mandatory for every listed company and every other Public Company with paid-up share capital of INR 10 crore or more, to appoint the following full-time KMPs:

• Company Secretary;
• Chief Financial Officer and;
• Managing Director, or Chief Executive Officer or Manager, and in their absence one Whole Time Director.

Moreover, the Companies Rule 8A (Appointment and Remuneration of Managerial Personnel) 2014 makes it mandatory for every Private Limited Company having a paid-up share capital of INR 10 crore or more to appoint a whole time Company Secretary.

What are the Roles and Responsibilities of the KMP?

• KMP shall be liable for not complying with the provisions provided under the Companies Act, 2013.
• KMP is responsible for the management of the affairs of the company.
• As per section 170, the details of the securities held by the KMP in the company must be disclosed and recorded with the Registrar of Books.
• According to Section 189 (2), the KMP is responsible for disclosing all concerns and interests within 30 days of his appointment.

What are the Mode of Appointment of KMP?

The appointment procedure for KMP is mentioned under Section 203 of the Companies Act, which is as under:

• The board must pass a resolution prior to appointing any full-time key management personnel, and the resolution must include the terms and conditions of appointment as well as remuneration.
• Full-time key managerial personnel are not permitted to hold offices in more than one company, excluding its subsidiaries. He can become director of any other company with the consent of the Board.
• A person may be selected or appointed by a company to serve as its managing director. If he is MD or Manager of several companies and the resolution is approved in a board meeting with all the directors present.

What happens when the KMP office is empty?

In case, the seat of whole-time KMP is vacant, the Board shall hold a Board meeting and appoint a successor within six months from the date on which the vacancy occurs.

Penalty provisions for contravention Section 203

If a company violates the provision for appointment of managerial personnel, that company will be penalized. The maximum penalty is one lakh rupees, and it can go up to five lakh.

In case, the KMP or the director contravenes the provision of Section 203, he is liable to pay a fine of Rs. 50,000 and if the contravention continues, the said person shall be liable to pay Rs. 1000 per day.

Summary

The KMP manages the day-to-day operations and plays a very important role in the company. Ministry of Corporate Affairs and SEBI have made it mandatory for companies to appoint KMP. In order for the company to act in accordance with the spirit of the law, the authorities have enacted specific legislation for the appointment of KMP in the Companies Act, 2013