Section 203 of the Companies Act 2013 deals with the appointment of Key Managerial Personnel and as per that section every public limited Company having paid up capital of Rs.10 crore and above is required to appoint these following three categories of whole time KMPs:
- Managing Director or CEO or Manager and in absence of the same a whole time director.
- Chief Financial officer.
- Company Secretary.
From the term whole time we can understand that an individual appointed as KMP from any of the above category shall not hold any other whole time position simultaneously in the same organization.
Although we have seen that many companies have appointed same person as a Company Secretary and Chief Financial position to comply the provision of Section 203.
Which is contravention of the provision of Section 203, since it is practically not possible for one single individual to devote his / her full time and energy in two different whole time positions in a single organisation simultaneously, which is against the spirit of Section 203.Since the Section has used the term whole time Key Managerial Personnel.
However there is one exception to this provision, if we see the subsection 3 of the said section then we will find that a whole time KMP shall not hold office in more than one company except in it’s subsidiary company at the same time. So that means the KMP of holding company can also become KMP of subsidiary company.
There is also a confusion may arise, since the term subsidiary has been used and not subsidiaries and a company may have more than one subsidiary, then what will be the position at that time? Can one individual will be able to hold 2-3 KMP positions simultaneously in different subsidiaries simultaneously?
To understand the spirit of Section 203(3), we have to go through the third provision of subsection 3 carefully, then we will find that “ a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the Directors present at the meeting”
So from the above, we can understand that it put a clear restrictions in relation to the appointment of Managing Director as KMP in more than two companies at a time (Holding and one subsidiary), but there is no such restrictions have been made for the appointment of other KMPs in the subsidiaries.So as per my view other than Managing Director there is no such restrictions in relation to other KMPs and can be appointed in subsidiaries of a holding company and there should not be any bar to do so.
Thanks
CS Sandip Sarkar
CAclubindia
