Amended and updated notes on section 203 of Companies Act 2013. Detail discussion on provisions and rules related to appointment of key managerial personnel.
Chapter XIII (Sections 196–205) of the Companies Act, 2013 (CA 2013) deals with the provisions related to appointment and remuneration of managerial personal. Section 203 of CA 2013 provides for appointment of key managerial personnel.
Recently, we have discussed in detail section 202 (Compensation for loss of office of managing or whole-time director or manager) of CA 2013. Today, we learn the provisions of section 203 of Companies Act 2013.
The provisions of section 203 are effective from 1-April-2014. You may refer Notification No. S.O. 902(E) issued dated 27-03-2014. In this article, you will learn detail of the provisions of section 203 of the Companies Act 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | XIII |
| Chapter Name | Appointment and Remuneration of Managerial Personal |
| Section No. | 203 |
| Section Name | Appointment of key managerial personnel |
| Monthly Updated Edition | Company Law PDF |
Section 203 (Appointment of key managerial personnel) of the Companies Act 2013
Company Must Appoint KMP [Section 203(1)]:
As per sub-section (1) of section 203, every prescribed class of companies shall have the following whole-time key managerial personnel:
- Managing Director (MD) or Chief Executive Officer (CEO) or Manager. And in the absence of MD/CEO/Manager, a whole-time director (WTD).
- Company Secretary (CS); and
- Chief Financial Officer (CFO).
The Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 prescribed the class of companies for section 203(1) of CA 2013. Accordingly, a listed company and every other public company having a paid-up share capital of ₹10 crore or more shall have whole-time key managerial personnel.
In other words, the following companies are required to appoint KMP:
- A listed Private Company having at least ₹10 crore paid-up share capital;
- A listed Public Company having at least ₹10 crore paid-up share capital;
- An unlisted Public Company having at least ₹10 crore paid-up share capital.
That means if paid-up share capital of a public company is ₹10,00,00,000 or more then it shall appoint MD/CEO/Manager or WTD, CS and CFO irrespective of whether it is listed or not. However, a private company is required to appoint KMP only if it is listed and having PSC of ₹10 Crore or more.
Company Chairman and CEO/MD is Same Person. Is it possible?
The chairperson of a company shall not be appointed as the MD or CEO of that company at the same time unless:
- Articles of company provides otherwise; or
- The company does not carry multiple businesses:
However, a public company may appoint an individual as chairperson as well as MD/CEO at the same time only if:
- Paid-up share capital of ₹100 crore or more; or
- Annual turnover of ₹1000 crore or more; and
- Engaged in multiple businesses; and
- Appointed one or more CEO for each such business.
The paid-up share capital and the annual turnover shall be decided on the basis of the latest audited balance sheet.
[Second proviso of section 203(1) of CA 2013 read with Notification No. S.O. 1913 (E) dated 25-07-2015]
Compulsory Appointment of Whole-time Company Secretary:
With effect from 1st April 2020, all private company which has a paid-up share capital of ₹10 crore or more shall have a whole-time company secretary.
That means a listed private company having at least ten core PSC must appoint KMP including a whole-time CS. Whereas, the unlisted private company having PSC of ₹10 core or more shall not be required to appoint KMP but required to appoint a whole-time company secretary.
You may refer Rule 8A as amended by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020 vide G.S.R. 13(E), dated 03-01-2020.
KMP Appointment and Remuneration [Section 203(2)]:
The company shall appoint whole-time KMP after passing board resolution in board meeting i.e. BR at BM. Terms and conditions of appointment including the remuneration of KMP shall also be decided at the time of appointment in the BM.
KMP Holding office in more than one Company [Section 203(3)]:
Whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time.
However, a KMP may be appointed as a director of any company with the permission of the Board. By passing a resolution at BM with the consent of all present directors at the meeting a MD/manager of a company may be appointed as MD of not more than one another company and specific notice of such appointment shall be given to all the directors then in India.
Vacancy for KMP Office [Section 203(4)]:
If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled-up within 6 months by the Board at a meeting of the Board.
Exception/ Modification/ Adaptation:
The provisions of sub-sections (1), (2), (3) and (4) of section 203 shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government Company.
[Notification No. G.S.R. 463(E) dated 5th June, 2015]
Penalty for Contravention of Provisions [Section 203(5)]:
If a company makes any default in complying with the provisions of section 203, such company shall be liable to a penalty of ₹5 lakh.
Every director and KMP who is in default shall be liable to a penalty of ₹50 thousand. However, if the default is a continuing one, they shall be liable with a further penalty of ₹1000 for each day after the first during which such default continues but not exceeding ₹5 lakh.
Section 203 of Companies Act 2013: Appointment of key managerial personnel
Section 203 shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.
(1) Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel, —
- (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:
Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless, —
- (a) the articles of such a company provide otherwise; or
- (b) the company does not carry multiple businesses:
Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.
(2) Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.
(3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:
Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board:
Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:
Provided also 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 and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.
(4) 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.
(5) If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.
Exception/ Modification/ Adaptation:
1) In case of Government company after sub-section (4), the following sub section shall be inserted, namely:
“(4A) The provisions of sub-sections (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government Company.” -Notification No. G.S.R. 463(E) dated 5th June, 2015