KEY MANAGERIAL PERSONNEL Under Companies Bill, 2009 The new Companies Bill, 2009 has introduced various new concepts, one of which being key managerial personnel (KMP). Under the existing Companies Act, 1956 the concepts of managerial personnel and officer in default have been mentioned which are applicable to such personnel who are in-charge of operations of the Company and such personnel are held responsible for any defaults committed during the administration of business. The new concept of KMP is an enlarged version of managerial personnel and the definition of officer in default has been amended under the Companies Bill to include the said KMP. In this article, we shall discuss the relevant provisions under the Bill with respect to KMP. 1. KEY MANAGERIAL PERSONNEL 1.1 Key Managerial Personnel (KMP) defined under Section 2(zza) of Companies Bill, means and includes; (i) the Managing Director, the Chief Executive Officer (CEO) or the Manager and where there is no Managing Director or Manager, a whole-time director or directors; (ii) the Company Secretary (CS); and (iii) the Chief Financial Officer (CFO); Thus, the definition of KMP includes the CEO, CFO and CS which are not included under the existing concept of managerial personnel. 1.2 Requirement under the Bill to appoint KMP [Clause 178] Every company belonging to such class or description of companies as may be prescribed by the Central Government is required to have a whole - time key managerial personnel. 1.3 Appointment of KMP [Clause 178] 1.3.1 Every KMP should be appointed by passing a Board resolution. 1.3.2 The terms and conditions including the remuneration should be mentioned in the Board resolution for such appointment.
1.3.3 Whole-time key managerial personnel shall not hold office in more than one company at the same time. But a KMP can be appointed as a director of any Company with the permission of the Company where he is a KMP. 1.3.4 Any vacancy in the office of KMP shall be filled up by the Board of Directors at their meeting held within a period of six months from the date of such vacancy. 1.4 Disqualifications of KMP [Clause 174(4)] No Company shall appoint or continue the employment of any person as its key managerial personnel who 1.4.1 is below the age of twenty-one years or has attained the age of seventy years. A person who has attained the age of seventy years may be appointed by passing a special resolution; 1.4.2 is an undischarged insolvent or has at any time been adjudged an insolvent; 1.4.3 has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or 1.4.4 has at any time been convicted by a court of an offence involving moral turpitude. 1.5 Role/ Responsibilities of KMP 1.5.1 The definition of Officer in Default includes KMP. [Clause 2(zzi)] 1.5.2 A KMP can to sign a document or proceeding, requiring authentication by a company, or contracts made by or on behalf of a company if he is so authorized by the Board in this behalf. [Clause 20] 1.5.3 The Annual Return of the Company shall include; (a) Particulars of KMP along with the changes during the last financial year (b) Remuneration of KMP [Clause 82] 1.5.4 Every KMP has to make disclosure with regard to the transactions with the Company. [Clause 167(2)] 1.5.5 A person cannot be appointed as an auditor of the Company whose relative is in the employment of the company as a KMP. [Clause 124(3)(f)] 1.5.6 A person cannot be appointed as an Independent Director if he holds or has held position of a KMP in any of the three financial years immediately proceeding the financial year in which he is proposed to be appointed. [Clause 132(5)] 1.5.7 Every Company shall maintain a Register of KMP and their shareholdings. [Clause 151(1)] 1.5.8 In case of appointment or change, a return containing particulars of KMP is to be filed with the ROC within 30 days. [Clause 151(2)] 1.5.9 KMP shall have a right to attend the meetings of the Audit Committee when it considers the auditor s report but shall not have the right to vote. [Clause 158(8)] 1.5.10 The Remuneration Committee shall decide remuneration payable to the KMP. [Clause 158(11)]
1.5.11 A KMP of a Company is prohibited from forward dealings in securities of the Company. [Clause 172] 1.5.12 KMP is prohibited from insider trading of the securities. [Clause 173] 1.5.13. KMP can attend creditors meeting if so directed by the interim administrator. [Clause 232(3)] 1.6 Remuneration of KMP 1.6.1 The Board resolution appointing a KMP shall contain the remuneration of the KMP. [Clause 178(2)] 1.6.2 The Remuneration Committee shall determine the Company s policies relating to the remuneration and other perquisites of the key managerial personnel. [Clause 158(11)] 1.7 Liabilities of KMP The liabilities of KMP are as follows:- PARTICULARS PENALTY/ PUNISHMENT SR. NO. 1. Non-dislosure or insufficient disclosure of interest in the notice [Clause 91(5)] 2. Non-filing of financial statement with the registrar Fine which may extend to fifty thousand rupees or five times the amount of benefit accruing, whichever is more. one lakh rupees but which may extend to five lakh. 3. Contravention of provisions relating to financial statement 4. Forward dealings in securities [Clause 172(2) & (3) Imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh. 1. Imprisonment for a term which may extend to two years or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh. [Clause 172(2)] 2. Without prejudice to any punishment which may be imposed under Section 172(2), be liable to surrender the same to the company and the company shall not register the securities so acquired in his name in the register, and if they are in dematerialised form, it shall inform the depository not to record such acquisition.
5. Insider Trading [Clause 173(2) 6. Contravention of provisions relating to appointment of a KMP [Clause 178(5)] Imprisonment for a term which may extend to five years or with fine which shall not be less than five lakh rupees but which may extend to one crore. A company shall be liable to a penalty of one lakh rupees and every director and KMP who is in default shall be liable to a penalty of twenty-five thousand rupees, for each such default. Thus, it can be seen that various new provisions have been included under the Companies Bill in order to ensure that the personnel holding key positions in an organization do not misuse their positions and act in the best possible interest of the Company. The relevant provisions regarding different personnel included under Key Managerial Personnel is discussed in the following paragraphs. 2. MANAGING DIRECTOR, CEO, MANAGER 2.1 Managing Director has been defined under Clause 2(zzd) of the Bill to include a director who, by virtue of the articles of a Company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with the management of the whole, or substantially the whole, of the affairs of the company; 2.2 Chief Executive Officer has been defined under Clause 2(r) of the Bill to mean an officer of a company, who has been designated as such by it; 2.3 Manager has been defined under Clause 2(zzc) of the Bill to mean an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not; 2.4 Appointment of managing director, whole-time director or manager [Clause 174] 2.4.1 The appointment of managing director, whole-time director or manager shall be made at a Board meeting with the consent of all the Directors present at that meeting.
2.4.2 Such an appointment shall be subject to approval by a special resolution at the next general meeting of the company. 2.4.3 Such an appointment shall be for a term not exceeding five years at a time. No reappointment shall be made earlier than one year before the expiry of his term. 2.4.4 A Company cannot appoint any firm, body corporate or other association as its manager. 2.5 Remuneration & Role of managing director, whole-time director or manager 2.5.1 A managing or whole-time director or a manager of a company may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company, computed in the manner prescribed, or partly by monthly payment and partly by the percentage of net profits. [Clause 175(1)] 2.5.2 The Managing Director or the Chief Executive Officer is required to sign the financial statements of the Company. [Clause 120(1)] 2.6 Role/ Responsibilities of Managing Director, Whole-time director or manager 2.6.1 The financial statements, including consolidated financial statements, if any, and the Report of the Board of Directors addressed to the shareholders of the Company are required to be signed by at least 2 directors, one of whom should be a managing director, if any. 2.6.2 The Managing Director or whole time director in charge of finance shall be responsible for keeping of books of accounts, preparing the financial statements of the Company and filing of the same with the Registrar of Companies in the manner prescribed under Clause 116, 117 and 118 of the Companies Bill respectively. 3. CHIEF FINANCIAL OFFICER 3.1 Chief Financial Officer (CFO) is defined under Clause 2(s) of the Bill to mean a person appointed as the Chief Financial Officer of the Company. 3.2 Role/ Responsibilities of CFO 3.2.1 The Chief Financial Officer shall be responsible for keeping of books of accounts, preparing the financial statements of the Company and filing of the same with the Registrar of Companies in the manner prescribed under Clause 116, 117 and 118 of the Companies Bill respectively. 4. COMPANY SECRETARY 4.1 Company Secretary or Secretary is defined under Clause 2(x) of the Bill as a Company Secretary as defined under the Company Secretaries Act, 1980 and
who is appointed by a company to perform the functions of a Company Secretary under this Act. 4.2 Role/ Responsibilities of Company Secretary 4.2.1 The Annual Return of the Company prepared under Clause 82 of the Companies Bill is to be signed by the Company Secretary. 4.2.2 Unlike the requirement under Companies Act, 1956, the financial statements of the Company need not be signed by the Company Secretary for the purpose of authentication of the same. As per the revised definition of Officer in default mentioned under the Companies Bill, all KMP are included under the definition of Officer in default. The relevant provisions of Officer in default can be discussed as follows:- 5. OFFICER IN DEFAULT 5.1 Officer in Default is defined under Clause 2(zzi) of the Companies Bill as an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means all or any of the following officers of a company, namely: (i) whole-time director or directors; (ii) other key managerial personnel; (iii) where there is no key managerial personnel such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; (iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default; (v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act other than a person who gives advice to the Board in a professional capacity; (vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance; (vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, bankers, registrars and merchant bankers to the issue or transfer;
5.2 The liabilities of an Officer in Default are as follows: SR. PARTICULARS NO. 1. Contravention of provisions relating to commencement of business [Clause 10(2)] 2. Contravention of provisions relating to registered office [Clause 11(6)] 3. Contravention of direction relating to rectification of name of the company [Clause 15(3)] 4. Allotment of Securities of the company [Clause 34(6)] 5. Contravention of provisions relating to securities to be dealt with in Stock Exchanges [Clause 34(5)] 6. Contravention of provisions relating to issue of shares at a discount [Clause 47(3)] 7. Non-compliance of the order of the Tribunal relating to rectification of register of members [Clause 53(3)] 8. Non-compliance of provisions relating to register of members [Clause 78(6)] 9. Non-filing of return under Clause 79(4) [Clause 79(5) PENALTY/ PUNISHMENT Fine which may extend to one thousand rupees for every day during which the default continues Penalty of one thousand rupees for every day during which the default continues but not exceeding one lakh rupees Fine which shall not be less than five thousand rupees but which may extend to one lakh rupees A penalty, for each default, of one thousand rupees for every day during which default continues but not exceeding one lakh rupees Imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh one lakh rupees but which may extend to five lakh Imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh Penalty of five thousand rupees, for each such default Fine which shall not be less than five hundred rupees but which may extend to one thousand rupees for every day during which the default continues 10. Contravention of provisions relating tocirculation of members resolution [Clause A penalty of twenty-five thousand rupees
100 (5)] 11. Failure to file resolutions and Agreements [Clause 106(2)] 12. Non-compliance of provisions relating to financial statements, etc. [Clause 120(7)] 13. Contravention of provisions of Sections 123 to 129 [Clause 130(1)] 14. Contravention of provisions relating to cost audit [Clause 131(8)(b)] 15. Contravention of provisions relating to political contribution [Clause 161(4)] 16. Contravention of provisions relating to investment of the companies [Clause 165(4)] 17. Failure to inform the Registrar about the contracts entered between OPC and its sole member [Clause 171 (4)] 18. Non-compliance of the directions issued by the Registrar in respect of inspection [Clause 180(4)] one lakh rupees but which may extend to five lakh Imprisonment for a term which may extend to three years or with fine which shall not be less than ten thousand rupees but which may extend to five lakh Imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh Fine which shall not be less than one lakh rupees but which may extend to five lakh rupees months and with fine which may extend to five times the amount so contributed twenty five thousand rupees but which may extend to one lakh twenty-five thousand rupees but which may extend to one lakh Imprisonment which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh 19. Contravention of the Tribunals order with respect to any removal, transfer or disposal of funds, assets, properties of the company [Clause 191(2)] Imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh 20. Contravention of provisions
relating to restrictions imposed by the Tribunal on issue or transfer of securities [Clause 192(2) 21. Contravention of provisions relating to Chapter XX (Companies incorporated outside India) [Clause 192(2) 22. Failure to comply with an order made under Section 366(1) / (3), or knowingly furnish any information or statistics which is incorrect or incomplete in any material respect [Clause 366(4)] 23. Repeated Default [Clause 410] 24. Failure to pay the deposit or any interest thereon and it is proved that the deposits had been accepted with intent to defraud the depositors [Clause 68] 25. Failure to pay penalty within 90 days [Clause 413(8)(ii)] twenty-five thousand rupees but which may extend to five lakh twenty-five thousand rupees but which may extend to one lakh months or with fine which may extend to twentyfive thousand Imprisonment as provided, but in case of defaults for which fine is provided either along with or exclusive of imprisonment, with fine which shall be twice the amount of fine for such default Every officer who was responsible for acceptance of deposits shall be personally responsible, without any limitation of liability for all losses or damages incurred by the depositors. Imprisonment which may extend to six months or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both From the above discussion, it is evident that the new Companies Bill seeks to ensure proper allocation of responsibilities amongst the relevant Departmental Heads and also to fix liability in case of any defaults/ non-compliances committed in the course of business administration. Thus, under the new regime of Companies Bill, 2009 all the Key Managerial Personnel are expected to be highly diligent while performing their responsibilities and strive to avoid any kind of default on the part of the Company. ********************