Companies Act Section 203 — Appointment of key managerial personnel
CHAPTER XIII APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
Commercial / Corporate
Summary
Sub-section (1) requires every company that falls within a prescribed class to have certain whole-time key managerial personnel. These are: a managing director, or Chief Executive Officer or manager, and if none of these are present, a whole-time director; a company secretary; and a Chief Financial Officer.
Under the first proviso to sub-section (1), a person cannot be appointed or reappointed as both the chairperson of the company and the managing director or Chief Executive Officer at the same time, after the date this Act comes into force. This restriction applies unless the company's articles of association allow for such a dual role, or the company does not operate multiple businesses.
Under the second proviso to sub-section (1), the restriction in the first proviso does not apply to companies that are engaged in multiple businesses and have appointed one or more Chief Executive Officers for each such business, as may be notified by the Central Government.
Sub-section (2) states that every whole-time key managerial personnel must be appointed through a resolution of the Board. This resolution must contain the terms and conditions of the appointment, including the remuneration.
Sub-section (3) states that a whole-time key managerial personnel cannot hold office in more than one company at the same time, except in a subsidiary company of the company where they already hold office.
Under the first proviso to sub-section (3), this restriction does not prevent a key managerial personnel from being a director of any other company, provided the Board gives permission for this.
Under the second proviso to sub-section (3), if a whole-time key managerial personnel already holds office in more than one company on the date this Act comes into force, they must choose one company to continue in within six months from that date.
Under the third proviso to sub-section (3), a company may appoint or employ a person as its managing director if that person is already the managing director or manager of one other company, and not more than one other company. This appointment must be made or approved by a resolution passed at a Board meeting, with the consent of all directors present, and specific notice of the meeting and the resolution must have been given to all directors then in India.
Sub-section (4) states that if the office of any whole-time key managerial personnel becomes vacant, the Board must fill the vacancy at a Board meeting within six months from the date the vacancy occurred.
Sub-section (5) states that if a company fails to comply with this section, the company is liable to a penalty of five lakh rupees. Every director and key managerial personnel who is in default is liable to a penalty of fifty thousand rupees. If the default continues, there is an additional penalty of one thousand rupees for each day after the first day the default continues, but this additional penalty cannot exceed five lakh rupees.
Official Text
(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. 1[
(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.]