Key Managerial Personnel: Section 203 Explained

Key managerial personnel under section 203 of the Companies Act, 2013 are the whole-time officers a prescribed class of company must appoint, and section 2(51) is the definition that decides who is inside the term. The pair matters to an outside reader for one reason: KMP is the category that Indian disclosure rules key on, from the annual return's particulars to insider-trading designations.

What does key managerial personnel under section 203 require a company to have?

Key managerial personnel under section 203(1) is an appointment obligation, not just a label. Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel:

1. managing director, or Chief Executive Officer or manager and in their absence a whole-time director;
2. company secretary; and
3. Chief Financial Officer.

Read the first limb carefully. The whole-time director is a fallback for the absence of a managing director, Chief Executive Officer or manager, not a fourth mandatory office alongside them.

The section itself fixes no size threshold. Which companies are caught is left entirely to the class prescribed by the rules made under the section, so the obligation for any particular company is a rules question rather than a statutory one.

The chairperson and managing director separation

The first proviso to section 203(1) bars one individual from being appointed or reappointed as the chairperson of the company, in pursuance of its articles, as well as the managing director or Chief Executive Officer at the same time, after the commencement of the Act, unless:

• (a) the articles of such a company provide otherwise; or
• (b) the company does not carry multiple businesses.

The second proviso then carves out a further category: nothing in the first proviso applies to such class of companies engaged in multiple businesses which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.

How a KMP is appointed, and where else they may serve

Section 203(2) requires every whole-time KMP to be appointed by means of a resolution of the Board containing the terms and conditions of the appointment, including the remuneration. The terms are not left to an office order.

Section 203(3) is the exclusivity rule. A whole-time KMP shall not hold office in more than one company except in its subsidiary company at the same time. Three provisos qualify it:

• A KMP is not disentitled from being a director of any company with the permission of the Board.
• A KMP holding office in more than one company at the commencement of the Act had six months from that commencement to choose one company to continue in.
• A company may appoint or employ a person as its managing director if he is the managing director or manager of one, and not more than one, other company, and the appointment is made or approved by a resolution passed at a Board meeting with the consent of all the directors present, of which meeting and of the resolution specific notice was given to all the directors then in India.

The penalty, and the amendment that reshaped it

Section 203(5) is the sanction, and it was substituted in its present form by the Companies (Amendment) Act, 2019 (Act 22 of 2019), section 30, with effect from 2 November 2018:

What the section 2(51) definition changed in 2018

The definition itself was edited by the Companies (Amendment) Act, 2017 (Act 1 of 2018), section 2, with effect from 9 February 2018. Two footnoted changes matter. The word "and" after the Chief Financial Officer limb was omitted, and sub-clause (v) was substituted, giving the current two-part tail: an officer not more than one level below the directors in whole-time employment designated as KMP by the Board, and such other officer as may be prescribed.

The effect is that the category is partly self-declared. A company's own Board decides which senior officers below board level are KMP, which is why the same title can be KMP at one company and not at another.

Where KMP shows up in Indian disclosure

The term does a lot of work outside Chapter XIII.

• What is in the annual return, section 92 reports promoters, directors and key managerial personnel along with changes since the previous financial year, and their remuneration.
• What is insider trading disclosure covers the trades designated persons and their immediate relatives have to report.
• What is a structured digital database covers the record a company keeps of who was given unpublished price sensitive information.
• What is UPSI covers the information that designation is built to control.

Key managerial personnel is a legal category, not a signal about a company. Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.