APPOINTMENT OF MANAGERIAL PERSONNEL


Section 196 of the companies Act 2013 deals with appointment of certain managerial personnel namely; Managing Director, Whole time Director and Manager. Remuneration of these managerial personnel is discussed in Section 197 read with Schedule V of the Companies Act 2013. Section 203 of this Act further deals with appointment of certain other managerial personnel along with managerial personnel already discussed in Section 197.

According to Rule 3 of the Companies (appointment and Remuneration of Managerial Personnel) Rule, 2014, A company shall file a return of appointment of a Managing Director, Whole Time Director or Manager, Chief Executive Officer (CEO), Company Secretary and Chief Financial Officer (CFO) within sixty days of the appointment, with the Registrar in Form MR – 1 along with such fee as may be specified for this purpose. We have earlier discussed Form MR – 1 in detail here.

Every listed company and every other public company having a paid-up share capital of ten crore rupees or more shall have whole-time key managerial personnel. [Rule 8]

A company other than a company covered under rule 8 which has a paid up share capital of five crore rupees or more shall have a whole-time company secretary. [Rule 8A]

Now, we refer to Section 203(1) of the Companies Act 2013, which read; 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.

Accordingly in companies covered under Rule 8 there shall be three Key Managerial Personnel from one each of these three classes. Unless there is any other specific restriction, a company may have more than one Key managerial personnel from any or all of these three classes. One restriction, which evident from language of this sub – section, is a whole time director may only be appointed in absence of preceding three personnel namely, managing director or chief executive officer or manager. Other Restriction comes from Section 196(1), no company shall appoint or employ at the same time a managing director and a manager. Third Restriction is in definition of Manager under Section 2(53) of the Act, a manager has the management of the whole, or substantially the whole, of the affairs of a company. Accordingly there may only be one manager in a company.

According to Rule 8A of these Rules, in a company which is –

(a)   Not a listed company,

(b)   Not a public company having a paid-up share capital of ten crore rupees or more;

But has a paid up share capital of five crore rupees or more; shall have a whole time company secretary. Rule 8A is applicable to all companies including private companies having paid up share capital of five crore rupees or more.

There are discussions on specific inclusion of words, “whole time” in Rule 8A but no such words in the Section 203(1). These rules are subordinate to Act and interpretation shall be made accordingly. One interpretation may be restriction on assigning any other duty to company secretary except its statutory duties under Section 205 of the Companies Act 2013 and Rule 10 of these Rules.

Under Section 205(1), the functions of the company secretary shall include,—

(a)   to report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company;

(b)   to ensure that the company complies with the applicable secretarial standards;

(c)   to discharge such other duties as may be prescribed.

Rule 10 under authority of Section 205(1)(c) entrust following duties to a Company Secretary:

(1)   to provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities and powers;

(2)   to facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings;

(3)   to obtain approvals from the Board, general meeting, the government and such other authorities as required under the provisions of the Act;

(4)   to represent before various regulators, and other authorities under the Act in connection with discharge of various duties under the Act;

(5)   to assist the Board in the conduct of the affairs of the company;

(6)   to assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices; and

(7)   to discharge such other duties as have been specified under the Act or rules; and

(8)   such other duties as may be assigned by the Board from time to time.

Rule 10(8) used the words “such other duties”. This clause may be interpreted as per ejusdem generis rule of interpretation. Accordingly, a company secretary appointed under Rule 8A may not be an Accounts Manager or Human Resource Manager reporting to someone. However he may entrusted with duties related to Taxation, CSR, or Labour Laws or like with reporting to Board of the company.

Discussion: Who First

Combined Reading of Section 203, Rule 8 and Rule 8A, come to conclusion that company Secretary come to first requirement for appointment as threshold limit for its appointment is lower than threshold for appointment of any other Key Managerial Personnel. Once there is a company secretary in a company, company may appoint any other key managerial personnel. Once, there is a Managing Director or Manager has been appointed, a company secretary may report to them by virtue of their powers as per definitions under Section 2(53) and 2(54). Where there is no Managing Director or Manager, the Company Secretary shall report to the Board as a whole not an individual director. Accordingly, in such cases, duty of company secretary shall not complete unless he report to whole board.

If a company do not appoint a company secretary citing financial difficulties but have a managing director or chief executive officer or manager, these appointments may be questioned before court of law. Because intention of law is clear, appointment of company secretary is foremost requirement.

Please note: This blog post is not a professional advice. I welcome your comments and feedback. Readers may share this post on social media by using buttons given here.

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7 responses to “APPOINTMENT OF MANAGERIAL PERSONNEL

  1. Pingback: Index of Companies Law Posts | AishMGhrana

  2. Pingback: Recent Amendments in Managerial Remuneration Rules | AishMGhrana

  3. A Private Company having appointed CFO – whether he will be termed as CFO for CA 2013? As per definition clause of KMP – CFO is considered as KMP. but as per Section 203[1] Private Co is excluded for mandatory appointent of CFO or other KMP. So my point is if private Company or other excluded category company voluntarily designate any executve as CFO, whether such appointment will require compliance of Section 203 ? whether such appointee will be liable as CFO and oficer in default under CA 2013?

    your views pl

    tushar vora

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  4. Does this mean that a company having a managing director cannot appoint a whole time director at all.

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  5. A public company had re appointed MD & TWO WTD on 9th APRIL 2011 for three years
    (i.e. 9th APRIL 2014). After expiry of such office, company had not reappointed such Managerial Person still date. Now company wants to reappoint these Managerial Person and pay remuneration as per Schedule V by passing Special Resolution. But as per Companies Act 2013, reappointment should be made before expiry of term of office. Now his question is, whether company should reappoint (w.e.f. 10th April 2014) such Managerial Person holding BOD Meeting in September.”

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