Appointment of Key Managerial Personnel

In one line

Prescribed companies must appoint, as whole-time key managerial personnel, a managing director or Chief Executive Officer or manager and in their absence a whole-time director, a company secretary and a Chief Financial Officer; each must be appointed by a Board resolution stating the terms, may not hold office in more than one company except a subsidiary, and a vacancy must be filled within six months.

In exam wording: section 2(51) defines key managerial personnel; section 203 governs their appointment.

Why the law has this at all

Until 2013 the Act named a few managerial offices but did not gather them into a class, so an obligation could be imposed on "the managing director" and quietly avoided by a company that had none.

Section 2(51) creates the class, and once the class exists the Act can use it everywhere: for disclosure of interest under section 189(2), for the right to be heard before the Audit Committee under section 177(7), for the definition of a related party under section 2(76)(ii), for the officer in default under section 2(60), and for the narrowed liability of a non-executive director under section 149(12), which expressly excludes a key managerial personnel from its protection.

Section 203 then does three things. It says which companies must actually have these officers, so that the class is not empty where it matters. It requires the appointment to be by a Board resolution stating the terms, so nobody is a key managerial personnel by accident. And it forbids holding office in more than one company, because an office that is by definition whole-time cannot be held twice over.

Some words this chapter uses

Whole-time, in "whole-time key managerial personnel", means the office is a full-time occupation. A manager is defined in section 2(53), a managing director in section 2(54), a whole-time director in section 2(94), a Chief Executive Officer in section 2(18), a Chief Financial Officer in section 2(19) and a company secretary in section 2(24). An officer in default is defined in section 2(60).

Who is a key managerial personnel: section 2(51)

"Key managerial personnel", in relation to a company, means:

• (i) the Chief Executive Officer or the managing director or the manager;
• (ii) the company secretary;
• (iii) the whole-time director;
• (iv) the Chief Financial Officer;
• (v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
• (vi) such other officer as may be prescribed.

Clauses (v) and (vi) were added by the Companies (Amendment) Act, 2017, and clause (v) is the interesting one: the Board may designate a whole-time officer not more than one level below the directors as key managerial personnel. So the class is partly closed by the Act and partly open to the Board.