Group of personnel who are responsible for managing and controlling the affairs of the company are generally considered as Key Management Personnel (KMP).
In India before enactment and notification of Section 203 of new Companies Act, 2013 in April 2014, under Companies Act, 1956; the responsibility of managing operations of the company was recognised for Managing Director, Whole Time Director and Manager only, but Section 203 of revised statuette has introduced term of KMP, which not only covers above stated positions as person responsible for managing company operations but also includes key functional people like Chief Executive Officer, Chief Financial Officer, Company Secretary, and other Key operation heads. The new act also introduced collective responsibility of KMPs rather than individual roles & responsibilities.
As per Section 2(51) of the Companies Act, 2013, the definition of term KMP is:
“Major managerial employees, with respect to a company, implies:
The definition given in statute is comprehensive but point number (v) gives freehand to the competent authority or government official to consider any other office of the company as part of Key Managerial Personnel as may be considered appropriate at the time of assessment.
Section 203 of the Companies Act, 2013, to be scrutinized with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following categories of Companies shall have whole-time key managerial personnel:
A company shall file a return of appointment of following positions within sixty (60) days of the appointment, with the Registrar in Form Number MR.1 together with such fee as may be particular for this reason:
Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, also mandates, a company having paid up share funds of Rs. 5 Crores or more will have an entire moment Company Secretary, also type of firms discussed above.
On a perusal of the various provisions of the Act, it can be seen that onerous responsibilities, obligations, and liabilities have been cast on KMP and that they are also included in the definition of ‘officers in default’ and ‘related party’ under the Act. Under Companies Act, 2013 some of the key provisions related to KMP are outlined below:
Keeping these requirements in mind, the law cannot be read to permit the exclusion of certain KMPs from their prescribed obligations and liabilities by designating only one person as KMP. Thus, where a company has appointed both a CEO and an MD and the company is given the option to name one of them to be KMP, it would amount to excluding the other from the ambit of officer in default or related party, which cannot be the intention of law and although the word used under section 2(51) (i) and section 203(1) (a) of the Act, is ‘or’ yet it must be read as ‘and’ so as to carry out the intention of the legislature.
Thus, in case a company has appointed MD and CEO or CEO and manager, both will be treated as KMP with no regard to the question because whether such company is mandatorily required to appoint KMP in terms of section 203 of the Act or not and whether the appointment of MD and CEO or CEO and manager, is made on whole time or part-time basis.
KMPs are also identified as ‘officers’ of the company, by virtue of which, KMPs may be made liable for contraventions by a company depending on the facts of each case.