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Key Managerial Personnel (KMP) under Companies Act 2013

Key managerial personnel are the employees of a company who hold key top positions in the company and greater responsibility of overall functioning of the company including the duty to protect the interest of all stakeholders and are responsible to ensure that the company is in compliance with various laws.

KMP Full Form: Key managerial personnel are referred to as "KMP" in short.

Relevant Provisions

• Section 2(51) of the Companies Act, 2013;
• Section 203 of the Companies Act, 2013;
• Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

KMP Definition

The definition of key managerial personnel is given under sub-section (51) of section 2 of the Companies Act, 2013.

Who are Key Managerial Personnel in a company?

• the Chief Executive Officer (CEO);
• the Managing Director (MD);
• the Manager;
• the Whole-time Director (WTD);
• the Company Secretary (CS);
• the Chief Financial Officer (CFO);
• such other officer, not more than one level below the directors, who is in whole-time employment, and designated as key managerial personnel by the Board of Directors; and
• such other officer as may be prescribed.

Definitions under the Companies Act, 2013 of:
• the 'Chief Executive Officer' under Section 2(18);
• the 'Chief Financial Officer'  under Section 2(19);
• the 'Company Secretary' under Section 2(24);
• the 'Manager' under Section 2(53);
• the 'Managing Director' under Section 2(54);
• the 'Whole-time Director' under Section 2(94).

KMP as an Officer & Officer in Default

In accordance with section 2(59) of the Companies Act, a key managerial personnel is considered as an "officer"  in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act.

In accordance with section 2(60) of the Companies Act, a key managerial personnel is considered as an "officer who is in default" for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise.

Class of companies required to appoint KMP

According to Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following class of companies are required to appoint whole-time key managerial personnel:

• Every listed company and
• every other public company having a paid-up share capital of Rs. 10 crore or more.

Mandatory Appointment

A company, who is falling under the criteria of the above mentioned class of companies, is required to appoint:

1) a Managing Director, or a Chief Executive Officer or a Manager and in their absence, a Whole-time Director;
2) a Company Secretary; and
3) a Chief Financial Officer.

Board Resolution

Passing of a board resolution containing terms and conditions of appointment and remuneration of a whole-time KMP is a mandatory requirement.

Approvals for MD, WTD & Manager

• In accordance with the provisions of section 197 and Schedule V of the Companies Act,
• the terms & conditions of appointment and remuneration payable to
• a managing director, whole-time director or manager
• shall be approved by the Board of Directors at a meeting and
• shall be further approved by a resolution at the next general meeting of the members and
• shall be approved by the Central Government in case such appointment is at variance to the conditions specified in Part I of Schedule V.

KMP not to be appointed in more than 1 company

• A whole-time KMP shall not hold office in more than 1 company except in its subsidiary company at the same time.

• With the permission of the Board of a company, a key managerial personnel can act as a director of any other company.

Appointment of managing director in more than one company

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, by fulfilling the following conditions:
• 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
• specific notice has been given to all the directors then in India, for conducting of the said meeting and for passing of the above resolution to be moved thereat.
• No circular resolution: As the above provisions clearly specify that a resolution has to be passed at a board meeting for such appoint, hence, passing of circular resolution for appointment is not allowed in such cases.

Register of Directors and Key managerial personnel and their shareholding

• In accordance with section 170(1) of the Companies Act, 2013,
• every company is required to maintain a register containing the particulars of its directors and key managerial personnel as per the list given in rule 17 of the Companies (Appointment and Qualification of Directors) Rules, 2014; and
• the register shall be kept at the registered office of the company.

ROC Filing

• In accordance with section 170(2) of the Companies Act read with rule 18 of the Companies (Appointment and Qualification of Directors) Rules, 2014,
• every company is required to file Form DIR-12 with the Registrar of Companies,
• within 30 days from the appointment of every key managerial personnel and within 30 days of any change taking place.

Casual Vacancy

• If the office of any whole-time key managerial personnel is vacated,
• the resulting vacancy shall be filled-up by the Board of Directors at a meeting of the Board
• within 6 months from the date of such vacancy.

(filling of casual vacancy through circular resolution is not allowed)

KMP holding Chairperson position

A person shall not be appointed or reappointed as the chairperson as well as the managing director or Chief Executive Officer of the company at the same time, unless,-

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

Refer MCA Notification S.O. 1913(E) dated 25th July, 2014
Public companies, having paid-up share capital of Rs. 100 crore or more and annual turnover of Rs. 1000 crore or more, which are engaged in multiple businesses, can appoint Chief Executive Officer for each such business.

Penalty for Non-compliance

Contravention of the provisions of section 203, will lead to the following punishable actions:
company punishable with a fine of Rs. 5 lakh; and
• every director and key managerial personnel who is in default is punishable with a fine of Rs. 50,000 and
• where the contravention is a continuing one, with a further fine of Rs. 1000 for each day after the first during which such default continues but not exceeding Rs. 5 lakh.