Section 203 of Companies Act, 2013 – Appointment of key managerial personnel

Section 203. Appointment of Key Managerial Personnel

[Effective from 1st April, 2014]

(1) 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:

Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,—

(a) the articles of such a company provide otherwise; or

(b) the company does not carry multiple businesses:

Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified[1] by the Central Government.

(2) Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.

(3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board:

Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

Provided also that 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 and 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 and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

(4) If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

(4A) The provisions of sub-sections (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a wholetime director of the Government Company.[2]

                                                                                 EXEMPTION

The above mentioned exception shall be applicable to a government company which has not committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the Registrar, vide amendment notification no. G.S.R. 582 (E) dated 13th June 2017.

[4] [(5) If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees]

Applicable Rules

Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

[Effective from 1st April, 2014]

Rule 8. Appointment of Key Managerial Personnel.—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.

[8A. Appointment of Company Secretaries in companies not covered under rule 8. – [5] [Every private company which has a paid up share capital of ten crore rupees or more shall have a whole -time company secretary.]][3]

Applicable Notifications
Second Proviso to Sub- Section(1)
of Section 203 of Companies Act 2013
Notification No. S.O. 1913(E) dated 25th July 2014

In exercise of the powers conferred by the second proviso to sub-section (1) of Section 203 of the Companies Act, 2013 (18 of 2013), the Central Government hereby notifies that public companies having paid-up share capital of rupees one hundred crore or more and annual turnover of rupees one thousand crore or more which are engaged in multiple businesses and have appointed Chief Executive Officer for each such business shall be the class of companies for the purposes of the second proviso to sub-section (1) of Section 203 of the said Act.

Explanation.—For the purposes of this notification, the paid-up share capital and the annual turnover shall be decided on the basis of the latest audited balance sheet.

[1] Notified vide S.O. 1913(E) dated 25th July, 2014 for detail see, at the end of the section in “Applicable Notification”.

[2] Inserted with respect to a Government Company, vide Notification No. GSR 463(E) dated 5th June, 2015

[3] Inserted by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014 vide Notification No. G.S.R. 390(E) dated 9th June, 2014.

[4] Substituted by The Companies (Amendment) Ordinance, 2019 dated 12th January, 2019 effective from 2nd November, 2018.Prior to substitution it read as under:-

“(5) If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and key managerial personnel of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.”

[5] Substituted by the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020 vide Notification No. F. No. 01/05/2013-CL-V-Pt-I dated 3rd January, 2020.Prior to substitution it read as under:

“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”