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Key Managerial Personnel: Playbook

The key managerial personnel (“KMP”) are the executive management of a company. This playbook will discuss the conditions and compliances required by a private company to appoint KMPs as well as the responsibilities of KMPs. In effect, this focuses on Companies Act, 2013. Please note that a decision to list will require deep examination of related laws particularly the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

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Please note that this playbook does not constitute a formal legal advice.

Key terms:

‘KMP’ in relation to a company means [1]: a. chief executive officer [2] (“CEO”) or managing director [3] (“MD”) or manager [4] b. company secretary (“CS”) [5] c. whole time director [6] (“WTD”) d. chief financial officer [7] (“CFO”) e. any officer, not more than one level below the directors who is in whole-time employment and is designated as key managerial personnel by the board (i.e., one can choose to name additional KMPs); and

f. such other officer as may be prescribed; Let’s play: 2. Are all companies required to appoint KMPs? Below mentioned companies are required to appoint KMPs [8]:

2.1. Private companies which have their securities listed (essentially listed private or public debt as equity listing implies that the company has to be a public company) on any recognized stock exchange; and 2.2. Public companies having a paid-up share capital of ten crore rupees or more. 2.3. Further, private companies having a paid-up share capital exceeding ten crore rupees have to appoint a whole-time CS. [9] 3. Appointment of KMP 3.1 Conditions for appointment: 3.1.1. A KMP cannot hold office at the same time in more than one company except in a subsidiary company. However, if the board permits, he or she can become a director in any other company. [10]

3.1.2. Additionally, there are specific conditions which are applicable for appointment of MD, WTD, or manager. These are: a. A company may employ a person as its MD or manager if he/she is MD or manager of one (but not more than one) other company and such appointment is made on approval of the board with consent of all the directors and specific notice has been given of the meeting thereat to all the directors in India of company and a resolution is passed [11].

b. A company cannot appoint or employ an MD and a manager at the same time [12]. c. The term of MD, WTD or manager cannot exceed five years at a time. They can be re-appointed and the period for which they can be re-appointed cannot exceed five years at a time. Further, they cannot be re-appointed earlier than one year before expiry of their term. [13] d. A company cannot appoint a person as MD, manager or WTD who [14]:

(i) Is a person below 21 years or above 70 years of age. However, if a special resolution is passed approving appointment of person above 70 years of age, then he or she can be appointed. (ii) Is an undischarged insolvent or has any time been adjudged as an insolvent; (iii) Is a person who has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or (iv) has at any time been convicted by a court of an offence and sentenced for a period of more than six months. 3.2 Compliances for appointment of KMP: a. Assess if you are required to appoint KMPs or not (please see clause 2 of this playbook). b. After that, pass a board resolution which should contain the terms and conditions of appointment as well as the remuneration of the KMP [15];

c. Within thirty days of passing the resolution, file returns with registrar of companies (“RoC”) in Form MGT-14 [16] and DIR-12 [17]. d. In case of appointment of an MD, WTD or manager, you should file return in Form MR.1 with RoC within sixty days of appointment.[18]

e. If the office of KMP is vacated, it must be filled within six months from date of vacancy. [19] 4. Continuing compliances for company in relation to KMP 4.1 Register of directors and KMPs: Every company needs to keep at its registered office a register with details of directors and KMPs as mentioned in Annexure I. [20]

4.2 Annual return: A company has to file annual return in Form MGT-7 which should contain information about the present KMP, their remuneration and the changes therein since close of the previous financial year [21].

4.3 Disclosure of interest: 4.3.1. If a KMP has a concern or interest – financial or otherwise – in respect to any item of special business to be transacted at a general meeting, then such concern or interest for each item has to be disclosed in the statement which is annexed to notice for general meeting. [22]

4.3.2. If the disclosure is not made or not made sufficiently and due to this, if some benefit is accrued to the KMP, the KMP has to hold that benefit in trust for the company. Further, he/she will be liable to compensate the company to the extent of benefit received by him/her. [23]

4.3.3. If this not followed, the KMP who is in default can be fined ₹50,000 (Indian Rupees Fifty Thousand) or five times the amount of benefit accruing to the KMP or his/her relatives whichever is higher. 4.3.4. However, a private company can reduce the rigor of this requirement by modifying the provisions related to statement to be annexed to notice under its articles of association i.e., by modification of its articles of association. [24] 4.4. Sitting fee: It is optional for a company to pay sitting fee to the directors, which include MD and WTD, for attending meetings of the board. The amount of fee has to be decided by the board and it should not exceed one lakh rupees per meeting of the board. [25] Further, the sitting fee for independent directors and women directors cannot be lesser than that payable to other directors. [26] 5. Responsibilities of KMP 5.1. General responsibilities of KMP are: 5.1.1. Disclosure of interest: Within 30 days of appointment or relinquishment of office, KMP should disclose to the company relating to his concern or interest in any company, or companies or body corporate or other association of individuals which shall include [27] - a. his shareholding (unless the shareholding together with any other KMP is less than 2% of the paid-up share capital of the other company); b. contracts or arrangements with a body corporate or firm or other entity in which KMP is directly or indirectly concerned or interested; and c. contracts or arrangements with a related party wherein Section 188 of the Companies Act applies.

5.1.2. Authorization of documents.: A KMP can sign any document or proceeding which requires authorization by the company or any contract which is made on behalf of company. [28]

5.1.3. Not eligible to become independent director: A KMP is not eligible to become an independent director of a company if he or any of his relatives has been a KMP of the company, or its holding, subsidiary or associate company in last three financial years from the financial year in which he is proposed to be appointed. [29]

5.2. In addition to above mentioned responsibilities, a CS has following duties: 5.2.1. to report to the board about compliance with the provisions of the Companies Act, the rules made thereunder and other laws applicable to the company; 5.2.2. to ensure that the company complies with the applicable secretarial standards; 5.2.3. 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; 5.2.4. to facilitate the convening of meetings and attend the board, committee and general meetings and maintain the minutes of these meetings; 5.2.5. to obtain approvals from the board, general meeting, the government and such other authorities as required under the provisions of the Companies Act; 5.2.6. to represent before various regulators, and other authorities under the Companies Act in connection with discharge of various duties under the Companies Act; 5.2.7. to assist the board in the conduct of the affairs of the company; 5.2.8. to assist and advise the board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices; and 5.2.9. to discharge such other duties as have been specified under the Companies Act or rules; and 5.2.10. such other duties as may be assigned by the board from time to time. -------------


1 Section 2(51), Companies Act, 2013. 2 Section 2(18) of Companies Act, 2013 states that CEO means “an officer of a company, who has been designated as such by it”. 3 Section 2(54) of Companies Act, 2013 states MD means “a director, who by virtue of the articles of a company or an agreement with the company or resolution passed at general meeting or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.”. 4 Section 2(53) of Companies Act, 2013 states that manager means “an individual who under superintendence, control and direction of Board of Directors has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not”. 5 Section 2(24) of Companies Act, 2013, states that the CS is “a company secretary as defined under clause (c) of sub-section (1) of section 2 of Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under the Act.”. 6 Section 2(94) of Companies Act, 2013 states that a WTDis a “director in the whole-time employment of the company”. 7 Per Section 2(19) of Companies Act, 2013, Chief Financial Officer is “a person appointed as the Chief Financial Officer of a company”.

8 Section 203 of Companies Act read with Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. 9 Section 203 of the Companies Act, 2013 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. 10 Section 203(3) of the Companies Act, 2013 read with first Proviso thereto. 11 Third Proviso to Section 203(3) of the Companies Act, 2013. 12 Section 196(1) of the Companies Act, 2013.

13 Section 196(2) of the Companies Act, 2013 read with Proviso thereto. 14 Section 196(3) of the Companies Act, 2013. 15 Section 203(2) of the Companies Act, 2013. 16 Required under Section 117(1) of the Companies Act, 2013 read with Rule 24 of Companies (Management and Administration) Rules, 2014. 17 Required under Section 170 (2) of the Companies Act, 2013 read with Rule 18 of the Companies (Appointment and Qualification of Directors) Rules, 2014. 18 Section 196 read with Rule 3 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. 19 Section 203(4) of the Companies Act, 2013.

20 Section 170(1) of the Companies Act, 2013 read with Rule 17 of the Companies (Appointment and Qualification of Directors) Rules, 2014. 21 Section 92 of the Companies Act, 2013. 22 Section 102 of the Companies Act, 2013. 23 Section 102(4) of the Companies Act, 2013. 24 Ministry of Corporate Affairs, Notification dated June 5, 2015 available at &type=open

25 Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. 26 Proviso to Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

27 Section 184 read with Section 189 of the Companies Act, 2013 and Rule 9 of the The Companies (Meetings of Board and its Powers) Rules, 2014. 28 Section 21 of the Companies Act, 2013 read with Rule 11 of the Companies (Management and Administration) Rules, 2014. 29 Section 149 of the Companies Act, 2013. -------------------------------------------------------------------------------------------------


Details of directors and KMPs to be recorded in the Register of directors and KMPs

i. Director Identification Number ("DIN") – which is optional for KMP. However, if KMP is not having DIN, company has to record his permanent account number in the register mandatorily.

ii. present name and surname in full or any former name or surname in full;

iii. father’s name, mother’s name and spouse’s name (if married) and surnames in full;

iv. date of birth;

v. residential address (present as well as permanent);

vi. nationality (including the nationality of origin, if different);

vii. occupation;

viii. date of the board resolution in which the appointment was made;

ix. date of appointment and reappointment in the company;

x. date of cessation of office and reasons therefor;

xi. office of director or key managerial personnel held or relinquished in any other body corporate;

xii. membership number of the Institute of Company Secretaries of India in case of Company Secretary, if applicable; and

xiii. details of securities held by them in the company, its holding company, subsidiaries, subsidiaries of the company’s holding company and associate companies. The details will include:

a. the number, description and nominal value of securities;

b. the date of acquisition and the price or other consideration paid;

c. date of disposal and price and other consideration received;

d. cumulative balance and number of securities held after each transaction;

e. mode of acquisition of securities;

f. mode of holding – physical or in dematerialized form; and

g. whether securities have been pledged or any encumbrance has been created on the securities.


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