Pursuant to the provisions of Section 203 of the Companies Act, 2013 (Act) every class of companies as prescribed shall be mandatorily required to have Key Managerial personnel. The relevant extract of the Section is reproduced hereinbelow:
203. (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
The term Chief Financial Officer is defined under Section 2(19) of the Act which states that “Chief Financial Officer” means a person appointed as the Chief Financial Officer of a company. No qualification of a CFO is thus prescribed.
Let us first go through the restrictions regarding appointment of Key Managerial Personnel:
Same person not to act as Chairman and MD/CEO
It has been provided under the Act that the role or designation of Chairman and Managing Director or Chairman and Chief Executive Officer should not be assigned to the same person. In other words, the same person should not act as both Chairman and Managing Director or Chief Executive Officer of the Company.
However, in the following circumstances, the above restriction will not apply:
(a) the articles of the company contain provision for appointment of same person, or
(b) the company carries only a single business, or
(c) the company is engaged in multiple businesses and has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government
Whole time KMP not to hold office in more than one company
It has been provided under the Act that whole-time key managerial personnel shall not hold office in more than one company at the same time, except:
z. In the company’s subsidiary company,
b. As a director in any other company with the permission of the Board
c. As a MD, 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.
Further, it has also been provided that a 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 6 months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel.
There is however no restriction under the CA 2013 or Rules thereunder whereby a single person is debarred from holding dual post. Sub-Section (3) under Section 203 provides that a whole-time key Managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time.
When the Act itself contemplates that a whole time KMP can be associated as a KMP in another subsidiary or as a Managing director or Manager of another company, albeit, after compliance with the required procedure, we do not see why the same person cannot double up as the CS/Manager or as CS/CFO or even as MD/WTD and CFO in the same company. The moot point is that it should be ensured that he is associated with the Company in a full time capacity.
Inference may however be drawn from Article 78 of the Table F of the Companies Act, 2013 ( corresponding to Article 83 of Table A of the erstwhile Companies Act, 1956). The relevant Articles of the model Articles of Association are reproduced hereinbelow:
“Table A of the Companies Act, 1956
83. A provision of the Act or these regulations requiring or authorizing a thing to be done by or to a director and the manager or secretary shall not be satisfied by its being done by or to the same person acting both as director and as, or in place of, the manager or secretary.”
“Table F of Companies Act, 2013
78. A provision of the Act or these regulations requiring or authorizing a thing to be done by or to a director and chief executive officer, manager, company secretary or chief financial officer shall not be satisfied by its being done by or to the same person acting both as director and as, or in place of, chief executive officer, manager, company secretary or chief financial officer.”
The restriction is clear in the model articles. The restriction is imposed on appointment of a single person for dual posts as mandated under the Act. It clarifies the fact that if under the Act, a thing is required to be done specifically by director and chief executive officer, manager, company secretary or chief financial officer, then it shall not be satisfied by its being done by the same person acting both as Director and CFO or CS.
Emerging out of the reading of the above provision in the Articles one needs to ensure as under:
1.With such a prohibitory clause in its Articles a Company cannot appoint a single person for holding a dual post of CFO and Company Secretary. Hence while drafting the Articles care should be taken to exclude clause 78 of Table F of CA 2013
2.While amending the Articles to bring it in line with CA 2013 the Companies are advised to include a clause enabling a single person to hold dual post as KMP
Conclusion: If the company finds a person of competence to don the mantle of both a Company Secretary and say CFO or CFO and Whole-rime Director or Manager the Company could not be held guilty of violating the spirit of Section 203.
Our submission on the above stands fortified by the following views expressed in page no. 3990 in A. Ramaiya’s 17th Edition:s
“There is no bar under section 383 A to appoint a qualified company secretary as Financial controller –cum-company secretary. The same person can discharge both the functions.
Point of debate can be diluted as the answer lies hidden in the section itself.
CS Suhita Mukhopadhyay
Tags :Corporate Law