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Understanding managerial personnel & key managerial personnel

Amitav Ganguly 
on 13 November 2015

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UNDERSTANDING MANAGERIAL PERSONNEL & KEY MANAGERIAL PERSONNEL
UNDER COMPANIES ACT 2013
MEANING OF MANAGERIAL PERSONNEL/PERSON

The term “managerial personnel or managerial person” used interchangeably in the law, has not been defined per se in the Companies Act 2013 but there is reference to this expression, inter alia, in Schedule V in terms of sections 196 and 197 {Chapter XIII} of the Companies Act 2013 {new Act} which covers the following:-

1. Managing Director, {MD} or Chief Executive Officer, {CEO}
2. Whole time Director, {WTD}, and
3. Manager. {MA}

It is apparent that “managerial personnel or managerial person” as per the scheme of the company jurisprudence denote the uppermost executive management in the Board of Directors or at that level. They:-

1. are in the whole time employment of the company, and thus are rendering services full time to the company, known as whole time directors, (reference section 2 {94} of the new Act)

2. have been entrusted with the substantial powers of management of the affairs of the company,  known as managing directors including a director occupying that position, by whatever name called (reference section 2 {54} of the new Act); and

3. subject to the superintendence, control and direction of the Board of directors,  have the management of the whole, or substantial the whole, of the affairs of the company, known as managers and includes any director or any other person occupying that position , by whatever name called. (reference section 2{53} of the new Act).

MANAGER

The concept of manager, although existed in the erstwhile Companies Act 1956 and retained in the new Act seems to have moved into impracticality.  In the present corporate scenario, it is not very clear as to what extent this position has any real meaning in the management structure. Normally a manager in this scenario is not understood as defined in the Act i.e. a person who has management of the whole, or substantial the whole, of the affairs of the company. That designation could be at the most denoting a departmental head. Of course there will be some exceptions, nevertheless the position of manager in the new Act could be, at the best, said to be at the wisdom of the lawmakers.  

MANAGERIAL PERSONNEL/PERSON & KEY MANAGERIAL PERSONNEL

These terms are related to each other. One has to, however, make a distinction between the expressions “managerial personnel or managerial person” {MP} and “key managerial personnel” {KMP}. Significantly KMP has been defined for the first time in the new Act under section 2 {51} and appears in many sections. KMP covers not only the aforesaid three MP i.e., MD/CEO, WTD & MA but also additional personnel i.e. company secretary {CS}, chief financial officer {CFO} and such other officer as may be prescribed.     

The significance of the category of MP at the highest executive management of a company is that their appointments,    remunerations including limits, duties, disclosures, etc., are regulated in terms of sections, 149, 152, 164, 165, 166, 170,  184, 196, 197, 198, 203, and other applicable provisions of the new Act, and, their exits as well as other related matters relating to vacation of office, resignation, removal, disclosures, etc are regulated under sections 167, 168, 169, 170, 203 and others, as applicable. 

But in the case of those additional personnel who are also falling under the category of KMP, that is to say, the company secretary, the chief financial officer as well as and such other officer as may be prescribed, their appointments and remuneration are regulated u/s 203 and other applicable sections of the new Act, however, there is no limit imposed on their remuneration. Though, the disclosures of their appointment or change as well as shareholdings, remain the same as MP for compliance u/s 170 of the new Act. Additionally, functions of CS are governed by section 205.

Overall it would seem that category of MP consisting of MD/CEO, WTD & MA are more strictly regulated vis- a- vis category of additional personnel of CS, CFO & prescribed officer, although both categories are within the ambit of KMP. 

THOSE NOT INCLUDED

It may be stated here that directors who are non- executive covering those who may or may not be independent, do not fall under the category of MP and KMP since such directors’ participations in the affairs of the company are essentially through board process only. They have no executive powers for day to day functioning. The term “non-executive director” although not specifically defined, however, has been stipulated in Section 149 {12} of the new Act as “a non-executive director not being promoter or key managerial personnel”.   The term “independent director” has been defined in section 2 {47} of the new Act to mean an independent director referred to in section 149 of that Act. The provisions inter alia lay down that an independent director means a director other than a managing director or a whole-time director or a nominee director. These directors are, thus, commonly known as ordinary directors or part time directors not be or understood as a managerial personnel/ person and not included in KMP.

CONCLUSION

The provisions in the new Companies Act 2013, in this respect, are clear although somewhat cumbersome.  One should appreciate that in actual practice in the day to day functioning of a company, the top management functionary is usually Managing Director or CEO who is supported by his/her team which may consist of whole time director/s, CFO and CS- all constituting KMP. Other senior employees may also be part of the team. Only during the board meetings, held at various times during the year, that non executive directors including Independent Directors come into the process of management. The levels of hierarchies, duties and responsibilities of such KMP have resulted in many regulatory provisions to maintain highest standards of corporate governance.

AMITAV GANGULY 


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