KMP – A million dollar question on whether the same is a full time function or that the same is exclusively dedicated full time for company?

Section 203 of Companies Act, 2013 necessitates certain class of companies to appoint Whole Time Key Managerial Personnel's (KMPs). The stated provision is applicable to listed companies and public companies having paid up share capital of Rs. 10 crores or more. Hence, the intent of this provision appears as to ensure that the affairs of these companies are conducted in fair manner i.e. which is beneficial to the interest of all stakeholders.

Section 203 of the Companies Act, 2013 read with Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 states that, every listed company and every other public Company having a paid-up capital of ? 10 Crore or more must have the following whole-time KMPs:

1.??????MD or CEO or Manager if none exists, then WTD;

2.??????Company Secretary; and

3.??????Chief Financial Officer.

Further sub-section (1) of Section 203 states that an individual cannot hold two positions of the Chairman and the Managing Director or Chief Executive officer of the Company at the same point of time unless, -

a)?????The articles of the Company provide otherwise; or

b)????The Company does not carry multiple businesses

But above mentioned restriction does not stand applicable to such public companies / listed companies having

·????????Paid up capital of Rs. 100 crores;

·????????Annual Turnover of Rs. 1000 crore or more;

·????????Engaged in multiple businesses and

·????????Have appointed one or more Chief Executive Officers for each such business.

As per sub-section (3) of Section 203, a whole time KMP shall not hold office in more than one company except in its subsidiary company at parallel point of time. But certainly a KMP can hold non-executive directorship with the permission of board as per proviso to sub section (3).

If we walk through the dictionary meaning of Whole Time the meaning for the same is full time. Oxford dictionary defines 'full time' as 'total normal working hours'.

The phrase “whole – time” was considered by Bombay High Court in context of whole – time director and it has been held that the expression “whole – time director” must refer to a director who spends his entire time managing the company.

If read with Sub-Section (1) and Sub-Section (3) of Section 203, the intention of legislature is explicit that subject to exceptions provided in Section 203, a whole time KMP means a person who devotes entire working time for the Company for which he/she is a KMP and cannot work for any other Company or carry on any other business with permission of employer as well.

A KMP must hold office in one Company only except its subsidiary but managing director can hold the position of managing director in one more company but cannot hold any other position subject to compliance of sub-section (3) of Section 203

Whether one person can hold more than one office of KMP in a particular company at a time or Whether for each three categories specified in section 203(1), there must be three independent individuals holding any one of three officers?

If we consider the nature of functions expected to be performed by each of the three KMPs, it majorly relates to overall business administration, finance and compliance functions. Each of these functions are crucial in nature and require systematic and full time attention of such person to whom the specific role is designated. So, the intention of the section hence appears to have three distinct persons holding three distinct offices and one person cannot hold more than one office of KMP in one company.

Hence, it can be said that whole-time position signifies complete and full involvement of that person for that specific position. In order to justify the designation, an individual should not be rendering the responsibilities of two whole time positions give the same time, even in the same company.