CS Executive · Company Law and Practice

Key Managerial Personnel and their Remuneration: formula sheet

Full chapter guide

Key formulas

Statutory list of KMP, Section 2(51): KMP = (CEO or MD or Manager) + Company Secretary + Whole-time Director + CFO + Board-designated officer + prescribed officer; Six limbs. Limb (i) is one slot with three alternatives. Limbs (v) and (vi) are residual.
Board-designated KMP condition: Officer must be (a) not more than one level below the directors, and (b) in whole-time employment, and (c) designated as KMP by the Board; All three conditions must be met. Designation by the Board is essential.
CEO: CEO = officer of a company designated as such by it; Section 2(18). Designation by the company is the test.
Manager: Manager = individual who, under Board's superintendence, control and direction, manages the whole or substantially the whole of the company's affairs; Section 2(53). Must be an individual. Includes a person in the position of manager by any name, whether under a contract of service or not.
Managing director: MD = director entrusted with substantial powers of management; Section 2(54). Routine administrative acts are not substantial powers.
Officer who is in default (KMP link): Whole-time director and KMP are officers in default; if no KMP, directors specified by the Board (with written consent) or all directors; Section 2(60)(i)-(iii).
Whole-time KMP required (s.203(1)): (MD or CEO or manager; if none, a whole-time director) + Company Secretary + CFO; Applies to companies of the prescribed class or classes. Three posts to fill.
Mode of appointment (s.203(2)): Board resolution stating terms and conditions, including remuneration; Not a general meeting resolution under s.203. The Board resolution must state remuneration.
Multiple offices (s.203(3)): Whole-time KMP: office in only one company, except its subsidiary; A KMP may still be a director of any company with the Board's permission.
Vacancy (s.203(4)): Board fills the vacancy at a Board meeting within 6 months from the date of vacancy; Time runs from the date the post fell vacant.
Chairperson and MD/CEO (first proviso to s.203(1)): Same person cannot be chairperson and MD/CEO unless (a) articles provide otherwise, or (b) company does not carry multiple businesses; A further proviso exempts notified classes of multi-business companies that have appointed one or more CEOs for each business.
MD of two companies (third proviso to s.203(3)): A person may be MD or manager of one, and not more than one, other company, if approved by Board resolution with consent of all directors present; Specific notice of the meeting and resolution must be given to all directors then in India.
Penalty (s.203(5)): Company: ₹5,00,000. Each director and KMP in default: ₹50,000. Continuing default: ₹1,000 per day after the first, subject to a limit of ₹5,00,000; The daily penalty is capped at ₹5,00,000.
Return of appointment (s.170(2)): File return with Registrar within 30 days of appointment and within 30 days of any change; Section 170(1) also requires a register of directors and KMP at the registered office.
Whole-time KMP under Section 203(1): MD or CEO or manager (else whole-time director) + Company Secretary + CFO; Applies to companies of the prescribed class. Three positions, the first with a fallback.
Mode of appointment, Section 203(2): Board resolution stating terms and conditions, including remuneration; A Board resolution is needed, not a general meeting resolution.
One-company restriction, Section 203(3): Whole-time KMP: one company only, except its subsidiary; A KMP may be a director of any company with the Board's permission.
Filling a vacancy, Section 203(4): Board meeting within 6 months of the vacancy; The Board fills it, not the shareholders.
Penalty, Section 203(5): Company: ₹5,00,000. Each director and KMP in default: ₹50,000. Continuing default: further ₹1,000 per day after the first, capped at ₹5,00,000; The ₹5 lakh cap on the daily penalty is a separate cap for the continuing default.
Filing with Registrar, Section 170(2): Return of director or KMP within 30 days of appointment and within 30 days of any change; The forms are prescribed under the Rules. Check the current form number in your study material.
Register - where and what: Register at registered office = prescribed particulars of directors and KMP + details of securities held; Section 170(1). Securities held in the company, holding, subsidiary, subsidiary of holding and associate companies.
Persons covered: Every director + every key managerial personnel; Both must appear in the register and in the return.
Time limit for return: Return to Registrar within 30 days of appointment, and within 30 days of any change; Section 170(2). Two separate triggers: appointment and change.
Content of return: Prescribed particulars + prescribed documents; The details are in the rules, not in the section.
KMP covered by the register: Whole-time KMP under Section 203(1): MD or CEO or manager (or whole-time director in their absence), company secretary, CFO; Link with Section 203 when answering questions on who counts as KMP.
Overall ceiling (public company): Total managerial remuneration ≤ 11% of net profits; Covers directors including MD and WTD, and manager. Net profits computed under section 198. More than 11% needs general meeting approval, subject to Schedule V.
MD / WTD / manager limit: One such person ≤ 5% of net profits; more than one, all together ≤ 10%; Exceeding these needs a special resolution of the company.
Non-executive directors' limit: ≤ 1% of net profits if there is an MD, WTD or manager; ≤ 3% otherwise; Applies to directors who are neither MD nor WTD. Exceeding needs a special resolution.
Sitting fees: Fees under section 197(5) are in addition to the percentages; The amount is as prescribed; it is decided by the Board.
No or inadequate profits: Pay only as per Schedule V; Section 197(3). Any increase must also be in line with Schedule V (section 197(11)).
Excess remuneration: Refund within 2 years (or lesser period allowed by the company); hold in trust until refunded; Section 197(9). Waiver needs a special resolution within 2 years of the sum becoming refundable (section 197(10)).
Penalty for default: Person: ₹1 lakh; company: ₹5 lakh; Section 197(15).

Quick revision

Whole-time KMP under Section 203(1): MD or CEO or manager (or a whole-time director in their absence), company secretary, and CFO.
Section 203 applies to the class of companies prescribed.
Appointment of whole-time KMP is by a Board resolution that states the terms and conditions, including remuneration.
One person cannot be both chairperson and MD or CEO unless the articles provide otherwise or the company does not carry multiple businesses.
A whole-time KMP cannot hold office in more than one company, except in its subsidiary.
A KMP may be a director of any company with the Board's permission.
A vacancy in a whole-time KMP office must be filled by the Board at a Board meeting within six months.
Section 203(5) penalty: ₹5,00,000 on the company; ₹50,000 on each director and KMP in default; ₹1,000 per day for continuing default, capped at ₹5,00,000.
Section 170: keep a register at the registered office, including securities held in the company, its holding, subsidiary, and associate companies.
Section 170(2): file a return with the Registrar within thirty days of appointment or of any change.
Section 178: the Nomination and Remuneration Committee has three or more non-executive directors, at least one-half independent, and the chairperson of the company may be a member but cannot chair it.
Section 194 on forward dealing by directors or KMP has been omitted and is no longer law.

Common mistakes

Saying every director is KMP. Fix: Only a whole-time director is in the list (and a managing director, who is a director entrusted with substantial management powers, falls under limb (i)). An ordinary, part-time or independent director is not KMP.
Treating CEO, MD and manager as three separate mandatory posts. Fix: Limb (i) reads 'Chief Executive Officer or the managing director or the manager'. It is one limb with alternatives.
Saying every company must appoint whole-time KMP. Fix: Always write that Section 203 applies to companies of the prescribed class.
Saying a whole-time director is always required. Fix: A whole-time director is needed only in the absence of an MD, CEO or manager.
Saying Section 203 applies to every company. Fix: Write that it applies to companies of such class or classes as prescribed.
Treating a whole-time director as a separate fourth post. Fix: A whole-time director is the fallback for the MD, CEO or manager position, used only in their absence.
Saying the register only covers directors. Fix: Remember the section covers directors and key managerial personnel, and both appear in the register and the return.
Leaving out the details of securities held. Fix: State that the register must include securities held by each person in the company, its holding, subsidiary, subsidiary of holding and associate companies.
Applying the 11% cap to a private company. Fix: Start every answer by stating that section 197(1) applies to a public company.
Deducting directors' remuneration from gross profits before computing net profits. Fix: Remember the exception in section 197(1): directors' remuneration is not deducted from gross profits. Then follow section 198.

Exam tips

Start every answer with 'Under Section 2(51) of the Companies Act, 2013, key managerial personnel means...' and then list the limbs. This earns the provision marks.
Quote limb (v) with its three conditions. Examiners often test this limb in case studies.
Use the supporting definitions (CEO, CFO, manager, MD, whole-time director) in short notes. Give the section numbers only for those you are sure of.
In case questions, always end with a clear one-line conclusion naming the person and the limb.
Link KMP to 'officer who is in default' when the question mentions penalties. Keep that link to one or two lines.
Quote the key words of Section 203(4): six months, Board, Board meeting, vacancy date.
In case studies, first check whether the company is of the prescribed class and say so.
Learn the three provisos to sub-section (3) separately, and the two provisos to sub-section (1). They are favourite short-note areas.