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Business Laws · The Companies Act, 2013

Directors and Key Managerial Personnel (Companies Act, 2013)

Updated 4 October 2026

Directors are individuals who run a company through its board. Key managerial personnel (KMP) are senior officers such as the MD or CEO, company secretary and CFO. To answer questions, state the rule, apply it to the facts, and conclude. Section 166 lists directors' duties; Section 203 covers whole-time KMP appointments.

Understand Directors and Key Managerial Personnel

A company is an artificial person. It cannot think or sign a contract by itself. It acts through people. The directors are the people who direct its affairs. Together they form the Board of Directors, which manages the company on behalf of its shareholders.

Every director must be an individual, not another company. A company must have a minimum number of directors: two for a private company, three for a public company, and one for a One Person Company. Under Section 149(1), a company can have up to 15 directors, and it can go beyond that only by passing a special resolution. At least one director must have stayed in India for 182 days or more in the previous calendar year. Every director needs a Director Identification Number (DIN).

Directors come in different types. A managing director and a whole-time director are executive directors. They work full time and draw salary. A non-executive director sits on the board but does not manage day-to-day affairs. An independent director is a non-executive director with no material link to the company. Under Section 149, listed public companies must have at least one-third of the board as independent directors. Some prescribed classes of companies must also have at least one woman director.

Key managerial personnel (KMP) are the senior officers who run the company full time. For Foundation, remember the core list: the managing director, or CEO, or manager (and in their absence a whole-time director); the company secretary; and the Chief Financial Officer. Section 203 says every company of a prescribed class must have these whole-time KMP.

Directors also carry duties. Section 166 sets them out. They are the main exam favourite. A director must act within the articles, in good faith, with care and independent judgment, avoid conflicts of interest, and not take undue gain. Breach of these duties brings a fine.

Key rules to remember

Section 166(1): act per articles
Director must act in accordance with the company's articles, subject to the Act
The articles are the starting point for a director's conduct.
Section 166(2): good faith
Act in good faith to promote the objects of the company for the benefit of members as a whole, and in the best interests of the company, employees, shareholders, community and environment
Notice that the duty is wider than just shareholders.
Section 166(3): care and independent judgment
Exercise due and reasonable care, skill and diligence, and independent judgment
A director cannot blindly follow another director or the promoter.
Section 166(4) and (5): conflict and undue gain
No conflicting interest (direct or indirect). No undue gain for self, relatives, partners or associates. If guilty of undue gain, pay an amount equal to the gain to the company
Learn both together. They are tested in the same fact pattern.
Section 166(6) and (7): no assignment, penalty
A director cannot assign his office; assignment is void. Contravention: fine of ₹1,00,000 to ₹5,00,000
The fine has a minimum and a maximum.
Whole-time KMP (Section 203(1))
MD or CEO or manager (else a whole-time director) + Company Secretary + Chief Financial Officer
Applies to companies of a prescribed class.
Appointment of KMP (Section 203(2))
By a Board resolution stating terms and conditions, including remuneration
A general meeting is not needed for this section.
Vacancy of KMP (Section 203(4))
Board fills the vacancy at a Board meeting within 6 months from the date of vacancy
The six months run from the date the office falls vacant.
Penalty for default under Section 203(5)
Company: ₹5,00,000. Each director and KMP in default: ₹50,000, plus ₹1,000 per day after the first for continuing default, capped at ₹5,00,000
Know the three parts: company, officer, daily penalty.
Register and return (Section 170)
Register of directors and KMP (with their shareholding) at registered office. Return to Registrar within 30 days of appointment and within 30 days of any change
The register includes securities held in the company, its holding, subsidiary and associate companies.
Nomination and Remuneration Committee (Section 178(1))
3 or more non-executive directors, at least one-half independent. Chairperson of the company may be a member but cannot chair the committee
Required for every listed public company and other prescribed classes.
Stakeholders Relationship Committee (Section 178(5))
Needed where the company has more than 1,000 shareholders, debenture-holders, deposit-holders and other security holders at any time in a financial year. Chairperson must be a non-executive director
Its job is to resolve grievances of security holders.

How to solve Directors and Key Managerial Personnel questions

Use the provision, facts, conclusion structure. It earns step marks in a subjective paper and keeps you from rambling.

  1. 1Read the question and mark the person involved: a director, a KMP, or the company. Note the type of company too (listed, public, private).
  2. 2Identify the issue in one line. Is it a duty of a director, an appointment, a vacancy, a committee, or a filing?
  3. 3State the rule in plain words. Quote the section number only if you are sure of it. Use Section 166 for duties, 203 for whole-time KMP, 170 for register and return, 178 for committees.
  4. 4Apply the rule to the facts. Pick the exact words from the question, such as 'relative', 'conflict', 'six months', 'resigned'.
  5. 5Check for conditions and exceptions, such as the proviso on chairperson and MD, or the permission of the Board in Section 203(3).
  6. 6Write the conclusion clearly: valid or void, breach or no breach, and the consequence (fine, penalty, repayment of gain).
  7. 7Add the penalty only if the question asks about liability or consequences.

Quickest way: Provision-Facts-Conclusion in 4 lines

When to use it: Use this for 3-4 mark scenario questions, where time is short and you must still show your reasoning.

  1. Line 1: Name the rule. Example: 'Under Section 166(4), a director must not be in a situation where his interest conflicts with the company's.'
  2. Line 2: Link the facts. Example: 'Here, Ravi's firm is supplying to the company, so his interest conflicts.'
  3. Line 3: Conclude. Example: 'So Ravi has breached his duty.'
  4. Line 4: Give the consequence. Example: 'He faces a fine of ₹1,00,000 to ₹5,00,000.'
  5. Memory aid for Section 166: remember A-G-C-C-U-N-F for Articles, Good faith, Care, Conflict, Undue gain, No assignment, Fine.

Common mistakes in Directors and Key Managerial Personnel

  • Saying directors owe duties only to shareholders

    Students think the company belongs only to its owners.

    Fix: Quote Section 166(2): good faith for members as a whole and in the best interests of the company, employees, shareholders, the community and the environment.

  • Listing the wrong KMP

    Students include the chairman or all directors as KMP.

    Fix: Use the core list: MD or CEO or manager (else whole-time director), company secretary, CFO. An ordinary non-executive director is not KMP.

  • Mixing up the vacancy period and the filing period

    Both use short time limits and both involve KMP.

    Fix: Remember 6 months for the Board to fill a KMP vacancy (Section 203(4)). Remember 30 days for filing the return with the Registrar (Section 170(2)).

  • Giving the fine for breach of Section 166 as a single figure

    Students recall only the maximum.

    Fix: State it as a range: not less than ₹1,00,000 and up to ₹5,00,000. For undue gain, add that the director must also pay an amount equal to the gain to the company.

  • Thinking a director can hand his office to someone else

    Students confuse it with appointing a proxy or an alternate director.

    Fix: Section 166(6) says a director cannot assign his office, and any assignment is void.

  • Letting the company chairperson chair the Nomination and Remuneration Committee

    The chairperson seems the natural head of every committee.

    Fix: The chairperson may be a member but cannot chair the committee. Section 178(1) proviso. The committee has three or more non-executive directors, at least half independent.

Worked examples

Example 1

Mehta is a director of Zenith Ltd. He knows Zenith needs office furniture. He gets Zenith to buy the furniture from a firm owned by his brother at a price well above market rates. The brother's firm makes an extra profit of ₹3,00,000. Discuss Mehta's liability under the Companies Act, 2013.

Show the solution
  1. Issue: Has Mehta broken his statutory duties as a director?
  2. Rule 1: Under Section 166(4), a director must not be in a situation where he has a direct or indirect interest that conflicts, or may conflict, with the company's interest.
  3. Rule 2: Under Section 166(5), a director must not achieve or attempt to achieve undue gain or advantage for himself or his relatives, partners or associates. If found guilty, he must pay an amount equal to the gain to the company.
  4. Application: The firm belongs to Mehta's brother, who is a relative. Buying at inflated prices creates a conflict and gives an undue advantage to the relative. The gain is ₹3,00,000.
  5. Conclusion on repayment: Mehta must pay ₹3,00,000 to Zenith Ltd.
  6. Conclusion on fine: Under Section 166(7), contravention is punishable with a fine of not less than ₹1,00,000 and up to ₹5,00,000.

Answer: Mehta has breached Section 166(4) and (5). He must pay ₹3,00,000 (the amount of the undue gain) to Zenith Ltd. He is also liable to a fine of ₹1,00,000 to ₹5,00,000 under Section 166(7).

Example 2

The Chief Financial Officer of Orbit Ltd., a company required to have whole-time KMP, resigns on 1 March. The Board takes no action. Answer: (a) Within what time must the vacancy be filled and by whom? (b) How must the new CFO be appointed? (c) What filing is needed once the new CFO joins? (d) What is the penalty if the company defaults?

Show the solution
  1. Part (a): Section 203(4) says the Board must fill a vacancy in a whole-time KMP office at a Board meeting within six months from the date of vacancy. The date of vacancy is 1 March, so the six months run from that date.
  2. Part (b): Under Section 203(2), every whole-time KMP is appointed by a Board resolution that contains the terms and conditions, including remuneration.
  3. Part (c): Under Section 170(2), a return with prescribed particulars and documents must be filed with the Registrar within 30 days of the appointment. The company must also update its register of directors and KMP kept at the registered office under Section 170(1).
  4. Part (d): Under Section 203(5), the company is liable to a penalty of ₹5,00,000. Every director and KMP in default is liable to a penalty of ₹50,000. For continuing default, a further ₹1,000 per day after the first day applies, subject to a cap of ₹5,00,000.

Answer: The Board must fill the CFO vacancy at a Board meeting within six months from 1 March, by a Board resolution stating terms and remuneration. The return must go to the Registrar within 30 days of the appointment. For default, the company pays ₹5,00,000 and each officer in default pays ₹50,000, plus ₹1,000 per day after the first day for continuing default, capped at ₹5,00,000.

Exam tips

  • Section 166 is the most-tested part. Be ready to write all of its sub-sections in order, and to match a fact pattern to the right sub-section.
  • In scenario questions, underline the key words (relative, conflict, gain, six months, 30 days). Each one points to a specific rule.
  • Learn numbers with their units: 6 months for KMP vacancy, 30 days for the Registrar return, ₹1,00,000 to ₹5,00,000 for the Section 166 fine, 3 non-executive directors for the NRC.
  • Write the section number only when you are sure. A correct rule in plain words earns marks, and a wrong section number can cost them.
  • Use short headings in your answer: Provision, Application, Conclusion. This helps the examiner give marks quickly. Papers 1 and 2 have no negative marking, so always attempt every question.

Practice questions from The Companies Act, 2013

Directors and Key Managerial Personnel: frequently asked questions

Who are key managerial personnel under the Companies Act, 2013?

For Foundation, remember the managing director or CEO or manager (and in their absence a whole-time director), the company secretary and the Chief Financial Officer. Section 203 requires companies of a prescribed class to have these as whole-time KMP.

What happens if a director breaches Section 166?

The director is punishable with a fine of not less than ₹1,00,000 and up to ₹5,00,000. If he made an undue gain, he must also pay an amount equal to that gain to the company.

How is a KMP appointed?

A whole-time KMP is appointed by a resolution of the Board. The resolution must contain the terms and conditions, including remuneration. A vacancy must be filled by the Board at a Board meeting within six months.

Can a whole-time KMP work for more than one company?

Generally no. Section 203(3) says a whole-time KMP shall not hold office in more than one company at the same time, except in its subsidiary company. A KMP may be a director of another company with the Board's permission.

Does Section 194 on forward dealings still apply?

No. Section 194 has been omitted by the Companies (Amendment) Act, 2017, with effect from 9 February 2018. Do not quote it as a current rule in your answers.