Company Law and Practice · Key Managerial Personnel and their Remuneration

Whole-time KMP: Roles and Penalties under Section 203

Updated 11 October 2026 · Fact-checked

Section 203 requires prescribed companies to have whole-time KMP: a managing director, CEO or manager (or a whole-time director in their absence), a company secretary and a CFO. The Board appoints them by resolution. They cannot hold office in more than one company, except a subsidiary. Default attracts a penalty of ₹5 lakh on the company.

Understand Whole-time Key Managerial Personnel: Roles and Penalties

Key managerial personnel (KMP) are the senior people who run a company day to day and are answerable for its compliance. Section 203 deals with the whole-time KMP that a company must appoint. It applies to companies of a prescribed class, so always say that the requirement applies to such class or classes of companies as prescribed.

The Act lists three whole-time positions. First, the managing director, or Chief Executive Officer, or manager. If none of these is there, a whole-time director fills the slot. Second, the company secretary. Third, the Chief Financial Officer. So a company needs three whole-time KMP, with the first position having a fallback.

A managing director is a director who has substantial powers of management delegated to him. A whole-time director is a director who is in the whole-time employment of the company. Every MD is a whole-time director in practice, but a whole-time director need not have the substantial management powers of an MD. The Section 203 text only tells you the order of preference: MD, CEO or manager first, a whole-time director only in their absence.

Appointment is by a Board resolution that states the terms and conditions, including remuneration. A whole-time KMP cannot hold office in more than one company at the same time, except in its subsidiary company. If the office falls vacant, the Board must fill it at a Board meeting within six months.

There is also a rule on the chairperson. One individual cannot be both the chairperson (under the articles) and the MD or CEO at the same time, unless the articles provide otherwise or the company does not carry multiple businesses.

Key rules to remember

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.

How to solve Whole-time Key Managerial Personnel: Roles and Penalties questions

Use this order for any question on whole-time KMP, whether it is a theory question or a fact-based case.

1Identify whether the company is of the class required to appoint whole-time KMP. If the facts do not say, state that Section 203 applies to prescribed classes.
2List the three required positions: MD, CEO or manager (or whole-time director in their absence), company secretary and CFO. Check which are missing.
3Check the mode of appointment. It must be a Board resolution with terms and remuneration.
4Check the multiple-office restriction. Is the person a whole-time KMP in another company that is not a subsidiary? Note the provisos on Board permission for directorship and on an MD of one other company.
5Check any vacancy. Was it filled by the Board within six months?
6Check the chairperson and MD or CEO combination, if the facts mention it.
7State the penalty under Section 203(5) for the company and for each officer in default, including the continuing-default amount.
8Conclude clearly: whether there is a default, who is liable, and the amount.

Quickest way: Three posts, one company, six months, two penalties

When to use it: Use for short-answer questions and for checking facts in a case study in a few minutes.

Tick the three posts: MD/CEO/manager, CS, CFO.
Ask if the person holds office elsewhere. If it is a subsidiary, it is allowed.
Ask if a vacancy has lasted beyond six months.
If any check fails, write the penalty: ₹5 lakh on the company, ₹50,000 on each officer in default, plus ₹1,000 a day after the first day for continuing default, capped at ₹5 lakh.

Common mistakes in Whole-time Key Managerial Personnel: Roles and Penalties

Saying Section 203 applies to every company.
Students remember the three posts and forget the opening words.
Fix: Write that it applies to companies of such class or classes as prescribed.
Treating a whole-time director as a separate fourth post.
The list looks like it has four items.
Fix: A whole-time director is the fallback for the MD, CEO or manager position, used only in their absence.
Saying the KMP can never hold office in another company.
Students ignore the exceptions.
Fix: Mention the subsidiary exception, the Board-permission proviso for directorship and the proviso allowing an MD of one other company with the stated consent conditions.
Stating the vacancy period as three months or 30 days.
Confusion with the 30-day filing period under Section 170.
Fix: Vacancy: six months, filled by the Board at a Board meeting. Filing with the Registrar: 30 days.
Quoting a single penalty figure.
Students recall only ₹5 lakh.
Fix: Give all parts: ₹5 lakh on the company, ₹50,000 on each director and KMP in default, ₹1,000 per day for continuing default after the first day, capped at ₹5 lakh.
Saying a general meeting resolution is needed to appoint KMP.
Confusion with director appointment.
Fix: Section 203(2) requires a Board resolution containing terms and conditions, including remuneration.

Worked examples

Example 1

Sunrise Textiles Limited, a company required to have whole-time KMP, appointed Mr. Rao as its CFO. Mr. Rao is also the CFO of Sunrise Spinning Private Limited, a wholly owned subsidiary of Sunrise Textiles. Another company, Kaveri Foods Limited, which is unconnected, also wants to appoint him as CFO at the same time. Advise on the legality.

Show the solution

Provision: 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.
Facts, first case: Sunrise Spinning is a subsidiary of Sunrise Textiles, so holding office in both falls within the exception.
Facts, second case: Kaveri Foods is not a subsidiary of Sunrise Textiles. Holding the CFO post there as well would be holding office in more than one company outside the exception.
The proviso on directorship does not help, because it permits only a directorship with Board permission, not a second KMP post.

Answer: Mr. Rao may be CFO of Sunrise Textiles and its subsidiary Sunrise Spinning. He cannot also be CFO of Kaveri Foods, as that breaches Section 203(3). A default attracts the penalty under Section 203(5).

Example 2

Zenith Pharma Limited, a company covered by Section 203, had no company secretary from 1 January. Its CS resigned on that date. The Board appointed a new CS only after eight months. State the legal position and the penalty.

Show the solution

Provision: Section 203(4) says that if the office of any whole-time KMP is vacated, the Board must fill the vacancy at a Board meeting within six months from the date of vacancy.
Facts: The vacancy arose on 1 January. Six months ended on 30 June. The appointment came after eight months, so it was about two months late.
Therefore the company defaulted in complying with Section 203.
Penalty under Section 203(5): the company is liable to ₹5,00,000. Every director and KMP in default is liable to ₹50,000. As the default is continuing, a further ₹1,000 for each day after the first during which it continued, with the further penalty not exceeding ₹5,00,000.
Also, under Section 170(2), the change must be filed with the Registrar within 30 days of the appointment of the new CS.

Answer: Zenith Pharma defaulted because the vacancy was not filled within six months. The company is liable to ₹5,00,000. Each director and KMP in default is liable to ₹50,000. A further ₹1,000 per day applies after the first day of continuing default, capped at ₹5,00,000.

Exam tips

Write the section number with every point. Examiners reward the provision first, then facts, then conclusion.
Learn the penalty in three parts: company, officer in default, and continuing default with its cap.
In case studies, check the subsidiary exception before saying there is a breach.
Keep the six-month vacancy rule and the 30-day Registrar filing rule separate in your head.
For the MD versus whole-time director question, give the definitions in plain words and relate them to the order of the posts in Section 203(1).

Practice questions from Key Managerial Personnel and their Remuneration

Whole-time Key Managerial Personnel: Roles and Penalties in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Whole-time Key Managerial Personnel: Roles and Penalties: frequently asked questions

Can a whole-time KMP hold office in more than one company?

Generally no. Section 203(3) allows it only in the company's subsidiary. A KMP may be a director of any company with the Board's permission. There is also a proviso allowing a company to appoint as MD a person who is MD or manager of one, and not more than one, other company, if the Board approves with the consent of all directors present.

What is the penalty for non-compliance with Section 203?

The company is liable to a penalty of ₹5,00,000. Every director and KMP in default is liable to ₹50,000. For a continuing default there is a further ₹1,000 for each day after the first, not exceeding ₹5,00,000.

Who appoints whole-time KMP and how?

The Board appoints them by a resolution that states the terms and conditions, including remuneration. This is required by Section 203(2).

How soon must a KMP vacancy be filled?

The Board must fill it at a Board meeting within six months from the date of the vacancy, under Section 203(4).

Within what time must particulars of a KMP be filed with the Registrar?

Section 170(2) requires a return within thirty days of the appointment and within thirty days of any change. Check the prescribed form in the Rules and your study material.