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CS Executive · Company Law and Practice · Key Managerial Personnel and their Remuneration

Zenith Polymers Ltd, a company required to have whole-time KMP, has no Chief Financial Officer. Which statement correctly describes the consequence under the Companies Act, 2013 for the default in complying with the section on appointment of KMP?

The company faces a penalty of five lakh rupees, and each director and key managerial personnel in default faces fifty thousand rupees. A continuing default adds one thousand rupees per day after the first, subject to a five lakh rupee ceiling. Both the company and the officers are covered.

  1. AOnly the company is penalised, at five lakh rupees; officers are not liable
  2. BThe company is liable to a penalty of five lakh rupees and every director and KMP in default is liable to a penalty of fifty thousand rupeesCorrect
  3. COnly the directors in default are penalised, at fifty thousand rupees each
  4. DThe company is liable to imprisonment of the managing director for six months

Explanation

Section 203(5) provides a penalty of five lakh rupees on the company and fifty thousand rupees on every director and KMP in default. Continuing default attracts a further one thousand rupees per day after the first, capped at five lakh rupees. Option A wrongly exempts officers, and C wrongly exempts the company.

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