July 08, 2016

Managing The Management Companies Act 2013

- Amitav Ganguly, Senior Company Secretary [ ]

Amitav Ganguly

In the day-to-day functioning of a company, the top management functionary is usually the Managing Director or CEO who is supported by his/her team which may consist of whole-time directors, CFO and CS, all constituting Key Managerial Personnel (KMP)...

Typically companies have various levels or hierarchies of employees with base levels starting from workers followed by supervisors, executives, managers, senior managers, general managers, to the top management usually consisting of functional directors and ultimately the managing director. The overall superintendence, control and direction responsibilities remain with the Board of Directors. Upper levels of positions are understood as managerial positions although there is no uniformity across companies.

Be that as it may, it becomes important to regulate those individuals holding managerial positions since the functioning of the companies as responsible corporate citizens, depends on their actions.

Within this background, the new Companies Act 2013 {new Act} [Even the Erstwhile Act of 1956] have provided for regulation of specific managerial positions.

Meaning Of Managerial Personnel

As the first step for regulation, the law has identified these positions, therefore the term, "managerial personnel" has been provided; though interestingly it has not been defined in the new Act.

There is however reference and elaboration of this term in Chapter XIII, sections 196 and 197 and Schedule V of the new Act which covers the following:

  1. Managing Director {MD} or Chief Executive Officer {CEO}
  2. Whole time Director {WTD}, and
  3. Manager {MA}

It is clear that the term "managerial personnel" as per the scheme of the new Act denotes the uppermost or top executive management; individuals who man such positions are part of the Board of Directors or are at comparable levels. Such individuals can be categorised in the following manner who have to be appointed by a company:

  1. They are directors who are in the whole time employment of the company, and thus are rendering services full time to the company, known as "whole time directors". (Reference section 2 {94} of the new Act)
  2. They are directors who are entrusted with substantial powers of management of the affairs of the company, known as "managing directors". A director occupying that position, by whatever name called is also included. (Reference section 2 {54} of the new Act); and
  3. They, subject to the superintendence, control and direction of the Board of directors, have the management of the whole, or substantial the whole, of the affairs of the company, known as "managers" and include any director or any other person occupying that position, by whatever name called. (Reference section 2{53} of the new Act).

Present Relevance Of Designation Of Manager

The concept of manager, although existed in the erstwhile Act of 1956 and retained in the new Act seems to have moved into impracticality. In the present corporate scenario, it is not very clear as to what extent this position has any real meaning in the management structure. Normally, a manager in this scenario is not understood as has been defined in the Act i.e. a person who has management of the whole, or substantial the whole, of the affairs of the company. The manager could be at the best denoting a departmental head. Of course there will be some exceptions, nevertheless the designation of manager as a part of top executive management team, in terms of the new Act, appears to be irrelevant. Legislature could very well have renamed "manager" to a suitable senior designation in tune with its defintion.

Managerial Personnel & Key Managerial Personnel

Besides managerial personnel, the law in its wisdom has also provided for the first time the position of Key Managerial Personnel {KMP} in the new Act.

Although the term "managerial personnel" has not been defined, significantly the term KMP has been defined under section 2 {51} and it appears in many sections of the new Act.

KMP covers not only the aforesaid "managerial personnel" {MP}, viz., MD/CEO, WTD & manager but also "other personnel" i.e. company secretary {CS}, chief financial officer {CFO} and such other officer as may be prescribed by the Government. Hence KMP has two categories of personnel.

Moreover, the terms "managerial personnel" and "key managerial personnel" are evidently related to each other since MP forms a part of KMP.

Hence, KMP can truly be said to represent the top executive management.

Managerial Personnel & Other Personnel Of Kmp

One can now, on the basis of discussions herein, analyse KMP by making a distinction between two categories therein i.e. "managerial personnel" and "other personnel" so far as extent of regulations applicable to them.

Stricter regulations for managerial personnel of KMP

The significance of the category of "managerial personnel", i.e. viz. MD/CEO, WTD & manager who are falling under KMP is that their functioning through Board or otherwise, appointments, remunerations including limits, duties, disclosures, etc., are strictly regulated.

Thus, inter alia, sections 149, {Company to have Board of Directors}, 152 {Appointment of directors}, 164 {Disqualification for appointment of director}, 165 {Number of directorships}, 166 {Duties of directors}, 170 {Register of directors & KMP & their shareholding}, 184 {Disclosure of interest by director}, 196 {Appointment of MD, WTD or manager}, 197 {Overall managerial remuneration and managerial remuneration in case of absence or inadequacy of profits}, 198 {Calculation of profits}, 203 {Appointment of KMP} of the new Act apply to them,

Moreover, among others, their exits from office by vacation, resignation, & removal are stringently regulated under sections 167 {Vacation of office of director}, 168 {Resignation of director} and 169 {Removal of directors} of the new Act.

Lesser regulations for other personnel of KMP

In the case of the category of "other personnel", that is to say, the company secretary {CS}, the chief financial officer {CFO} as well as and such other officer as may be prescribed, who are also falling under KMP, their appointments and remuneration are also regulated i.e. u/s 203 {Appointment of KMP} and other applicable sections of the new Act; however, there is no limit imposed on their remuneration. This aspect of freedom to fix their salaries and perquisites by companies is very important positive difference as compared to "managerial personnel" viz. MD/CEO, WTD & manager. The provisions of disqualifications, disclosures of interests and exits are also not as cumbersome.

Overall, it would seem that the category of "managerial personnel" are more strictly regulated vis-à-vis the category of "other personnel" of CS, CFO & prescribed officer, although both the categories are within the ambit of Key Managerial Personnel.

Those Not Included In Kmp etc.

It may be stated here that the directors who are non- executive {covering those who may or may not be independent}, do not fall under the category of "managerial personnel" and thus KMP since such directors' participations in the affairs of the company are essentially through board process only. They have no executive powers for day-to-day functioning.

The aforesaid becomes clear if one examines the following provisions:

{a} The term "non-executive director" although not specifically defined, however, has been stipulated in Section 149 {12} of the new Act as "a non-executive director not being promoter or key managerial personnel" in the context of acts of omission and commission by a company and director's role.

{b} The term "independent director" has been defined in section 2 {47} of the new Act to mean an independent director referred to in section 149{5} of that Act. The provisions inter alia lay down that an independent director means a director other than a managing director or a whole-time director or a nominee director. These directors are, thus, commonly known as ordinary directors or part time directors not to be taken or understood as managerial personnel.


The provisions in the new Companies Act 2013, in this respect, are clear although somewhat cumbersome.

One should appreciate that in actual practice, in the dayto- day functioning of a company, the top management functionary is usually the Managing Director or CEO who is supported by his/her team which may consist of whole time director/s, CFO and CS - all constituting KMP. Other senior employees may also be part of the team but cannot be termed as KMP.

Non executive directors including Independent Directors come into the process of management only during the board meetings held at various times during the year.

The levels of hierarchies, duties and responsibilities of KMP have given rise to many regulatory provisions to maintain highest standards of corporate governance.

Disclaimer - The views expressed in this article are the personal views of the author and are purely informative in nature.

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