Key managerial personnel: Mismatch of definitions

Meaning of KMPs under the Companies Act 2013 has come up for interesting debate, particularly the apparent mismatch between its definitions under various sections

Key managerial personnel (KMP)
sounds like the most important person of a company.  And why not, they do have an important role to play in the success of any company. However, the meaning of KMPs under the Companies Act, 2013 (the Act) has come up for interesting debate, particularly the apparent mismatch between the definition in section 2 (51) of the Act, the requirements of section 203 of the Act, and Accounting Standards (AS) 18 on related party transactions.

Definition in Section 2 (51) of the Act

Section 203 (1) of the Act AS 18 - Related Party Transactions
“Key managerial personnel”, in relation to a company, means:
  1. the chief executive officer or the managing director or the manager;
  2. the company secretary;
  3. the whole-time director;
  4. the chief financial officer; and
  5. such other officer as may be prescribed

203. Appointment of KMP

(1) Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel:
(i) managing director, or chief executive officer or manager and in their absence, a whole-time director;

 (ii) company secretary; and

(iii) chief financial officer :

Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or chief executive officer of the company at the same time after the date of commencement of this Act unless,

(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses:

Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more chief executive officers for each such business as may be notified by the central government.


10.8 Key management personnel - those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise.

Definition in Section 2 (51) of the Act defines the term; however there is no substantive provision laid by the definition section. Hence, the managing director (MD), CEO, every whole time director, CFO and CS are treated as KMPs.

Section 203(1) Act mandates only specified class of companies to have a whole time KMP.

As per draft rule 13.6 of Chapter XIII;

For the purposes of sub-section (1) of section 203, every listed company and every other company having a paid-up share capital of five crore rupees or more shall have whole-time key managerial personnel.”

Thus, a company not covered under Section 203 (1) may not be required to appoint a CFO/ CS, but it may still have a CFO/CS. It is clear that whether Section 203 applies or not, if the company has a CS, or CFO, or a whole time director, they are all KMPs.

Now the interesting conclusion from this is that every manager, whole-time director (WTD), and the MD as well as the CEO (as per Section 203, the company needs only one of these), will be treated as a KMP.

Hence, all the substantive requirements of law pertaining to KMPs apply to each WTD, and the MD. The mandatory provisions of Section 203(1) do not control the meaning of the term given in Section 2 (51).

There is no conflict between this and AS 18, as far as MD and WTDs are concerned. However, a CFO or CS is surely not KMPs as per AS 18. Hence, when it comes to disclosures of transactions with related parties in financial statements, the requirements of the AS will prevail.

As said earlier, even if a company is not required to have KMPs under Section 203, but if at all they appoint the MD, CEO, WTD, CFO and CS they automatically become KMPs. Thus, apart from the duties and responsibilities, this KMPs will attract the liability provisions of the Act as well.

Duties and Liabilities of KMP:


Pertains to

Obligations of KMPs

Fine / Penalty in case of non compliance


Statement to be annexed to the notice

 The statement concerning each item of special business to be transacted at a general meeting, annexed to the notice to include the nature of concern or interest, financial or otherwise, in respect of each items of KMP and their relatives.

Any benefit accrued to the KMP or their relatives either directly or indirectly shall be held in trust for the company and be liable to compensate the Company.

Fine which may extend to Rs50,000 or five times the amount of benefit accruing to such KMP or their relatives, whichever is more.


Prohibition on forward dealings in securities of company by director or key managerial personnel.

KMP shall not buy in the company, or in its holding, subsidiary or associate company—


  1. a right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures; or
  2. a right, as he may elect, to call for delivery or to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures.

Imprisonment for a term which may extend to  two years  or with fine  which shall not be less than Rs1 lakh but which may extend to Rs5 lakh or with both


Prohibition on

Insider trading of securities.

KMP of a company shall not enter into insider trading

Imprisonment for a term which may extend to  five years  or with fine  which shall not be less than Rs5 lakh but which may extend Rs25 crore or three times the amount of profits made out of insider trading, whichever is higher, or with both.


Appointment of KMP

 A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time

Fine  which may extend  to Rs50,000 and where the contravention is continuing one with a further fine which may extend to Rs1,000 for every day after the first during which the contravention continues

  • Definition of Officers and Officers in default include Key Managerial Personnel (KMP). Hence, all obligations of Officers and Officers shall be applicable to KMPs as well
  • Further those provisions of Non-bailable offences applicable to every officers who is in default will also be applicable to KMPs


(Both  Vinita Nair and Pooja Rawal  are practicing company secretaries at Vinod Kothari & Co, and can be contacted at [email protected] and [email protected], respectively)






3 years ago

Can a single individual hold two KMP's in the same company, like CFO and CS, can it be one and the same person. At present, they are one and the same, will the incumbent have to demit one of the offices?

Nirmalya Dutta

4 years ago

What will be the penalty implication if the company do not appoint KMPs according to section 203 of Companies Act 2013?

Is there is any Provision in the new Act regarding monitoring the companies who don't appoint KMP according to Companies Act 2013?


Pooja Rawal

In Reply to Nirmalya Dutta 4 years ago

1. Penalty Provision 203(5):If a company contravenes the provisions of this section (i.e Sec 203), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and key managerial personnel of the company who is in
default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

2. Further there is no mechanism as such to monitor whether a Company has appointed KPM, however one can ascertain the same by viewing the annual return of that particular company, which has the details of the Paid up capital, Whether the company is listed or no and also the details KMPs.

Nomination are absolutely must

Nomination is one of the most important aspects of succession and estate planning. Yet few investors and people know about it, and its implications. Here’s a guide to nomination for investors wishing to plan better


Nomination ensures comfort for the family to a free, easy and unfettered access to your money by your family in the occurrence of an unfortunate event. It is not only your right but also your responsibility to ensure that you do not leave behind headaches and have the money ‘frozen’ at a time when it is most needed.

Nomination is a simple exercise: at the end of every document contains a form which you are required to fill in indicating the name, relationship and address of the person who will be entitled to get your money, then sign it along with a witness. You should retain a copy. Those not opting for the facility too are required to put it in writing.

Please remember, express mandated nomination provisions are always available, be it for a savings bank or fixed deposit accounts, insurance policies, life and health, investments in shares or mutual funds, deposits for utilities like telephones or gas or other company deposits.

While nomination formalities are invariably carried out at the opening of the account/investment/payment stage, nonetheless it can be done at a later time also. It can even be modified or cancelled. However, it can be done only by the individual signing the documents and not by others. It is not applicable to trusts, societies, firms, HUF or its kartas or power of attorney holders.

It is possible to make out nominations in multiple names by specifying the percentages. Minors, trusts, government, local authorities and non-residents too can be nominees.

In the case of bank deposits and investments you can always make out nominations in different names. In the case of savings account, it can be one and for different deposits to different nominees, where different beneficiaries are contemplated for different deposits. No one can insist on registering only one nominee.

Effecting transmission on demise

1. Submit a letter in duplicate with the original and xerox of the death certificate along with the originals of the accounts to be transmitted. In death cases it is ‘transmission’ and not ‘transfer’.

2. Ensure proper identification of the nominee/beneficiary with KYC verifications.

3. In case the amount to be transferred exceeds Rs1 lakh, an Indemnity Bond may be sought.

4. In the absence of any nomination the claimant may be called upon to submit a Will, heirship certificate, and no-objection certification (NOC) from other heirs, letter of administration or succession certificate and indemnity bond.


(Nagesh Kini is a Mumbai-based chartered accountant turned activist.)



arun adalja

4 years ago

in many cases nominee s signature is not taken whil giving nomination first time this may create problem at transmissin stage so it must be made mandatory to take nominee s signature at initially.

Suiketu Shah

4 years ago

very important article,thanks


4 years ago

Nominee versus legal heir


Francis Xavier R

In Reply to MOHAN 4 years ago

tks for the link, mr.mohan

Great expectations but poor result of Indian prime minister’s visit to Russia and China

Indian PM fared worse in China in comparison with visiting leaders from Russia and Mongolia. Especially nothing concrete was done during the visit to reduce the gap between India’s import and export to China

For the last few months, there have been great expectations that a number of important decisions would be made during the visits to Russia and China by the Indian prime minister (PM) Manmohan Singh.


First, there was the great hope attached to the expansion of the Kudankulam nuclear project. It was expected that, in this trip, both Russia and India would ink the proposal to set up units No3 and No4 reactors, but this got bogged down to elusive details on the nuclear liability issue, resulting in no progress. Until lawyers from both sides settle the outstanding issues on this subject, no progress is likely!


However, one major and satisfying work took place on 22 October 2013 (morning), when Kudankulam’s first 1,000 MWe (megawatt electric) plant generated 160 MWe, before being halted for routine check for behaviour of "integrated system" of the turbine and the generator. It was connected to the southern power grid. In about two weeks from now, the commercial operation of the plant is expected to commence.


Because of the bottleneck created by the nuclear liability issue, the roadmap drawn in 2010 to build 14 to 16 reactors got pushed to the back burner!


Bilateral trade with Russia presently hovers around $11 Billion (2012-13) and if the current pace continues, growing at about 25% per year, this is likely to reach $20 billion by 2015. Comparatively, this is much lower than what has been achieved with China.


One other touching move was made by Russian president Vladmir Putin, when he presented PM Manmohan Singh, a Mughal era gold coin, to reaffirm that the trade between the two countries have been existing for centuries now. With that the Indian delegation moved over to China.


Receiving a warm welcome, PM Manmohan Singh stated that "when India and China shake hands, the world notices". And, to the Chinese leadership, this was also a welcome sign, but, as they extended their courtesies to the Indian delegation, they were also hosting the leaders from both Russia and Mangolia!


Russian premier Dmitry Medevedev signed a 30-million tonne crude oil supply agreement, doubling the current rate, for delivery to China, for the next 5 years! Details of the Mangolian premier's visit have not been announced in detail.


Although a lot was expected from this visit, the first major issue tackled was to resolve the long running border disputes, to cover the entire length of 4,057 km line of actual control between India and China. Both the countries signed the Border Defence Cooperation Agreement (BDCA) which is expected to take care of the face-to-face situation by troops facing each other and to show maximum restraint. "Neither side shall use force or threaten to use force." The BDCA takes care of the earlier pacts signed in 1993, 1995 and 2005.


BDCA does not prevent either side from "improving border infrastructures in any way as the situation was highly asymmetrical" with the odds favouring China. However, it is expected that the BDCA will prevent intrusion on either side. This is one more major step to diffuse a tense situation.


However, the irritant issue of stapled visa being attached to Indian citizen's passports from Arunachal Pradesh visiting China was practically brushed aside by the officials, who are reported to have said that this was a simple matter. But that does not cover the core issue at all, meaning thereby, that this area was "disputed".


Bilateral trade between India and China has reached $67 billion with Indian imports touching $47 billion, leaving a deficit of $19-20 billion due to non-supply of raw materials like iron ore etc. In order to overcome this deficit, India has been pressing China to open up the market for IT services and pharmaceutical industry but the progress has been slow. At the current rate, trade is expected to touch $100 billion by 2015. PM Manmohan Singh could not get any rupee payment agreement. The trade imbalance this year may touch $30 billion, if China does not source other items from India.


One issue that India and China found to be common interest is in the formation of Bangladesh-China-India-Myanmar Economic Corridor. The first joint study group is likely to meet in December. It is too early to comment what this group can really achieve, but any sort of cooperation amongst neighbouring countries is welcome sign for development of the region which would bring benefits to the people concerned.


While no firm commitment was made on trans-border river agreement, Chinese premier is reported to have stated that China will take a very constructive view and will have an open mind in discussing issues. China is already building a 510 MW hydropower plant on Brahmaputra at Zangumu, with three others on the anvil.


Finally, Chinese power equipment companies like Shanghai Electric and Dongfang Electric have now agreed to set up permanent base to cater to servicing needs for the equipment supplied to India, which is around 60,000 MW and this is a welcome sign for buyers in India.


In the past, Chinese assurances and promises were not honoured completely. It is hoped that the spirit shown by Chinese premier Li Kiqiang will endeavour to keep his.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)




4 years ago

No one is taking the "de jure" PM of India seriously!

kaushik shukla

4 years ago

This clearly indicates that world has started taking current PM with pinch of salt. expecting any major shift in their policy to deal with India is not in offing.
It is wait and watch situation, for them untill 2014 election results available.
Stratagic partner like Russia also sniffing the wind of change will also keep cards close to chest and not in hurry to commit .


4 years ago

India's Prime Minister is a Khangress Walla who has arisen like Aphrodite from decades of being churned in the bureaucratic cess pool. He has risen because India rewards highly academically qualified day dreamers who do nothing but take credit for fortuity and find scape goats for failures in the foot steps of Janab Jawaharlal G Nehru Saheb and his cronies.

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