The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, established under the Companies Act, 2013, regulate the appointment and compensation of Key Managerial Personnel (KMP).
KMP must be appointed through a board resolution outlining the terms, conditions, and remuneration.
Appointments are limited to a maximum of five years, with re-appointments allowed, but no sooner than one year before the current term ends.
A whole-time KMP cannot serve in more than one company, except subsidiaries, and must be at least 21 years old.
Listed companies must report remuneration ratios and any increases in their board reports
A company must file a return of the appointment of a managing director, whole-time director, or manager with the Registrar within sixty days of the appointment, using Form MR.1, along with the applicable fees.
What Are The Penalties For Not Adhering To The Companies (Appointment and Remuneration of Managerial Personnel) Rules?
Companies that do not appoint Key Managerial Personnel (KMP) as required by the Companies Act, 2013, are subject to substantial penalties, including:
Non-compliance can result in a fine ranging from ₹1 lakh to ₹5 lakh.
Each defaulting director or KMP may be fined up to ₹50,000, with an additional penalty of ₹1,000 per day for continued non-compliance, capped at ₹5 lakh.
In one instance, a company was penalised ₹15 lakh for failing to appoint the necessary KMP over several years, demonstrating strict enforcement of these provisions.
What Are The Roles Of The Key Managerial Personnel Under The Companies Act?
Key Managerial Personnel (KMP) hold vital roles within a company, as outlined by the Companies Act, 2013. Their key responsibilities include:
KMPs, such as the Managing Director and CEO, are responsible for developing and executing the company’s strategic plans.
They manage daily operations, ensuring the company meets the targets set by the board.
KMPs ensure the company complies with legal and regulatory standards, and they are held accountable as “officers in default” if there is a compliance failure.
The Chief Financial Officer oversees the company’s financial health, including budgeting and risk management.
KMPs act as key liaisons between the company and its stakeholders, promoting transparency and strong relationships.
What Are The Grounds For Filing A Case Under The Companies (Appointment and Remuneration of Managerial Personnel) Rules?
Grounds for filing a complaint under the Companies (Appointment and Remuneration of Managerial Personnel) Rules include:
Non-compliance with Section 203 of the Companies Act, 2013, regarding the appointment of Key Managerial Personnel.
Excessive delays in appointing KMP, which may result in penalties.
Violations of prescribed remuneration limits or failure to disclose remuneration details.
Appointing individuals who do not meet the eligibility criteria specified in the Act.
Not filing necessary documents, such as Forms MGT-14, MR-1, and DIR-12, with the Registrar of Companies within the required deadlines.
How To File A Case Under The Companies (Appointment and Remuneration of Managerial Personnel) Rules?
To file a case under the Companies (Appointment and Remuneration of Managerial Personnel) Rules, follow these steps:
Ensure the case pertains to non-compliance with the appointment or remuneration provisions as specified in the Companies Act, 2013.
Gather all necessary documents, such as board resolutions and meeting minutes related to the KMP’s appointment.
Draft a formal complaint that outlines the specific violations. Also, site the relevant sections of the Act that you have breached.
File the complaint with the Registrar of Companies (RoC). One can also file to the appropriate regulatory body like the National Company Law Tribunal (NCLT).
Follow up on the complaint and provide any additional information requested by authorities.
In conclusion, Non-compliance with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 can lead to significant penalties. Affected parties can file a complaint with the ROC or a petition with the NCLT, backed by evidence of rule violations. Penalties include fines, disqualification, and repayment of excess remuneration, aiming to ensure transparency and accountability in company governance.
