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Clause 178 – Appointment of Key Managerial Personnel

13.23 This clause seeks to provide that every company belonging to such class or description of companies, as prescribed by the Central Government, shall have whole-time key managerial personnel.

13.24 Clause 178 (1) read as follows:

―Every company belonging to such class or description of companies as may be prescribed shall have whole-time key managerial personnel.

13.25 ICSI in their written memorandum submitted to the Committee suggested as follows :-

The Bill may be specific in respect of the class or description of companies which shall be required to have whole time key managerial personnel. It is suggested that every listed company and every other company having paid-up share capital of Rupees Five crores or more should mandatorily be required to employ whole-time key managerial personnel.

13.26 Reply of the Ministry on this suggestion is given as under:

The suggestion is to specifically indicate in clause 178(1,) the paid-up share capital of Rs. 5 crore or more as the class or description of companies to whom the requirement of this clause shall be applicable.

It is felt that since there may be need for revising the limit under clause 178(1) from time to time, the provisions proposed in the clause may not be considered to be modified and the flexibility proposed in the Bill on this matter may be continued.

13.27 However, the Ministry have also suggested an alternate clause to clause 178(1) which is given as follows: ―178. (1) Every company having a paid up share capital of Rs. 5 crore or more or such other amount as may be prescribed by Central Government from time to time shall have whole-time key managerial personnel:
Provided that an individual shall not be the Chairman of the company as well as the Managing Director or Chief Executive Officer of the company at the same time.
Provided further that every company existing on or before the commencement of this Act shall comply with the requirements of this sub-section within one year from the date of commencement of this Act.

13.28 The Committee are of the view that the proposal originally contained in the Bill in clause 178 (1) regarding appointment of KMP may be retained with a view to providing flexibility to decide the threshold limit of companies which shall compulsorily have whole-time KMP. The other modifications proposed above in Clause 178 (1) regarding appointment of KMP may be duly incorporated.



13.29 Clause 178 (3) reads as under:

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

Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the company.
13.30 While submitting their written memorandum on this clause, PHDCCI suggested as follows:

It is not clear as to permission of the company‘ would mean permission of the authorised person or the Board of Directors or the general body of the company. Seeking permission of the general body of the company is not justified for this purpose.

Therefore, the words ‗permission of the company‘ appearing in the proviso to Clause 178(3) should be replaced with permission of the Board of Directors or authorised person of the company‘

It is not clear if the term ‗whole time key managerial personnel‘ would include a managing director on a whole time basis. The existing Companies Act does not define a whole-time managing director. Accordingly, it is also not clear if a managing director would be restricted from being a managing director in two companies, as is permitted in the present Act.

The Clause should also include transitional provisions for conforming to the new requirement if a managing director/ manager holds office in more than one company at the same time.
13.31 While disagreeing with the above said suggestion, the Ministry in their written information explained the position as under :-

Provisions of clause 178 (3) prohibit appointment of a whole-time KMP in more than one company. Since provisions of clause 178 are proposed to be made applicable to a class or description of companies (i.e. bigger companies), companies not covered under such prescription are likely to have flexibility on the matter relating to appointment of managerial personnel in more than one company. In view of this, there may not be any necessity for modification in the Bill on this matter.

13.32 The Committee while accepting the Ministry‟s viewpoint on this sub-clause, would suggest that the words „permission of the company‟ included in the sub-clause may be suitably clarified.

13.33 In accordance with the suggestions made by the Committee to include secretarial audit for bigger companies delineation of functions and role of chief financial officer and company secretary, the Ministry have proposed to include three new sub-clauses 178A, 178B and 178C in clause 178, which are given as below:

―New sub-clause 178A- Provisions to be included in the Bill to mandate Secretarial audit for bigger companies

New Clause 178A- (1) Every company having a paid up share capital of rupees five crore or more or such other amount as may be prescribed by Central Government from time to time shall annex with its Board‘s Report made in terms of sub-section (3) of section 120 of the Act, a Secretarial Audit Report given by a company secretary in practice in such form as may be prescribed.
(2) It shall be the duty of the company to give all assistance and facilities to the company secretary in practice for auditing the secretarial and other records of the company.
(3) The Board of Directors, in their Report made in terms of sub-section (3) of section 120 of the Act, shall explain in full any qualification or observation or other remarks made by company secretary in practice in his report under sub-section(1).
(4) Where any default is made in complying with the provisions of this section,—
(a) the company and every officer who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees;
(b) The company secretary in practice who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

New sub-clause 178B - Functions/ Role of CFO to be provided.

New clause 178B: The chief financial officer shall be responsible for the proper maintenance of the books of account of the company, and shall ensure proper disclosure of all required financial information indicated in the prospectus or any other offer document, risk management, internal control mechanism, and also ensure compliance of the provisions of this Act relating to preparation and filing of annual accounts of the company.

New sub-clause 178C –Functions of Company Secretaries to be provided.

New Clause 178C - The functions of Company Secretary shall include:--

(a) to convene Board and general meetings, to attend the board and general meetings and maintain the record of the minutes of these meetings.
(b) to obtain approvals from the Board, general meetings, the Government and such other authorities as required under the provisions of this Act;
(c) to assist and advise the board in the conduct of the affairs of the company.
(d) to assist and advise the board in ensuring good corporate governance and in complying with the corporate governance requirements and good practices;
(e) to ensure that the company complies with the applicable secretarial standards.

Explanation. - For the purpose of this clause, the term ―Secretarial Standards means Secretarial Standards issued by the Institute of Company Secretaries of India and approved by the Central Government.

13.34 The Committee would like the Ministry to suitably incorporate the new sub-clauses as proposed above in the Bill relating to secretarial audit, delineation of functions and role of chief financial officer and company secretary.