[Opinion] RoC Penalizes Company and its CEO for the Non-appointment of CFO and CS

Prof R Balakrishnan – [2023] 149 taxmann.com 274 (Article)

1. A brief of this case

This particular case which is being examined is, in respect of a listed company in which the appointment of chief financial officer and company secretary both in whole time employment was not done though, the company was mandatorily required to appoint both the position (being KMPs), since the company was the listed entity.

2. Appointment of chief financial officer/company secretary

As per the Companies Act 2013, every listed company and every other public company having a paid-up share capital of ten crore rupees or more are required to appoint a chief financial officer and also a company secretary besides chief executive officer/managing director as key managerial personnel (KMP). It may be noted that a chief financial officer and a company secretary who is appointed as key managerial personnel shall not hold office in more than one company except in the subsidiary company at the same time.

3. Relevant provisions of the Companies Act 2013 pertaining to this case

In pursuant to section 203(1) of the Companies Act 2013, every company belonging to such class or classes of companies as may be prescribed under Rule 8 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules 2014 shall have the following whole-time key managerial personnel:-

(i) Managing director or Chief Executive Officer or manager in their absence a whole time director;

(ii) Company Secretary and

(iii) Chief Financial Officer.

The prescribed companies for the appointment of whole-time key managerial personnel as above are that of every listed company and every other public company having a paid-up share capital of ten crore rupees or more.

4. Penal Provisions for default (if any) committed by the company

As per section 203(5) of the Companies Act 2013, any company which is mandatorily required to appoint a chief financial officer and company secretary, if don’t appoint, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

The penal provisions would operate in respect of both positions individually i.e. penalty would be levied separately for default in each case.

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