In this chapter the researcher has discussed about the functions and roles of the key

managerial personnel as defined under Companies Act, 2013. It has further discussed about
the rights of KMP entailed in Companies Act, 2013. Finally, the researcher has analysed the
word ‘subsidiary’ mentioned in section 203(3)(a) and tried to answer whether a KMP can be
appointed to the subsidiaries of the company.

Role of a Company Secretary

A new provision in the form of section 205 was introduced under Companies Act, 2013.
Companies Act, 1956 does not entail any similar provision. Under this, the functions of
company secretary have been provided.1 It basically covers three areas wherein the company
secretary has to perform necessary functions. The functions of company secretary are not
restricted to the areas as defined under clauses a) b) and c).

The company secretary provides an important linkage between a company and board of
directors, government, regulatory authorities, shareholders and other stakeholders.2 It makes
sure that procedures of the Board are being obeyed to and consistently reviewed. It guides
the chairman and the directors regarding the various provision of the laws. In all together it
serves at a high position in regard to value and performs as a conscience seeker of the
company.

Corporate Governance and Secretarial Services

It performs a vital function in guidance of good governance practices and following corporate
governance norms as provided under Corporate, Securities and various other business laws. It
also provides assistance in developing social and sustainable framework. 3 It is also
responsible for securities related work. It acts as a custodian of corporate records, statutory
books and registers.

Corporate Laws Advisory and Representation Services

It plays an important role in setting up of subsidiaries and in foreign collaborations. 4 It also
works on joint ventures and drafting of legal documents, IPR protection, management,
valuation and audit. It also represents company in front of National Company Law Tribunal,
Competition Commission of India, Securities Appellate, Consumer Tribunals and other
quasi- judicial bodies.

Arbitration and Conciliation Services

It performs an advisory role in arbitration, negotiation and conciliation between parties in

commercial disputes. It also acts as an arbitrator/conciliator in domestic and international
commercial disputes. It also drafts Arbitration/Conciliation clauses and agreements.

Role of a Chief Financial Officer

The Chief Financial officer is designated at a valuable position in an organisation, it controls

the financial reigns of the company and it aims at financial resources are used in right

1
Companies Act, 2013, s 205.
2
A. Ramaiya, Guide to The Companies Act (Volume 2, 18th edn, LexisNexis 2015) 3841.
3
The Institute of Company Secretaries of India, Report on the Role of Company Secretary (Vol. 1) 14.
4
Ibid.
direction and efficiently.5 The role of chief financial officer has become vital in corporate
governance since the world now often faces global financial crisis and economic downturn.

The CFO is one of the key members in the corporate teams that helps in developing and
implementing strategy in order to achieve company’s objective by utilising resources to its
efficiency.6 One of the main functions of CFO is to achieve maximum value for money and to
secure stewardship. These are the key aspects displayed by CFO in public service
organisation. There are certain other functions which are performed by the CFO.

Promotion of financial management and Value for Money

It helps in assessing the company’s financial management style and suggests improvements
to align the company’s objection along the right direction.7 It also promotes financial literacy
throughout the corporate organisation. It also ensures that financial proposals are signed off
by the finance function. It also develops and maintain appropriate asset management and
procurement strategies. It also manages long term contract value.

Assurance and Scrutiny

It plays an important role of reporting performances of both the company and its partnership
to the board and other parties. It supports and advises the Audit Committee and helps in other
scrutiny processes. It also prepares published budgets, annual accounts and consolidation data
for government level consolidated accounts. It’s function also includes liaising with external
auditors.

Safeguarding Public Money

It enforces strong control over financial management, risk management and asset control. It
implements appropriate measures as to prevent and detect fraud and corruptions. 8It over sees
the capital project and reviews post completion. It also ensures that delegated financial
authorities are respected. It continuously seeks to improve the financial function.

Role of a Chief Executive Officer

One of the important role of CEO is to facilitate the efficient working of the board. 9 It also
includes primary functions such setting the objectives and agenda of the company and
implement them by communicating them at all levels amongst the staff in accordance with
the Board. It also involves regular reporting to the Board to review its working and to help in
better discharge of its functions.

It also includes communicating the chairman and the board with all the relevant matters and
informing if expenditure surpasses beyond delegated amount, changes in the policy of the

5
S.M.Mintz, Corporate Governance Systems, Emerald Publishing, 103, 2007.
6
Ibid.
7
The Chartered Institute of Public Finance & Accountancy, The role of Chief Financial Officer in Public
Service Organisations, Keystones 2015.
8
Ibid.
9
T Buyl, Top Management team functional diversity and firm performance : The moderating Role of CEO
charactersics, Journal of Management Studies 48(1), 151-177, 2011.
company. 10It also involves the delegation of work to the senior management and supervising
the working of the executive directors. Overseeing the daily and ensuring that company has
enough resources to carry out its mission.

Role played by a Director within the Company

The Companies Act characterizes a Director as including any individual possessing the
position of a Director, by whatever name called.11 Along these lines, an individual who has
been legitimately named or chosen to the Board of Directors of the organization and for
whom the pertinent form has been filed with the authorities, is recognised at a position of a
Director, independent of any title that may have been consented to between the organization
and such individual.

A Direct0r is a pers0n charged with the c0nduct and management of the c0mpany’s activities.
The Directors (as a b0dy, the “Board of Directors” or the “Board”), act as a team, under the
auth0rity of a meeting that is pr0perly c0nvened and is duly qu0rate, with0ut impr0per
exclusi0n of any of the Direct0rs. The B0ard, then, as a team, c0nducts and regulates the
affairs of the c0mpany. The C0mpanies Act emp0wers the B0ard to do all such activities as
the c0mpany is authorized t0 exercise, unless any law 0r the c0nstitutional d0cuments of the
c0mpany requires the exercise 0f the p0wer, 0r the d0ing of any act 0r thing, to be by the
c0mpany in general meeting.

Generally, a Director assumes a double job, (i) as an agent of the company; and (ii) as a
person with a fiduciary duty to the company, while discharging his duties. A Director once in
a while has opportunity to exercise his obligations as an individual Director. It is the B 0ard
that has the p0wer and auth0rity to carry 0n the activities 0f the c0mpany and t0 meet the
business 0bjectives 0f the c0mpany as a team. 12

Acting individually, a Direct0r has n0 p0wer t0 act 0n behalf 0f the c0mpany in any matter,
except t0 the extent to which any p0wer 0r p0wers of the B0ard have been delegated to him
by the B0ard, within the limits prescribed under the C0mpanies Act or any 0ther law.13
C0ntracts entered int0 by a Direct0r are binding 0n the c0mpany 0nly if they are within his
actual auth0rity or if the articles of ass0ciation of the c0mpany, or the c0mpany’s bye-laws or
internal rules of management (“Articles”), pr0vide f0r the delegation of such p0wer by a
B0ard resolution, whether or n0t such p0wer has actually been delegated.

Director as an ‘officer in default’: Under the Companies Act, obligation for any default is
generally not credited to all individuals from the Board. In many occasions under the
Companies Act, obligation is ascribed as per provisions of the Companies Act just to an
'officer in default'.14 The term ‘officer in default’ can cover the Managing Director, the
Whole-time Direct0r, the Manager, the Secretary of the c0mpany, or any pers0n in
acc0rdance with whose instructi0ns the B0ard is accust0med to act and any pers0n charged
by the B0ard with resp0nsibility for any such c0mpliance. Where a c0mpany d0es n0t have a
10
Buyl (n 9).
11
C.B. Ingley, Corporate Governance: An International Review, 174-87,2001.
12
Companies Act, 2013, s 179.
13
Ramaiya (n 2) 3083.
14
Ramaiya (n 2) 3083.
Managing Direct0r, a Whole-time Direct0r or a Manager, any Director specified by the
B0ard, or where n0 such Direct0r has been determined, everyone of the Direct 0rs may be
considered to be ‘officers in default’.

Rights of KMP mentioned under Companies Act, 2013

Under section 21 of the Companies act, 2013 the key managerial personnel have the power of
duly authenticating the document by signing them. This provision is similar to that of section
54 of Companies act, 1956. Section 21 is broader in scope as it includes contracts made by or
on behalf of the company as well. Earlier sections only included documents and proceedings.

Section 177(7) also entails rights regarding Key Managerial Personnel, it states that KMP and
Auditors shall have the right to be heard in the meetings of the Audit Committee but they
don’t have the right to vote in the meeting.

Whether a KMP can be appointed to the subsidiaries of the company?

Section 203(3) provides exception as to when a KMP can hold more than one office in a
company. Clause a) states that person holding an office in company can hold office in of the
subsidiary. The dilemma which poses here is whether ‘subsidiary’ should be interpreted as
plural or singular.
Section 13 of the General Clauses Act, 1897 states that unless there is anything repugnant in
the subject or context then all the words in the singular which are encapsulated under all
Central Acts and Regulations shall be read as plural.
The basic legislative intent of section 203 is the improved compliance and better governance
by ensuring that Companies have Key Managerial Personnel performing their functions
efficiently.15 KMPs have been assigned with specific duties and obligations.
It will be against legislative intent if one is to render the meaning of subsidiary in plural form.
Appointing a person as KMP in more than one subsidiary would not justify the role of the
KMP.
One of the most common rule of interpretation that interpretation of the statute should be
harmonious and constructive. Section 13 of the General Clauses Act, 1897 would be
applicable if there is nothing repugnant in the subject. But in this case if literal interpretation
is to be taken then it will create uncertainty and the law will lack clarity.
It will deeply affect the working and time devotion of the KMP, if this concept is extended to
all the subsidiaries then the performance of the company is ought to get hampered.16
Other provisions also such as regulation 25 of SEBI regulations, restricts the person from
serving as independent director of more than seven companies. And the person if serving as
whole time director in any listed company shall not be the independent direction in more than
three listed companies.
From this provision it can be inferred that provisions have been written with a view of
restricting the persons from holding many key management positions for better corporate
governance.
Hence, from the above analysis it can be said that harmonious and constructive interpretation
would mean that subsidiary should be construed as ‘singular’ i.e only one subsidiary.

15
Ibid 3528.
16
Ramaiya (n 2) 3085.
Conclusion
The researcher explained how vital are KMP in the corporate governance by focusing on the
functions performed by them within the company. Researcher tried analysing the word
‘subsidiary’ mention in clause (a) of section 203(3) in order to construe whether ‘subsidiary’
should be read as singular or plural. The researcher tried to restrict the ambiguity by trying to
understand the legislative intent of section and construe harmonious and constructive
interpretation of the same.