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Schedule A Demo

Procedure for Appointment of Chief Financial Officer (Key Management Personnel)

Background 

  • Every listed company and every other public company having a paid-up share capital of ten crore rupees or more shall have whole-time key managerial personnel:
    • Managing Director, or Chief Executive Officer or Manager and in their absence, a Whole-time Director;
    • Company Secretary; and
    • Chief Financial Officer

[Section 203 of Companies Act 2013 read with Rule 8 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014]

  • Key Managerial Personnel”, in relation to a company, means—
    • the Chief Executive Officer or the managing director or the manager;
    • the company secretary;
    • the whole-time director;
    • the Chief Financial Officer;
    • such other officer, not more than one level below the Directors who is in whole-time employment, designated as key managerial personnel by the Board; and
    • such other officer as may be prescribed;

[Section 2(51) of the Companies Act 2013]

Sections/Rules/Regulations 

  • Sections 173, 177, 178, 203 of the Companies Act, 2013 
  • Rule 8 of the Companies (Appointment & Qualifications of Directors) Rules, 2014 
  • Regulations 26A, 30 and 46 of the SEBI (LODR) Regulations, 2015 
  • Clauses of Secretarial Standards-1 

Mandatory Requirements & Important Points 

  • Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration. [Section 203 (2) of the Companies Act, 2013] 
  • A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time. This shall however not disentitle a key managerial personnel from being a director of any company with the permission of the Board.

[ Section 203 (3) of the Companies Act, 2013]

  • If the office of any whole-time KMP is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy. 

[ Section 203 (4) of the Companies Act, 2013]

  • In case of a Listed Entity, any vacancy in the office of the Chief Financial Officer shall be filled by the listed entity at the earliest and in any case not later than three months from the date of such vacancy: 

Provided that where the listed entity is required to obtain approval of regulatory, government or statutory authorities to fill up such vacancy, then the vacancy shall be filled up by the listed entity at the earliest and in any case not later than six months from the date of vacancy. 

Provided further that the listed entity shall not fill such vacancy by appointing a person in interim capacity, unless such appointment is made in accordance with the laws applicable in case of a fresh appointment to such office and the obligations under such laws are made applicable to such person. [Regulation 26A (2) of the SEBI (LODR) Regulations, 2015] 

  • Any vacancy in the office of Chief Financial Officer of such listed entity in respect of which a resolution plan under section 31 of the Insolvency Code has been approved, shall be filled within a period of three months of such approval. However, in the interim, such listed entity shall have not less than one full-time key managerial personnel managing its day-to-day affairs. [Regulation 26A (3) of the SEBI (LODR) Regulations, 2015]

 

  • The audit committee of a listed entity shall approve the appointment of chief financial officer after assessing the qualifications, experience and background, etc. of the candidates. [Schedule II Part C: Role of Audit Committee and Review of Information by Audit Committee of SEBI(LODR) Regulations, 2015]

Procedure for Appointment of CFO:

  1. Meeting of Nomination & Remuneration Committee (NRC), if required:

Where the companies are required to constitute NRC, the appointment and remuneration of the CFO shall be recommended by the said Committee to the Board. (NRC – In case of Listed companies and Public Companies having a paid-up share capital of Rs. 10 cr or more or turnover of Rs. 100 cr or more or aggregate o/s loans/debentures/deposits exceeding Rs. 50 cr, a meeting of Nomination and Remuneration Committee shall be held for identifying the persons who may be appointed in senior management as per the criteria laid down and recommend to the Board their appointment. NRC also formulates a Policy relating to remuneration of Directors, KMP and other employees) [Section 178 of the Companies Act, 2013]

  1. Audit Committee recommendation, if required: 

Where a Company is required to constitute an Audit Committee under Section 177 of the Companies Act, 2013, the appointment and remuneration of the CFO shall be recommended by this committee to the Board.

  1. Meeting of Board of Directors to be convened as per Section 173 of the Companies Act, 2013 and Secretarial Standard-1:   
  • Notice of the Board Meeting shall be issued to all Directors at their registered addresses by post or hand delivery or by electronic means at least 7 days before the date of the board meeting, with provision for shorter notice in case of urgent business.    
  • The notice shall include agenda, notes to agenda, and draft resolution.    
  • The Board at its meeting shall pass the necessary board resolution:
  • To approve the appointment of CFO based on the recommendations made by the NCR and Audit Committee (if required).  
  • To authorize CS or director to sign and file the relevant forms and to perform all the necessary deeds for implementing board’s resolution.    
  • Appointment letter shall be issued to the newly appointed CFO. 
  • Listed companies shall disclose the outcome of the Board Meeting to the Stock Exchange within 30 minutes/ 3 hours as applicable*[Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and also on website of the Company within 2 working days from the date of board meeting. [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity.    

*If the Board meeting is concluded after normal trading hours but more than 3 hours before the beginning of the normal trading hours the outcome to be disclosed within 3 hours from the closure of the board meeting.    

[It is pertinent to note that SEBI has provided timeline for disclosing events given in Part A of Schedule III of LODR as 12 hours , however in a small note appended at the end of the said document, it’s stated that where the event emanates from a decision taken in Board Meeting, the same shall be disclosed within 30 min/3 hours as applicable as per Regulation 30(6), from the closure of the meeting as against the timeline of 12 hours]

  • Draft Minutes shall be prepared and circulated within 15 days from the conclusion of the Board Meeting.    

 

  1. Post Appointment Requirement:
  • Every listed company and other public company shall file MGT-14 with the Registrar within 30 days from the date of passing Board for appointment of CFO
  • DIR-12 shall be filed with the Registrar within 30 days from the date of appointment of the CFO by the Company along with the CTC of Board resolution, Appointment Letter, Consent Letter, etc
  • Company shall make necessary entries in its registers.  

Penalties & Punishments  

  • As per Companies Act, 2013  
    • Section 203 (5): If any company makes any default in complying with the provisions of this section, 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.  
  • As per SEBI (LODR) Regulations, 2015:  

Regulations 

Penalty & Punishments 

26A (2),(3) & 30   

General penalty:   

Listed entity/any other person who contravenes any provision of the regulations shall be liable for one or more of the following penalties/actions as deemed fit by the regulator:   

a) action as per Securities Law  

b) fine  

c) suspension of trading  

d)freezing of promoter/promoter group holding of designated securities, as may be applicable, in coordination with depositories  

e) any other action specified by Board   

46   

Advisory/warning letter per instance of non-compliance per item ₹10,000 per instance for every additional advisory/warning letter exceeding the four advisory/ warning letters in a financial year   



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