CAN AN INDIVIDUAL BE APPOINTED AS CFO CUM COMPANY SECRETARY IN A LISTED COMPANY?

 

CAN AN INDIVIDUAL  BE APPOINTED AS

 CFO CUM COMPANY SECRETARY IN A

 LISTED COMPANY?

Asian Paints Ltd, a listed company has appointed Mr. R J Jeyamurugan, CFO & Company Secretary,  who is  the Key Managerial Personnel ("KMP") of the Company in accordance with the provision of Sections 2(51) and 203 of the Act read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Please note that 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.

As per the Companies Act 2013, every listed company and every other public company having a paid-up share capital of ten crores rupees or more are required to appoint a chief financial officer and also a company secretary.

In pursuant to section 203(1) of the Companies Act 2013 ,every listed company and every other public company having a paid-up share capital of ten crores rupees or more, 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.

As per above, each listed company shall have at least 3 KMPs, i.e. CEO, CFO and CS.

 How come one person can have more than one office as in the case of Asian Paints Limited ?

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.

POINTS TO PONDER?

1.     Some professionals are arguing that there is no explicit prohibition regarding the appointment of the same person as CFO and CS .

However we need to understand the intention of the law. As a way of interpretation, the same person can be appointed as CEO, CFO and CS all offices. And while signing the financials also the same person can sign in the capacity of three offices.

2.     However, some  argue that these offices are all independent as per understanding and interpretation, how Asian paints have it, that's the matter of case study.

3.     We have to refer to Article 78 of Table F. It is expressly restricted for an individual to occupy two KMPs role.

4.     Article 77 allows a director to be appointed as CS or CFO subject to 78. But there is no such provision allowing the same person to be CS and CFO. There is conflict of interest.

5.     Some professionals are arguing that the Articles of Association (AOA) can be modified in accordance with the company requirements.

6.     But it is practically may not be able to fill and file the required forms for two KMPs for both positions for a single person because as we have of linked the same PAN for both KMPs.

7.     The intention of the law is very clear, each person shall be appointed for each office especially if you are a listed company or a large public company.

8.     We could request MCA to clarify the same, by having the article in model Table F .MCA have clearly mentioned the intention that separate persons shall be appointed. But they have allowed in Asian paints case.

9.     Consider these questions.

If the Audit Committee wants to discuss something in the absence of CFO,    and CS is the CFO, what happens?

If, as a CFO you don't want to disclose something, but as CS you have to ensure compliance, what happens?

Can we go on compromising on compliance issues?

10. Let MCA clarifies that action of Asian Paints is correct by appointing a same person as CFO and CS in a listed company?

11. This will help other listed companies or large public companies to club the two or three KMPs into one?

R V SECKAR FCS ,LLB  79047 19295