Appointment of One Individual as CFO, Company Secretary and Manager

A Hidden Compliance Pitfall under Section 203 of the Companies Act, 2013

1. Introduction

One of the most frequently overlooked compliance issues under the Companies Act, 2013 relates to the appointment of Key Managerial Personnel (KMP) under Section 203. In practice, companies—particularly unlisted public companies—often attempt to optimise operational costs by assigning multiple statutory roles to a single qualified professional. While such arrangements may appear commercially prudent, they frequently result in statutory non-compliance, exposing the company and its officers to penalties and governance risks.

This article examines a commonly encountered scenario where a single individual is appointed as Chief Financial Officer (CFO), Company Secretary (CS), and subsequently designated as Manager, and analyses the legal validity of such an arrangement under the Companies Act, 2013.

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2. Typical Corporate Practice Giving Rise to Non-Compliance

In a standard factual situation, an unlisted public company having a paid-up share capital of ?20 crore appoints a professionally qualified individual as its Chief Financial Officer. The individual is also a member of the Institute of Company Secretaries of India (ICSI). In order to minimise costs and reduce headcount, the company further appoints the same individual as its Company Secretary. At a later stage, the Board designates the individual as Manager within the meaning of the Act.

From a commercial standpoint, the arrangement appears efficient, as the company technically fulfils the requirement of appointing all prescribed Key Managerial Personnel. However, from a legal and governance perspective, such an arrangement is fundamentally flawed.

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3. Statutory Framework Governing Appointment of KMP

3.1 Applicability of Section 203

Section 203(1) of the Companies Act, 2013, read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, mandates the appointment of whole-time Key Managerial Personnel by every listed company and every other public company having a paid-up share capital of ?10 crore or more.

Accordingly, an unlisted public company with a paid-up share capital of ?20 crore squarely falls within the ambit of Section 203 and is required to comply with its provisions in letter and spirit.

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3.2 Mandatory Key Managerial Personnel under Section 203

Section 203 prescribes that the following whole-time Key Managerial Personnel shall be appointed:

(a) a Managing Director, or Chief Executive Officer, or Manager, and in their absence, a whole-time Director;
(b) a Company Secretary; and
(c) a Chief Financial Officer.

The use of the conjunctive term “and” is deliberate and significant. It clearly indicates that these positions are to be separately occupied, unless the Act expressly permits a combination of roles.

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4. Interpretation of the Word “And” and Legislative Intent

The legislative intent behind Section 203 is to ensure segregation of managerial, financial, and compliance functionswithin a company. The Act consciously distinguishes between executive management, financial oversight, and legal-compliance supervision.

Unlike certain other provisions of the Act where dual roles are expressly permitted—for instance, the same individual being appointed as Managing Director and Chief Executive Officer—Section 203 contains no enabling provisionallowing a single individual to hold the positions of CFO, Company Secretary, and Manager simultaneously.

Therefore, any interpretation permitting consolidation of all KMP roles into one individual would be contrary to the express wording and underlying intent of the statute.

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5. Conflict with the Concept of Corporate Governance

5.1 Role of the Chief Financial Officer

The Chief Financial Officer is responsible for maintaining the financial integrity of the company, ensuring robust internal controls, and overseeing financial reporting and disclosures.

5.2 Role of the Company Secretary

The Company Secretary acts as the principal compliance officer of the company. The role involves advising the Board on legal obligations, ensuring adherence to corporate laws, maintaining statutory records, and reporting non-compliances to the Board.

5.3 Role of the Manager

A Manager, as defined under Section 2(53) of the Act, is entrusted with the management of the whole or substantially the whole of the affairs of the company, subject to the superintendence and control of the Board of Directors.

5.4 Inherent Conflict in Combining Roles

When one individual occupies all three roles, the same person is responsible for executive decision-making, financial control, and statutory oversight. This arrangement defeats the principle of checks and balances, as the individual effectively becomes accountable to himself. Such concentration of authority directly undermines corporate governance norms and regulatory expectations.

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6. Whether Qualification or Professional Membership Cures the Defect

A common misconception is that professional qualifications, such as membership of ICSI or ICAI, legitimise multiple KMP appointments. However, eligibility does not override statutory structure.

The Companies Act does not question the competence of the individual; rather, it regulates the distribution of authority and responsibility within the corporate framework. Hence, professional qualification alone cannot cure the illegality arising from improper KMP structuring.

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7. Legal Consequences of Non-Compliance

7.1 Penal Provisions

Section 203(5) of the Act prescribes penalties for non-compliance. The company is liable to a penalty which may extend up to ?5 lakh. Every director and Key Managerial Personnel in default is liable to a penalty which may extend to ?50,000, with an additional penalty of ?1,000 per day for continuing default, subject to prescribed limits.

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7.2 Other Regulatory and Practical Implications

Apart from monetary penalties, such non-compliance may result in adverse observations in the Secretarial Audit Reportand qualifications by statutory auditors. It may also adversely impact regulatory inspections, due diligence exercises, and corporate transactions involving lenders or investors.

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8. Correct and Compliant KMP Structuring

For an unlisted public company with paid-up share capital of Rs. 20 crore, compliance with Section 203 requires that the roles of Manager (or MD/CEO), Company Secretary, and Chief Financial Officer be occupied by distinct individuals.

While cost considerations are relevant from a business perspective, they cannot be allowed to override statutory mandates. Companies may consider engaging professionals on appropriate employment or contractual terms, but the identity of the office holders must remain distinct.

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9. Conclusion

The appointment of a single individual as Chief Financial Officer, Company Secretary, and Manager—even where the individual is professionally qualified—constitutes a clear violation of Section 203 of the Companies Act, 2013. Such arrangements dilute governance standards, defeat the purpose of KMP segregation, and expose companies and their directors to avoidable regulatory risk.

Corporate compliance is not merely about filling statutory positions, but about ensuring that each role functions independently and effectively. Cost efficiency, though important, cannot come at the cost of legal compliance.

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Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc

LegalMantra.net team

Anshul Goel

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