A major turn of events is the recent resignation of an industrialist named Gautam Adani as an executive director at the Adani Ports and Special Economic Zone Ltd (APSEZ) and has since assumed the Non-Executive Chairman role. The step has received extensive publicity, both in corporate terms, as well as legally and in terms of regulatory framing, especially in terms of the Indian Companies Act, 2013.
The purpose of this article is to bring a clear and simple legal opinion of such corporate restructuring and explain the major concepts of this section of Companies Act, 2013 and the implication of this change to the company, the stake holders and Mr. Adani himself.
Knowledge on Key Managerial Personnel (KMP) relating to Companies Act, 2013
To put this aspect in perspective, we would first examine the legal definition of the Key Managerial Personnel or KMP. Companies Act, 2013, introduced much desired emphasis on corporate governance by putting into clear picture the roles and responsibilities of some of the key individuals who run a company.
KMP is defined as follows in Section 2(51) of the Act:
- Its Chief Executive Officer (CEO) or the Managing Director (MD) or the Manager.
- The Company Secretary.
- The whole-time Director.
- The Chief Financial officer (CFO).
- Such other officer as is prescribed.
The law directs some types of companies, all listed companies, and publicly traded companies having a paid-up share capital of 10 crores or more to have whole-time KMPs. These are the working executives and it is up to them the day to day running and adherence of the company. They are the major interface between the company and its diverse stakeholders like the shareholders, the regulators, and the populace.
Section 203 of the Essentialness of a Single Company Rule The Role
Because section 203(3) of Companies Act, 2013, has certain elements that are vital within the framework of the re-designation. In this section, a primary rule of KMPs is put forward:
A whole-time key managerial personnel cannot be in more than or concurrently in the office of two companies but that of its subsidiary company.
This is one of the pillars of contemporary corporate governance. Its primary goal is to have power not overconcentrated on a one person and to make a KMP be able to pay his/her full attention and time to the operations of a company. The law acknowledges such a heavy burden of obligation as having an executive position brings and does not want to risk any possible conflict of interest or split loyalty as may result in the scenario of a KMP possessing similar positions in two or more companies.
Although the law does not prohibit a KMP to become director in a second company, it is only with clear authorization of the board. The purpose of the law, however, is obvious enough an executive position, or a working management position should be a full-time commitment to a single corporation.
Gautam Adani needs to re-designate: It was a decision of legal compliance
It is reported that the resignation of Gautam Adani, as the Executive Chairman and KMP at Adani Ports was a direct effect of this provision. Although he is still the Executive Chairman of the flagship firm of Adani Group which is Adani Enterprises, his similar position in the Adani Ports was not in accordance to Section 203(3).
Upgrading to the position of Non-Executive Chairman at APSEZ implies that Mr. Adani is no longer a Key Managerial Personnel as far as that company is concerned. The so called Non-Executive Chairman is technically a different position. A non executive chairman offers strategic leadership and coordination to the board of directors as well as the company but does not lend his or her hand in the day to day running and management of the company. This is in contrast to an Executive Chairman position, where the head of board, is the active participant in the daily operations of the company.
This re-designation will thus enable Mr. Adani to continue to serve as the head of the Adani Group with the top overall strategic oversight, but also technically meet the legal requirements of the one company provision with regards to where executive officers are appointed. Such a move is also in line with a larger pattern of succession planning, not just in the Adani Group where his son Karan Adani already runs the ports operation.
What are the Consequences of such Change?
There are a few important implications of the re-designation both legally Speaking and in the corporate governance sense:
- Adherence to the Law: The most concrete implication is that, Adani Ports is currently fully compliant with strict stipulations of the Companies Act, 2013, on the appointment of KMPs. This improves the corporate governance structure of the company and confirms its tendency to comply with the law.
- Less Oversight of Daily Operation: Gautam Adani may have less legal oversight of daily operation of Adani Ports given the fact that he is a non-executive chairman. Now the main control and responsibility of management of the company lies in the hands of the other whole-time directors and KMPs, among whom the Managing Director and CEO are. This difference is significant because it restricts his responsibility in case some operational failures and non-compliance matters occur after his re-designation. It must be observed, however, that a director who has resigned re his executive position continues to become liable to any activities or crimes happening within the tenure.
- Giving priority to Strategic Direction: Having withdrawn into the operational requirements of Adani Ports, Mr. Adani can now devote more undivided attention to the strategic direction and development of the other companies within his diversified Adani Group, especially his dual responsibilities as an Executive Chairman of Adani Enterprises which has the incubation of new businesses as a core mandate. This enables deeper division and aspect of leadership with regard to various firms.
- Empowered Corporate Governance: The step highlights the significance of an effective and clear corporate governance structure. The Companies Act, 2013, was aimed at bringing in improved transparency and accountability in the business in India. Adani Ports is strengthening its beliefs by obeying the letter and the spirit of the law. The independent status and governance of the board is further reinforced by the appointment of an independent director namely Manish Kejriwal.
The departure of Gautam Adani as the key manager in Adani Ports does not merely qualify to be a regular corporate news but is an obvious piece of evidence where a giant Indian corporation is moulding its top management structure according to the strict provisions of the Companies Act, 2013. The resulting re-designation- spurred by the requirement of the one company rule to the KMPs on Section 203(3) results in a legal compliance since it serves as a cross-over to the strategic division of functions and more focused orientation towards the leadership of the massive Adani Group. This action reflects the increased emphasis that is being given to the aspect of corporate governance and the legal frameworks under which the operations of companies in India abide to in order to ensure that the most influential business leaders fall within the legal connotations of the outlined laws.
