Is KMP defined under the Materiality Policy of the Company? - MMJC

The term Key Managerial Personnel (KMP) is defined under the Companies Act, 2013 (the Act), SEBI Listing Obligations and Disclosure Regulations (LODR), and under the SEBI Issue of Capital and Disclosure Regulations (ICDR).

The term KMP under the Act and the SEBI LODR covers Managing Director (MD), Chief Executive Officer (CEO), Whole-time Director (WTD), Chief Financial officer (CFO), and Company Secretary (CS) as KMP. Moreover, the power has been given to the Board of Directors (Board) to designate additional people who are in whole –time employment of the Company and not more than one level below the directors as KMPs.

However, when a Company pursues an Initial Public Offer (IPO), the ICDR regulations also get triggered. KMP as per ICDR covers the following:

• Members of the core management team other than board,
• Management Team one level below executive director,
• Functional heads,
• KMPs as per the Companies Act and
• Any person whom the issuer company declares KMP

So, a person for eg Head of Human Resource (Functional head) would be a KMP as per SEBI ICDR but not as per the Companies Act or LODR.

The listed entity is required to make disclosure of events/information to the stock exchange under regulation 30 of LODR which are material in the opinion of the Board and that includes any changes in KMP. Further, the listed entity is also required to determine the criteria of materiality to disclose material events/information.

Interestingly, the difference in the definition of a KMP under the LODR leads to a situation wherein a resignation of a person listed as a KMP in the draft document need not mandatorily be disclosed to the stock exchanges post listing.

Recently, in one of the cases of start-up which got listed through IPO – didn’t announce the resignation of the Co-founder and the head of supply at the time of IPO and was also termed as the KMP under the DRHP and was questioned by the stock exchange for non-disclosure.

The KMP provided in the prospectus are generally key people in the organisation which may or may not be on board and their exit need not be mandatorily disclosed to the stock exchange post listing. Their exit may affect the public at large and price sensitive.

These start-ups may face allegations from the stock exchanges as to why the disclosure was not provided. They can avoid such situations and allegations by setting the grounds as to which KMP from the prospectus is material for the listed entity and any change from those would be informed to the stock exchange.