The role of the Chief Financial Officer (CFO) in a company is pivotal, overseeing financial management, statutory compliance, strategic planning, and corporate governance. A common query among corporates and professionals is whether a CFO can simultaneously hold the position of a Director in the same company. The legal framework under the Companies Act, 2013, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) provides clarity on this matter.
Legal Provisions and Applicability
As per Section 203 of the Companies Act, 2013, every listed company and every other public company with a paid-up share capital of ₹10 crore or more is required to appoint certain Whole-Time Key Managerial Personnel (KMP):
- Managing Director, Chief Executive Officer (CEO), or Manager, and in their absence, a Whole-Time Director.
- Company Secretary. and
- Chief Financial Officer.
The Act allows a whole-time KMP, such as a CFO, to also serve as a Director in the same company, provided the Board grants approval and proper statutory procedures are followed. A KMP cannot hold office in more than one company at a time, except in its subsidiary.
SEBI LODR Guidelines
Under LODR, the CFO (or Whole-Time Finance Director/Head of Finance) is required to head and discharge the finance function and certify the company’s financial results. Any vacancy in the CFO position must be filled within three months, and the CFO, along with the CEO, must provide a compliance certificate to the Board confirming the accuracy and completeness of financial disclosures.
These provisions reinforce the criticality of the CFO’s position in corporate governance and allow the possibility of the CFO serving as a Director, ensuring direct representation of the finance function at the Board level.
Practical Examples in Listed Companies
- Bata India Limited: Mr. Anil Ramesh Somani joined as CFO (KMP) on April 3, 2023, and was subsequently appointed as a Whole-Time Director, designated Director Finance and CFO (KMP), effective April 25, 2023.
- Oil and Natural Gas Corporation Limited (ONGC): Mr. V.C. Tongaonkar serves as Director (Finance) and CFO, reflecting the established practice of combining the CFO role with Board-level responsibilities.
Important Points to Note
- CFO Can Only Be a Whole-Time Director
- A CFO is involved in day-to-day financial operations and decision-making.
- Therefore, a CFO cannot be appointed as an Independent Director or Non-Executive Director.
- Separate Whole-Time Directors Must Exist
- Section 203 requires three distinct roles: CEO/MD/Manager/Whole-Time Director, Company Secretary, and CFO.
- If a CFO is also a Whole-Time Director, another WTD, MD, or Manager must exist to satisfy statutory KMP requirements.
- Board Approval and Disclosures
- Appointment must be made by a Board Resolution, specifying terms, remuneration, and responsibilities.
- Proper filings must be made with MCA (Form DIR-12) and in Annual Returns (MGT-7).
- Remuneration Considerations
- Dual roles should not result in double compensation for overlapping responsibilities.
- Remuneration must comply with Sections 196, 197, and Schedule V of the Companies Act, 2013.
Conclusion
A CFO can be appointed as a Whole-Time Director in the same company. This dual role is fully compliant with the Companies Act, 2013, and SEBI LODR, provided proper Board approvals, terms of appointment, remuneration, and disclosures are maintained, and another WTD/MD/Manager exists as required. This arrangement strengthens financial leadership while ensuring direct Board oversight, enhancing transparency, accountability, and governance standards.