Section 118(10) of the Companies Act, 2013 made it mandatory for every company to observe Secretarial Standards on general and board meetings. According to sub – section 118(10), these two Secretarial Standards shall be “specified” by the Institute of Company Secretaries of India and “approved” as such by the Central Government.
This sub – section does not confer any power to the Institute of company Secretaries of India to “issue” any Secretarial standards. This just confer power to “specify” some standards related to general and board meeting which may have been issued by the institute.
Whether the Companies Act, 2013 somewhere else confer any power to the institute of company Secretaries of India to “issue” any secretarial standards? If yes, Secretarial Standards should be issued under the power conferred by that provision and should only be “specified” under sub – section 118(10).
Now, I read Explanation to Sub – section (1) of Section 205 of the Companies Act, 2013.
For the purpose of section 205, the expression “secretarial standards” means secretarial standards “issued” by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and “approved” by the Central Government.
The term used here clearly is “issued by” and therefore confer on the institute power to issue secretarial standards. In this explanation the institute has comprehensive power to issue secretarial standards on any secretarial practice and action.
There is a clear difference of legislative intent communicated from use of terms “specified by” in section 118(10), “issued by” in Explanation to Section 205(1) and “approved by” at both places.
Issue of Secretarial Standards:
The institute of Company Secretaries has comprehensive power to issue secretarial standards on any secretarial practice and action under power conferred by explanation to section 205(1). This issue has not legal value at all. But, this is very significant and great communication of legislative intent to the institute. Practically, Section 205(1) confers power to the institute to issue secretarial standards of global standards. Such standards may become practice and standard globally but may not necessarily have legal force for want of “approval by” Government of India.
Approval of Secretarial Standards issued:
This may be a very pertinent question in any able mind, when one organ of government of India, the institute “issue” a secretarial standard, why same legal provision confer power of approval to another organ of the government.
Reason is simple, an approval may be comprehensive approval or in part or conditional depending upon factors considered by the Central Government. When government does not want to approve a particular secretarial standard completely, it may pick some provision for approval. So, Secretarial Standards issued by the institute may become industry practice but to become legally mandatory secretarial standard Central government approval is required.
Section 205(1)(b) state, the function of the company secretary shall include – to ensure that the company complies with the “applicable secretarial standards”. Accordingly, when a secretarial standard has been “issued” by the institute and “approved” by the central government, this became duty of the company secretary to ensure compliance of secretarial standards and may not be of the company. Duty of the company regarding secretarial standards arises under section 118(10) only.
Specified Secretarial Standards:
As discussed above, Section 118(10) confers on the institute power to “specify” secretarial standards with respect to general and Board meetings. The term “specify” conveys a meaning of an act more than an act of “issue”. The institute may specify some of secretarial standards issued by it for the purpose of this section.
Approval of Specified Secretarial Standards:
Is not this another approval? One answer is ‘may not be’. As I mentioned earlier compliance of secretarial standards is not a duty of company under Section 205(1) but to observe secretarial standards with respect to general and board meeting so specified and approved became duty of the company.
Under Section 205(1), flow is “Issued”, “approved” and “ensure compliance”. While under Section 118(10), flow is “issued”, “specified” “approved” and “observe”.
Technical Fault in present secretarial Standards:
In the booklet issued by the Institute of Company Secretaries of India, it is claimed that, the institute has issued these two secretarial standards namely SS – 1 and SS – 2 claiming authority to issue under sub – section 118(10). This is, if correct, is a technical fault on part of Institute. However, this is not a correct statement.
I refer to the copy of official gazette available here and a copy of relevant portion above, this is stated that “in exercise of the powers conferred by sub – section (10) of Section 118 and explanation under sub – section (1) of section 205 of the Companies Act, 2013 (18 of 2013), the Central Government has vide letter no. 1/3/2014/CL/I dated April 10, 2015 approved the following Secretarial Standards (SS), specified by the Institute of Company Secretaries of India constituted under Section of Companies Secretaries of India, 1980 namely,:-
- SS – 1 : Meetings of the Board of Directors (Anexure I) and
- SS – 2 : General Meeting (Annexure II)
These secretarial Standards shall come into force on 1st day of July, 2015”
This is a technical fault as it is made clear that these secretarial standards are only “specified” in both these sections while Section 2015 does not confer power to specify and further these secretarial standards never “issued” as per requirement of section 205. Further Letter issued by ministry available here, does not refer to Section 205 but only Section 118(10).
I also have one query, why contents of official gazette suggest that it is an advertisement not notification?
Update on 25th May 2015
Few readers suggested a more proper picture of Gazette Copy, here it is: