TECHNICAL FAULT IN ISSUANCE OF SECRETARIAL STANDARD


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:

Booklet Copy of Secretarial Standard

Booklet Copy of Secretarial Standard

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.

Gazette Copy on Secretarial Standards

Gazette Copy on Secretarial Standards

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:

Check Marked Text

Check Marked Text

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22 responses to “TECHNICAL FAULT IN ISSUANCE OF SECRETARIAL STANDARD

  1. G V PANDURANGA GUPTA

    The Central Government is right to have ” Crown Power” to approve any Standards framed by I.C.S.I. to ensure/suit our Indian Conditions. The same is the case in F.E.M.A., S.E.B.I. Acts etc., also.
    Many global Standards will not suit for our Nation in ground reality.

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  21. Mani Srinivasan

    Before commenting on your views, I would expect you to understand and explain the scope of sections 118 & 205 of CA 2013 and how ICSI gets its statutory powers to issue the Secretarial Standards.

    In particular, section 118 of the Act deals with minutes of the proceedings of general meeting , board of directors and other meeting and resolutions passed by postal ballot. A brief look at section 118(1) of the Act shows that it covers the meetings of the creditors as well. In sum and substance, this section covers all the meetings of a company since the words “ other Meeting” occurring in this section is of wider amplitude.

    Therefore, the scope and sweep of section 118 is very wide and covers all kinds of meetings of a company including the creditors meetings. Any meeting falling within the ambit of this section shall be held in accordance the relevant Standards of ICSI approved by the Central Government.

    As a corollary , the relevant Standards shall also deal with all the matters set out in this section. Though Section 118 (10) of the Act says that “every company” shall observe the secretarial standards with respect to general meetings and board meetings specified by ICSI “ the SSB in their wisdom chose to exclude one person companies from the purview of the relevant Standards approved by the CG in this regard.

    IMHO, This omission goes against the legislative intent. Certain minimum standards with respect to OPCs ought to have been included in the Standard. Instead of issuing a general standard, different classes of companies may be mandated to follow different compliance related requirements with certain basic mandatory requirements applicable for all companies.

    Per contra, section 205 of CA 2013 dealing with functions of the Company secretary also refers to the adherence by the secretarial standards issued by ICSI and approved by the Central Government.

    It is crystal clear that unless the CG approves that Secretarial Standards issued by ICSI , they are not mandatory under either section 118 (10) or 205 (1) (b) of CA 2013.

    Whilst section 205 imposes the mandatory duty on the part of the CS to ensure that the Secretarial Standards issued by the ICSI and approved by CG are complied with , section118 (10) of the Act mandates that every company shall observe the relevant Standards in respect of matters covered under that section and approved by the CG.

    In short, as the statutory body regulated by an Act of the Parliament, ICSI derives powers to issue Secretarial Standards independently under the CS Act, 1980 and it may take appropriate action under the said Act against its members for their failure to follow them. For this simple reason, at the time of voluntary secretarial audit many years back, I commented on the compliance with the Secretarial Standards issued by ICSI in my audit report.

    Now, touching on the specific issues you have raised, unless the Standards are issued by ICSI and approved by CG, the cause of action under section 205 (1) or 118 (10) of the Act does not arise though a member of ICSI may still be guilty of misconduct under CS Act, 1980 for his failure to follow them during the course of his employment or make suitable remarks in his capacity as a CS in practice.

    You have proceeded in your analysis without examining the scope and sweep of sections 118 and 205 of CA 2013 confining yourself to the words “issued” and “specified” occurring in section 205 (1) and 118 (10) of the Act.

    You must know that unless the Standards are duly issued by ICSI , there is no question of specifying them under Section 118 (10) of the Act. Therefore, “issued “is a general term that refers to all the Standards duly issued by ICSI in exercise of its powers under the CS Act, 1980 while the word” specified” refers to the specific standards concerning the matters set out in section 118 of the Act out of all the Standards issued by ICSI. In both cases, the approval of CG is mandatory in the context of sections 118 (10) and 205 (1) of CA, 2013.

    Now, in a hypothetical situation where all the Standards also covering the specific Standards in respect of matters set out in section 118 of the Act duly issued by ICSI have been notified by CG under section 205 of the Act, but there is no specific notification by CG under section 118 (10) of the Act, what will happen?

    Can we say that since there is no separate CG notification under section 118 (10) of the Act, the specific Standards relating to meetings of Board and share holders / other meetings issued by ICSI and approved by CG u/s 205 of the Act is not valid under Section 118 (10) of the Act?

    The answer is a big NO. Whether the CG issues a separate notification u/s 118 (10) or not, the moment it issues a notification u/s 205 (1) including the specific standards covering section 118 matters, they automatically get statutory force under section 118 (10) of the Act also. In this context, section 205 (1) is wider than section 118 of the Act.

    To sum up:

    1.ICSI derives the statutory power to issue secretarial standards pursuant to the provisions of the CS Act, 1980 in the same way other two professional bodies derive their powers to issue accounting standards/ cost accounting standards from their relevant Acts governing the respective professions.
    2.ICSI has been validly issuing secretarial standards binding on its members even before the commencement of CA 2013, by virtue of provisions in CS Act, 1980.
    3.Therefore, the words “ issue” and “specified” in the context of Section 205 and 118 of the Act shall be understood as Standards issued by ICSI under the CS Act, 1980 and out of such Standards, specific Standards dealing with the matters covered under section 118 of CA 2013.
    4.In both cases, CG approval is mandatory to make them effective under CA, 2013.

    Regards,
    Mani Srinivasan

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