COMPANY SECRETARY – REPORT of THE COMPANIES LAW COMMITTEE


On 1st February 2016, Ministry of Corporate Affairs uploaded the report of Companies Law Committee on its website here. In this post, I will discuss recommendations which might affect Company Secretaries.

Before reading further, I would like to disclose that I was part of two groups; Task Force on Companies Law and Research Group on Companies Law constituted by the Institute of Company Secretaries of India. All view here are personal and not of these groups or ICSI.

Officer in Default

Under earlier law, a circular was issued on 29th July 2011 conveying important guidelines to field officers that the prosecutions against ‘officers in default’ had to be initiated primarily against the managing directors, whole time directors and the company secretary, if any; and arraying of all the directors, regardless of their personal involvement was discouraged.

Committee suggested issue of similar circular under present law also.

In my view, this recommendation has one shortcoming. Earlier, there was no concept of Key Managerial Personnel and only Company Secretary was officer in default. I have view that all Key Managerial Personnel, not alone company secretaries, be included. This may be better to exclude key managerial personnel if prosecutions is not directly related to its job description in the company.

Annual Return Certification

The Companies (Second) (Removal of Difficulties) Order, 2014, replaced the words “paid up capital and turnover” with the words “paid up capital or turnover” for the purposes of prescribing thresholds for companies other than listed ones that were required to get their annual return certified by a practising company secretary.

The committee recommended bringing this through amendment in the Act.

The Committee further recommended that prescriptive powers for separate Annual Return format for small companies and one person companies, with lesser details be included in the Section.

In my view, same form with more responsive feature.

Secretarial Standards

The Committee recommended that ICSI should re-examine and revise the Secretarial Standards in consultation with all the stakeholders. The issues received from stakeholders by the Committee should also be taken into account during the re-examination. Further, the Committee felt that as it is a new concept, this requirement may be reviewed after 1 – 2 years.

I suggest, an internal assessment organized by ICSI without any participation of any member of Secretarial standard board, their employees and associates. ICSI may also request feedback on first year experience form Industry and members after close of present financial year.

I do not see any requirement for full-fledged review of Secretarial Standards by Secretarial Standards Board of ICSI.

Independent Director

While deliberating on the suggestion to allow professional fee not exceeding ten percent of the gross total income from a company in the case of a firm of auditors or company secretaries in practice or cost auditors, on the lines of the provisions in Section 149(6)(e)(ii)(B) for employees, proprietors or partners of legal or consulting firms, if appointed as an Independent Director, the Committee did not agree to the suggestion since in the case of other professionals as specified in Section 149(6)(e)(ii)(A), it could impact the independence of the professionals.

Clauses 149(6)(e)(i), inter-alia, restricts the appointment of an individual as an Independent Director in case his relative is or was a KMP or an employee in the company, its holding, subsidiary or associate company during any of the preceding three financial years. In this regard, the Committee recommended that the scope of the restriction be modified. At the point of time when a director’s independence is under consideration, it is likely to be impacted where his / her relative has held a significant position such as a director or key managerial personnel, and not at lower levels during the preceding years. For the preceding years, the restriction should, therefore, be for relatives holding Board or KMP/one level below Board position similar to that contained in Section 141(3)(f). However, it would be possible to influence an Independent Director in case his relative is also working in the situations referred to in the section irrespective of the position he holds. This scope of restriction after appointment should, therefore, be retained as prescribed.

Key Managerial Personnel

Additional Key Managerial Personnel

The Committee opined that while the current provisions limit the officers who can be designated as key managerial personnel, flexibility would be desirable for companies to designate other whole time officers of the company as key managerial personnel. The Committee further recommended that the Board can be empowered to designate other whole time officers of the company as key managerial personnel and that the definition of key managerial personnel in Section 2(51) may also be accordingly modified.

This is good suggestion. This may be possible more personnel than statutory key managerial personnel may have key managerial decision making and impact. 

Multi portfolio Key Managerial Personnel

The Committee also recommended enabling a whole time key managerial personnel, holding necessary qualifications, to hold more than one position in the same company at the same time, so as to reduce the cost of compliance for such companies, and also to utilise the capacities of these officers to the optimum level.

It seems unrestricted number of positions such whole time key managerial personnel may hold. Practically, in relatively small companies one person holding necessary qualification may hold more than one position. However, there should be some check on greed of company as well as of key managerial personnel. 

Resignation of Key Managerial Personnel

It was suggested during the public consultation process, that an enabling provision for a company secretary, Chief Financial Officer, Chief Executive Officer to file his resignation with the Registrar, on lines similar to that for a Director under Section 168, may be provided for. As information about the appointment of these key managerial personnel is required to be filed with the Registrar, it may be argued that the registry and the public should be updated through filing of change due to resignation. The Committee, therefore, recommended that a company should also file information (similar to that for auditors) on the resignation of any of the KMPs in the Registry.

This is good recommendation.

Appointment more than one company

Section 203(3) provides that whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time. The Committee noted that Section 13 of the General Clauses Act, 1897 provides that ‘singular’ shall include the ‘plural’, unless there is anything repugnant in the subject or the context. Thus, whole-time key managerial personnel may hold office in more than one subsidiary company as per the present law. Accordingly, the Committee recommended no change in this regard.

In case of Directors, statutory auditors, secretarial auditor, and several other cases, there are certain limits for positions to be held by an incumbent. Strangely, the committee left it opens ended to infinity. I suggest certain limit say two companies.

Annual Return Certification

This is one of controversial recommendation.

Section 92(2) read with Rule 11(2) prescribes that an annual return, filed by a listed company or a company having paid-up share capital of ten crore rupees or more or turnover of fifty crore rupees or more, shall be certified by a Company Secretary in practice in Form no. MGT-8.

The Committee considered the suggestions to expand the scope of certification of annual return and agreed that Company Secretaries in employment should be allowed to certify annual returns.

Political leadership may not discuss this without bias. I have arguments for and against this recommendation.

Views in support:

This is era of self certification and ease of doing business. Once, a person makes a statement and certifies same statement, became more responsible in eye of law. Law cannot presume that he shall make wrong statement. If we have proper intelligence and law enforcement network, we may reduce possibility of wrong self certification.

One should not presume that just because getting salary will make company secretary in employment to loss his independence but not getting professional fee by company secretary in practice.

This is always open to have outside opinion or second opinion from Company Secretary in Practice.

However, this could be termed as self declaration instead of self certification.

View against:

On one could judge his own cause, his own work. When certification came into picture independent professional should confirm the contents and integrity. In most companies, company secretary in employment may have do not perform all his duties himself. This is prudent to have outside independent professional to get more confidence.

All key managerial personnel may more easily form a cartel and commit fraud acting in concert. Such risk may get reduce once, an independent outside company secretary or certification service professional hired.

Most company secretaries in employment do not get time to be updated to be well versed with all legal development. However, company secretaries with multiple client experience and constant update have better knowledge and expertise to have second opinion and provide certification.

Compliance of all applicable laws referred to under Section 134(d)(f)

The Committee felt that as the company has to comply with all applicable laws, restricting the Director’s responsibility to compliance of specific laws only would not be acceptable.

Moreover, the requirement in Form MR 3 form is for the Secretarial Auditor to satisfy himself that the concerned company has proper systems and processes at the Board level to ascertain compliance of applicable laws and this is a reasonable requirement for the secretarial auditors to enquire into and report.

This is welcome recommendation. Companies Secretaries should have increased knowledge of all applicable laws. There should be short terms courses by ICSI and Law colleges to educate directors, key managerial personnel, managers, secretarial auditors and their staffs. There should be certain training modules and workshops to educate all stakeholders.

Recently, I have presented a paper in Gautam Buddha University, Greater Noida showing that there was vast difference in interpretation of term “applicable law” by various companies in banking sector.

The Committee felt that the Secretarial Auditor being an expert in corporate laws couldn’t be expected to report compliance on other laws applicable to a company. Keeping this in view, it is expected that the Secretarial Auditor has to, therefore, satisfy himself that there are appropriate board processes as well as systems in the company to monitor and ensure the compliance with applicable laws. The reporting is accordingly prescribed in the Form MR-3. The Committee took the view that no change in these prescriptions is required.

This remark is reality but. But, unless Secretarial Auditor does not expand its horizon and companies does not comply and check/ audit compliance all laws of land this does not serve true purpose of secretarial audit in long term. However, thing will take time to evolve. Secretarial Auditor should at least basic label knowledge laws relevant to relevant industry.

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.

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6 responses to “COMPANY SECRETARY – REPORT of THE COMPANIES LAW COMMITTEE

  1. Pingback: Index of Companies Law Posts - Krantikari Post

  2. Pingback: Index of Companies Law Posts | AishMGhrana

  3. Thanks for providing this information was of great help for my needs, Keep posting content related to secretarial audit firms in india

    Liked by 1 person

  4. Pingback: REPORT OF THE COMPANIES LAW COMMITTEE – 4 | AishMGhrana

  5. Pingback: REPORT OF THE COMPANIES LAW COMMITTEE – 3 | AishMGhrana

  6. Thirupal Gorige

    Very good analysis☺

    Liked by 1 person

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