Position of Company Secretaries under Companies Bill, 2011

Position of Company Secretaries under Companies Bill, 2011

1.   Company Secretaries as Key Managerial Personnel (KMP) (Clause 203)

In clause 203 of the Companies Bill, 2011, the Company Secretaries are recognized as whole-time key managerial personnel along with Managing Director, Chief Executive Officer and managers. Also Companies Bill, 2011 has made the appointment of Company Secretary mandatory.

As per clause 203 of Companies Bill, 2011, every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel,—

i. Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; and

ii. Company Secretary [Company Secretary here means a Member of the Institute of Company Secretaries of India.]

Companies Bill 2011, also provides the definition of Key Managerial Personnel under Clause 2(51) of the Bill, which is as follows:

“Key Managerial Personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the Company Secretary;

(iii) the Chief Financial Officer if the Board of Directors appoints him; and

(iv) such other officer as may be prescribed;

Every Company Secretary being a KMP shall be appointed by a resolution of the Board which shall contain the terms and conditions of appointment including the remuneration. If the vacancy in the office of KMP is created, the same has to be filled up by the Board at a meeting of the Board within a period of six months from the date of such vacancy [clause 203(2) & (4)].

2.   Company Secretaries as Experts

The definition of “Expert” given in clause 2(38) also includes Company Secretaries.

“expert” includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force;

Role of Experts has been mentioned clause 26 & 388 regarding prospectus, clause 211 regarding The Serious Fraud Investigation Office, clause 232 regarding mergers & amalgamations, clause 259 regarding appointment as Company Administrartor, clause 442 regarding appointment as mediation & conciliation member.

3.   Non- appointment of CS – no defence available now

Under section 383A of the Companies Act, 1956, a defence of “poor economic condition” was available regarding non-appointment of company Secretary. By Companies Bill, 2011, the same defence has been removed. Now a company falling in the criteria to appoint CS, cannot escape its liability to appoint a company Secretary just because poor economic condition.

4.   Provision of penalty for non-appointment of CS

Earlier the penalty for non-appointment of company Secretary was Rs. 500 per day. But considering the appointment of company Secretary important, Companies Bill, 2011 propose the penalty for non-appointment of CS as follows:

a.   On company – one lakh rupees which may extend to five lakh rupees.

b.   On every director and KMP who is in default – 50,000 rupees and 1,000 rupees per day if contravention continues.

5.   Certification of Annual Return of the company (Clause- 92)

A much detailed role has been proposed for company secretaries in employment and in practice as well through clause 92 of the Companies Bill, 2011. As per clause 92 of the new Companies Bill, 2011, every company shall prepare its Annual return in the prescribed form containing the particulars as they stood on the close of the financial year regarding just like previous Section 159 of the Companies Act, 1956.

Now Annual Return is required to be signed by:

(i)                  A director and the Company Secretary, or where there is no Company Secretary, by a Company Secretary in whole-time practice.

It means that now in respect of all the companies, whether private or public, listed or unlisted, if no Company Secretary is appointed by the company, the Annual Return is compulsorily required to be signed by the Company Secretary in practice.

(ii)                 In case of listed companies and companies having such paid-up capital and turnover as may be prescribed, the Annual Return is also to be signed by a Company Secretary in whole-time practice certifying that the annual return states the facts correctly and adequately and that the company has complied with all the provisions of the Act, in the prescribed form.

It means, in case of a listed company, even if the Annual Return is signed by the Company Secretary in employment of the Company, it is further required to be signed by the Company Secretary in Whole time practice.

Also, in case of a company having such paid up capital and turnover as may be prescribed and even if the company is not listed, the Annual Return is required to be signed by the Company Secretary in whole time practice in addition to the Company Secretary in employment.

(iii)                In relation to a One Person Company and Small Company, the annual return is required to be signed by the Company Secretary, or where there is no Company Secretary, by one director of the company.

Penalty: If a Company Secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made there under, he shall be punishable with fine which shall not be less than Rs. 50,000/-, but which may extend to Rs.5.00 Lacs.

6.   Role of Company Secretary in Internal Audit (Clause – 138)

Clause 138 of the Companies Bill, 2011 gives discretion to the Board to appoint Company Secretary for conducting internal audit.

138. (1) Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.

(2) The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.

7.   Introduction of Secretarial Audit (Clause 204)

Clause 204 of the Companies Bill, 2011 explains the proposed provisions relating to Secretarial Audit which are as follows:

a.   Every listed company and a company belonging to other class of companies as may be prescribed (we have to wait till finalization of rules to understand the coverage) shall annex with its Board’s report a Secretarial Audit Report, given by a Company Secretary in Practice, in such form as may be prescribed.

b.   It shall be the duty of the company to give all assistance and facilities to the Company Secretary in Practice, for auditing the secretarial and related records of the company.

c.   The Board of Directors, in their report shall explain in full any qualification or observation or other remarks made by the Company Secretary in Practice in his report.

Penalty: If a company or any officer of the company or the Company Secretary in Practice, contravenes the provisions of this section, the company, every officer of the company or the Company Secretary in Practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

This indicates that the Government is serious about good Corporate Governance.

8.   Functions of a Company Secretary (Clause 205)

Functions of a Company Secretary has been proposed for the very first time, which shall include,—

a.   to report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company;

b.   to ensure that the company complies with the applicable secretarial standards issued by ICSI and approved by Central Government;

c.   to discharge such other duties as may be prescribed.

This clearly indicates that law makers are quite serious regarding the position of Company Secretaries in the corporate and this is the reason why major responsibilities are prescribed for Company Secretaries in new Companies Bill, 2011.

9.   First time recognition of Secretarial Standards (Clause 118 & 205)

For the first time, the Secretarial Standards has been introduced and provided statutory recognition in the Act.

As per clause 118(10) of the Companies Bill, 2011:

“Every company shall observe Secretarial Standards with respect General and Board Meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government.”

Further as per clause 205(1)(b) of the Companies Bill, 2011 the functions of Company Secretary includes the compliance of the applicable Secretarial Standards.

10.        Professional assistance to Company Liquidator (Clause 291)

The Company Liquidator may, with the sanction of the Tribunal, appoint one or more professionals including Company Secretaries to assist him in the performance of his duties and functions under the Act.

11.        Appearance Before NCLT (Clause 432)

Clause 432 of the Companies Bill, 2011, seeks to provide that a party to the proceeding may appear in person or authorise a Company Secretary or Legal practitioner to present the case before the Tribunal or the Appellate Tribunal.