Compliance of Secretarial Standards – Whether mandatory requirement for all companies?

Compliance of Secretarial Standards

Whether mandatory requirement for all companies?

PREAMBLE

In accordance with the requirement of the Section 118(10) of the Companies Act, 2013 (˜the Act™), every company shall observe secretarial standards (˜SS™) with respect to general and Board meetings specified by the Institute of Company Secretaries of India (˜ICSI™).  Insertion of this requirement in the Act is one of the landmark development for the profession of the company secretaries and the ICSI. The rationale of mandating the compliance of non financial standard would ensure that all companies adopt uniform practice in convening the meetings, agenda items which should be placed before the board and finalisation of minutes etc. Further, it is generally assumed that the minuscule compliance and good governance would be ensured if the companies follow the said SS effectively.

RESPONSIBILITY OF PERSON TO COMPLY SS

As per section of 205 of the Act, the function of the Company Secretary (CS) includes to ensure that the company complies with the applicable SS. This means that it would be the duty of the CS, which is a apt position also, to ensure that SS relating to general and Board meetings or such other SS as may be specified by the ICSI, and approved by the Central Government (˜CG™) are complied with. Nevertheless, there would be many more SS which would be required to be complied with upon approval of the CG in the time to come.

NECESSITY OF APPOINTMENT OF CS

In accordance with the section 203 of the Act, read with the draft rules issued by the Ministry of Company Affairs (˜MCA™), every listed company and every other company having a paid-up share capital of Rs.5 crores shall have whole-time key managerial personnel (˜KMPs™). KMPs means managing director/ Chief Executive Officer/  manager/ whole-time director; company secretary and Chief Financial Officer.

POINT OF DELIBERATION

Section 118 states that every company shall observe SS. This means that irrespective of the criteria of capital, listing, turnover, profit etc., all companies are required to observe SS. On the other side, requirement of appointment of whole-time CS lies only with the listed companies and every other company whose paid-up capital is Rs.5 crores or more.  The questions that now arose is that who would be responsible to observe the SS in the companies those are not required to appoint whole-time CS.   There may be a argument that if the company is not required to appoint CS then the requirement of observing SS would not arise as compliance of SS is the function of CS. However, this argument would not sustain as section 118 requires all the companies to observe SS.

WAY FORWARD

MCA while notifying the section relating to SS should clarify that all companies would be required to observe SS irrespective of the fact whether the company is required to appoint CS or not. In the absence of such clarity, the companies which are not required to appoint CS may argue that they are also not required to observe SS as it is the functions of CS which is not required to be mandatorily appointed in their respective companies. This would invite unnecessary litigations which can be avoided if the same clarified.

CONCLUSION

The intention of the legislatures to observe SS appears to be clear as it would oblige the companies to adopt uniform practices in conducting Board & general meetings, matter pertaining to placing agenda, finalisation of minutes etc.  Further, miniscule compliance and corporate governance is bound to increase tremendously once the companies, irrespective of capital, turnover, profit etc., start complying with the SS.

 *****************

Disclaimer:  The views expressed in this article are solely the views of the author and are not connected in any way with the views of the Company/ or the Group where the author is employed.

By: Narendra Singh, Company Secretary, Essel Mining & Industries Limited (An Aditya Birla Group Company)

Tags: Aditya Birla GroupCompanies ActCompany SecretaryCorporate Affairs MinistryICSIInstitute of Company Secretaries of IndiaMCAPublic company

profile image

About Narendra Singh

Narendra Singh | Company Secretary

Corporate Law Referencer

Recent Articles

Recent Legal updates

Recent Gst Updates