CS Divesh Goyal

Short Summary:

In this Flash editorial, the auditor begins by referring the provisions of section 203 of Companies Act, 2013 and Section 383A of Companies Act, 1956 concerning to the whole time Company Secretary of the Company also makes an endeavor to light up on provisions of penalty on non appointment Company Secretary via decided case laws. The main thrust of the article, conversely, is upon the provisions of section 203(1) of Companies Act, 2013 read with rule 8 and 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 which deals with requirements of appointment of Company Secretary and most hot case laws decided by the Bengaluru Benche of National Company Law Tribunal in the case of CARMELS AISA HOLDINGS PRIVATE LIMITED.

Introduction:

Thus far, as per section 383A of Companies Act, 2013 every company having paid-up share capital of Rs.  5 crore shall have a whole-time secretary. Due to implementations of new sections and rules of Companies Act, 2013 following Companies are required to appoint whole time Company Secretary.

CS

Who is Company Secretary?

COMPANY SECRETARY: As per Section 2 sub section 24 of Companies Act, 2013

Company Secretary‖ or ―secretary‖ means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a Company Secretary under this Act;

As per Company Secretary Act, “Company Secretary” means a person who is a member of the Institute of Company Secretary of India.

DESIGNATION OF COMPANY SECRETARY:

Companies Act, 2013: As per Section 2(51) Company Secretary in Companies Act, 2013 Company Secretary will be designated as “Key Managerial Personnel”.

The Act has substantially strengthened the role and position of the company secretaries. In particular, it considers a company secretary as key managerial personnel. While this is expected to enhance the position of a company secretary, it also casts responsibility on them for due compliance with the provisions of law. It should also be noted that for non-compliance of the provisions of law, he is also an “officer-in-default” thus, subject to liability under relevant penal provisions.

Penalty – non appointment of CS:-

If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and key managerial personnel of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

Rulling by NCLT:

In NCLT ruling u/s 383A (new section 203), the Bengaluru bench of NCLT, (‘the Bench’) thereof passed an order on 15th December 2016 on the question on Non appointment of Whole Time Company Secretary.

This case involved non compliance of provisions of Companies Act, regarding of non appointment of Company Secretary. The Company approached the erstwhile CLB and the present NCLT Bengaluru to compound the offence committed u/s 383A.

It was argued by the petitioner Company that even though it had appointed many company secretaries, they left the company in search of green pastures due to this company is not able to get full time secretary during the intervening period.

Here, after analyzing the provisions of the Companies Act, 2013, the NCLT held:

Decision of the Bench

As the suo motto application is filed by the Company and they argued that company took earnest efforts to appoint a Company secretary and are using the services of practicing company secretary. The NCLT doesn’t accepted the argument and impose the penalty of amounting Rs. 472,675 on the company and its directors.

Analysis of situation of appointment of Company Secretary:-

As per act, it is mandatory for the some Companies to appoint Company Secretary. But Companies evade appointing Company Secretary to set aside the cost by giving the fake reasons like: Non avaibility of Company Secretary, Company Secretaries left the company in search of green pastures as there is less work in the company etc.

As it bestow us immense pleasure to share that ICSI has by now achieved the milestone of 50,000 associate Company Secretary. Therefore, the forged argument of non avaibility of Company Secretary is not justifiable.

Many time Companies try to give reason for non appointment of Company Secretary by states the facts i.e. there is limited work in the Company, Limited Compliances in the Company therefore there is no need to appoint the Company Secretary in the Company etc. This reason is not justifiable.

Companies should understand that Company Secretary is not a factor of cost for the Companies, they doesn’t fill role of clerk there are many advantages of Company secretary. The company secretary of a company makes sure that the company is legal obligations under corporate legislation are complied with.

♦ Helpful in Strong Commercial Benefits- Strong Commercial Benefit can result if a company has a good company secretary. If you have a good company secretary, your company will probably achieve a higher valuation.

Now the question will come into mind how the valuation of Company will increase by appointment of Company Secretary? When a purchaser and investor invest in the Company the psychological and commercial issues at play a crucial role.

A canny investor will check each key element of that deal. That checking process will flow easily if there are good records and a documented history of sound corporate governance. Even if that does not result in extra money, it will certainly eliminate many reasons where a deal could be derailed or destroyed.

You wouldn’t go to a doctor, dentist or accountant who doesn’t keep up to date so it shouldn’t be any different with boards. Company Secretary is key person for Updation of the legal compliance and advice to Board.

♦ Benefits to Stakeholder: It is not just about new investors either. Other stakeholders also benefit if the company is a well runs enterprise. Each shareholder has a strong interest; a right in fact, to know the company is being run in strict compliance with the Shareholder AgreementThat is a fundamental investment right and an obligation of the board.

Well-informed stakeholders, whether they are board members or shareholders, mean there is less chance of conflict and disputation. All eyes can remain on your sales and revenue goals if distractions are reduced.

♦ Corporate Governance: Good corporate governance is key to ensuring that the company runs as it should and the interests of the shareholders are properly protected. Professionally delivered company secretarial services will ensure that the director’s decisions and their engagement with the shareholders is run, not just legally, but as a matter of best practice.

Proof of functional governance will provide investor comfort. Investors will appreciate that good company records are indicative of good administration and decision making.

♦ Major Role of Company Secretary: – Thecompany secretary is an adviser to the chair and the board on a company’s values, purpose, and governance framework. It involves strategic thinking around why and how the company is doing business and the compliance procedures needed to ensure it operates in accordance with its values. Duties include maintaining company registers, ensuring filings are made promptly and on time with Companies House, keeping the minutes of board and committee meetings, and ensuring director service contracts are up to dat

♦ What are the biggest benefits of employing a company secretary? Having access to a governance, risk and compliance professional – someone with a grounding in finance, risk, strategy and law, and an understanding of the law of meetings.

It’s easy to think of some meetings as a doddle, but sometimes they go wrong or unexpected things happen. Agenda-setting can be viewed as a bureaucratic function but it actually needs some thought, and so do meeting minutes – it’s important to remember that one day those minutes may be read by a judge in a court of law.

(Author can be reached at csdiveshgoyal@gmail.com )

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