CLG:MCA:2016    Dated: February 15, 2016

Shri Tapan Ray
Secretary
Ministry of Corporate Affairs
Shastri Bhawan
New Delhi 110001

Dear Sir,

Sub:Para no. 7.6 of Part II of the Report of Companies Law Committee

Ref: Notice inviting comments on the Report of Companies Law Committee reg.

This is with reference to subject captioned above, wherein Ministry has invited comments from the stakeholders in Report of Company Law Committee. In order to avoid repetition/duplication of comments/suggestions, the Ministry desired the members/ patrons of the Professional Institutes/ Councils/ Industry Chambers to route their comments/ suggestions through respective Institute/Council/Chamber.

In this regard, the ICSI has invited comments from its members and other stakeholders. After receiving the comments, the said comments / suggestions were placed before Special Meeting of the Central Council of ICSI and after due deliberations, we hereby submit as under:

1. Para no. 7.6 of Part II of the Report of Companies Law Committee is reproduced as under:

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.

ICSI submissions with reference to the recommendation that Company Secretaries in employment should be allowed to certify annual return is that the Annual Return must be certified independently by a Company Secretary in Practice only and not by the same  person who has made the Annual Return himself.

JUSTIFICATION:

a) We submit that Part II of the Report relates to the recommendations proposing the amendments to the Rules. Para no. 7.6 of Part II proposes amendment to the relevant rule for allowing company secretaries in employment to certify annual return whereas sub-section (2) of section 92 of the Act requires that the annual return filed by specified companies shall be certified by company secretary in practice. It is submitted that since Rules should be in consonance with the Act, the proposed recommendation in the rules to allow employee Company Secretaries to certify Annual Return will not be in addition but in derogation of what is prescribed in the Act.

The legislature in its wisdom had clearly drawn the distinction of signing and certification of annual return and also tried to distinguish that only certain category of companies will be subject to certification.

Signing of Annual Return: Section 92(1) of the Companies Act, 2013 requires that Annual Return of every company should be signed by a director and the company secretary. When a director and a company secretary in employment sign the Annual Return under section 92(1), they authenticate the correctness of the facts stated in the return.

Certification of Annual Return: Section 92(2) of the Companies Act, 2013 requires that the 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.

Certification is an independent scrutiny of the information furnished by the management of the company in the Annual Return. Since, this certification requires independent view, it should not be done by the same individual who is in any case required to verify the content of said Annual Return by putting his signature under section 92(1) of the Act.

There should be two different signing mechanism one for the purpose of signing under section 92(1) of the Companies Act, 2013 and the other for certification under section 92(2) of the Companies Act, 2013. The maker and checker concept should be established clearly with the verification of records.

Considering the clear intent of the legislature and respecting the views of the committee, the recommendation to allow Company Secretaries in employment to certify Annual Return, which is against the intent of the legislature, be withdrawn as Rules cannot override the Act.

b) Section 6 of Company Secretaries Act 1980 prohibits certification by Company Secretary in employment

In terms of Section 24, any person who being member of the Institute, but not having the certificate of practice represents that he is in practice or practises as a company secretary shall be penalised. The Company Secretary in practise is specialised in assignment relating to certification, accordingly, certification being their forte, a company secretary in employment should not be allowed to certify.

c)    Standing Committee in its Report on the Companies Bill, 2009

The Standing Committee in its Report on the Companies Bill, 2009 recommended the insertion of the provision relating to certification by Company Secretary in practice in addition to the signing of the annual return by Company Secretary in employment.

The relevant extracts are as under:

“7.8 Further, the suggestion for placing an obligation on the Company to provide every assistance to the Company Secretary in whole time practice to enable him to verify any record or information etc. in connection with certification of annual return of the company may be considered for inclusion in the clause.”

“7.13 The Committee recommend that the new provision requiring return to be filed with Registrar, in case promoters‟ stake changes beyond a limit, in order to provide audit trail of ownership may be duly incorporated in the Bill. The Committee would also recommend in this regard that any adverse remarks or qualification, made by the Company Secretary-in-whole time practice, while certifying the annual return, should be necessarily explained for or commented upon in the Board’s report.”

d)  Annual Compliance certificate by PCS is not a new concept. (Introduced vide Companies (Companies (Amendment) Act, 1988)

Certification of Annual Return is not a new provision introduced by the Companies Act, 2013. Section 161 of the Companies Act, 1956 provided for the certification by the Practicing Company Secretaries of Annual Returns of listed companies. Further, Section 383A of the Companies Act, 1956 provided for the annual compliance certificate by the practicing company secretaries for the companies with paid-up capital of Rs.10 Lacs or more and upto Rs.5 Crore. The scope of 383A (Compliance Certificate) has been, to a large extent, done away with having regard the cost of compliance for the smaller companies.

e) Annual Return contains critical information which requires scrutiny to provide comfort level to stakeholders of the specified companies

Annual Return contains particulars such as registered office, principal business activities, particulars of holding, subsidiary and associate companies, its shares, debentures and other securities, members, promoters etc. It also states details of the meetings of members, Board of Directors and its committees, remuneration of directors, KMP and whole range of matters related to compliances and important non- financial disclosures. The Annual Return thus gives at one place a comprehensive view of the structure of the company during the year and makes vital non-financial disclosures.

Certification of Annual Return involves verification of vital documents to check correctness/ facts of data provided by management of the company. Accordingly, Annual Return Certification has to be conducted by an independent professional and this provision is aimed at self regulation.

The objective of certification is to give the necessary comfort to the various stakeholders that the facts stated in the annual return are correct and adequate and that the affairs of the company are being conducted in accordance with the legal requirements. The certification also protects the companies from the consequences of non – compliance of the provisions of the Act. Accordingly, the concept of certification and signing are made to achieve the legal compliance process under the Act.

Accordingly, we once again submit that the proposed recommendation in Para no. 7.6 of Part II may be withdrawn and Annual Return must be certified independently by Company Secretary in Practice.

Thanking you,

Yours Sincerely,

(CS Mamta Binani)
President

————

Shri Amardeep Singh Bhatia
Joint Secretary
Ministry of Corporate Affairs
Shastri Bhawan
New Delhi

Source- ICSI

More Under Company Law

Posted Under

Category : Company Law (2999)
Type : Featured (3632) News (11075)
Tags : Companies Act (1525) Companies Act 2013 (1279) company secretaries (129) ICSI (338)

Search Posts by Date