Ministry of Corporate Affair (MCA) amends the limit for appointment of whole time Company Secretary on 06/01/2020 by Companies (appointment and managerial personnel) Amendment, Rules 2020.

Amended provisions for appointment of Whole time CS:

Section 203 read with Rule 8 and Rule 8A of Companies (appointment and managerial personnel) Rules 2014, as amended provides that Every Listed company or Public company having paid up share capital 10 crore or more or Private company having paid up share capital of 10 crore or more shall have a whole time company secretary.

(Earlier, Every listed company or any company having paid up share capital of 5 crore or more were required to appoint whole time CS). It means limits have been increased to double.

Background of the Amendment in Rule 8A:

MCA in February 2019 introduced Form INC-22 (Active) to strengthen the governance structure. Under this, if a company with 5-crore paid-up capital and above does not intimate the particulars specified in the e-Form INC-22A (ACTIVE), including the details of CS by June 15, the company will be marked as ‘ACTIVE-non-compliant’. This means, companies cannot file with the Registrar forms seeking changes in authorised capital; paid-up capital; directors except cessation; registered office and amalgamation and de-merger.

After this, demand of CS spike to be marked as “ACTIVE compliant” company.

On 25th June, 2019 All India Federation of Tax Practitioners (AIFTP) made a representation to Hon’ble Union Minister for Finance and Corporate Affairs that the Companies are facing great difficulty in getting whole time company Secretaries due to paucity and they are demanding huge remuneration taking advantage of scarcity. Companies are unable to upload INC Form 22A prescribed under the Companies Act, in absence of availability of whole time Company Secretary. The total number of companies having paid up share capital of 5 crore and more were 27785.as on 31st December,2014 which has substantially increased in last 5 years. In 2014 there were 15364 Private companies and 12421 Public companies having paid up share capital of 5 crore & more. The total number of companies were 27785.The current figure of companies having paid up capital of Rs.5 crore or more is estimated at more than 44,000. Majority of them are in practice, so limit for appointment of cs should be revisited and enhanced to Rs. 20 Crore.

Similarly, Federation of Industry and Commerce of North East Region (FINER) in a pre-budget discussion with the Ministry of Corporate Affairs that had stated Our members and other units in the North East are finding it impossible to be compliant, and thereto are being unable to file balance sheets and documents. The debilitating provisions which now finds impossibility for performance is the appointment of full-time company secretaries with paid up share capital of Rs 5 Crores. There are just not enough people in the North East who hold the degree and are willing to work in companies. As a result, even for name lending charges of more than Rs 4 – 5 Lakhs is being sought, and even then, the number of company secretaries required is much more than the supply thereof.

During the debate of Companies Amendment Bill, 2019, Hon’able MP Shri Naresh Gujral (He is the son of Inder Kumar Gujral, former Prime Minister of India) representing Punjab in the Rajya Sabha from Shiromani Akali Dal, demands that “…. … there is one issue which, through you, I want to bring to the attention of hon. Minister. As the Act is today, there is a clause that if a company has a paid-up capital of Rs.5 crores, irrespective of its turnover, it is bound to employ a full-time Company Secretary. This makes no sense. This is illogical. In fact, it is bizarre. And, I have been raising this issue in this House for the last two years. Mr. Arun Jaitley had given me an assurance in this regard on the floor of this House. I would request the hon. Minister, in her rules, to kindly change this provision because you believe in improving our efficiency, you want the businesses to flourish.”

Impact: Facts and figure in the representations by various organizations in support of amendment of Rule 8A were factually wrong or out of context. As per data issued by ICSI from time to time clearly shows that most of the members are in the employment. As per data issued by MCA in 2015, there are 11,532 companies which fall under the bracket of paid-up share capital of above 5 crore to 10 crore. This data is of 31st December 2014, now we are in January 2020, so we can assume the there is good number of such companies.

(As on 31 December 2014):

So it is clear, this amendment is going to hit hard CS members who are in the employment. Intellectual community of this country named as Tax practitioners and few other professions complained that they have a problem in current situations for business community. These intellectuals are very sympathetic in nature towards their clients Pocket. They feel the Company Secretary is charging high to their client. Before making this amendment, MCA shall release data of Salaries paid to CS all over India, which can be checked via Form MGT-7 filed by every company (who has appointed company secretary), which may result the bitter truth of fact of charging high salary as CS. It is is true that there are some practice of name lending but it was the responsibility of the ICSI to deal with those members. Due to this amendment, many CS will get unemployed; they have to work with PCS, PCA and in law firms at low salary standard for their livelihood. CS having experience upto 5-7 years will find difficult to switch their jobs because the unemployed CS will be readily available to join the companies at any throw away remuneration. PCS community will also not be untouched by this because when CS services will be available at cheaper cost (due to unemployed CS coming into practice), no company will pay them as per standard market rate of certification services. CS profession will take a hit and pushed into 90s when only big companies used to engage the CS. Government in order to please the business community has came with a historical reform. It will be going to impact the ICSI because students will also move to other professional course.

My view: Without a company secretary, no company can claim for corporate governance. Who will ensure the compliance in these companies? I am agreed that there shall not be only one criteria for appointment of CS because only paid up share capital cannot represents the true picture of the business. Suppose a company having paid-up share capital of 5 crore or more but there is very less turnover, then it is not feasible to appoint CS. So, there was need to amend the criteria but in the right directions.

Mr. Naresh Gujral during the discussion in the Rajya Sabha suggested that there should also be criteria on the basis of turnover, and I am fully agreed with that. This amendment is not just against to members who are in the employment but is against the CS profession as a whole. My view is that CS is backbone of corporate sector which ensures the compliance which lead to corporate governance, the limit of 10 Crore in Rule 8 of Companies (appointment and managerial personnel) Rules 2014 is justified but there is need to insert other criteria like on Turnover or Net worth to be inserted so that CS profession is not affected at large scale.

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4 Comments

  1. Ritu Bhatia says:

    I am giving CS Professional exam from 2014, there are various students like me who are trying hard to become a qualified CS from so long. There are sufficient no. Of students ready to become a qualified Professional , hence it’s the responsibility of institute to maintain good results so that no authority can suppress our profession. This I strongly believe is a calculated conspiracy by some professional institute to downgrade our increasing growth and popularity.

  2. Bhadkamkar Avinash Vishnu says:

    The CS employed by earlier rule, will the employer will discontinue their services due to increase in limit of share capital? These managerial category have no legal protection.

  3. Padmanabh says:

    Company Secretaries are expected to ensure the compliance in companies. Did the Company Secretaries of Companies in which Malya, Nirav Modi, Reliance Infrastructure Limited, Dewan Housing Finance Company Limited, Jet Airways, etc. ensure corporate governance in the true sense or were they just stooges of the Promoters of the such Companies? Did the Company Secretaries have the courage to point out aberrations in corporate governance policy of the Promoters and Directors of such companies?

    1. RAJESH LACHHWANI says:

      → Think in a different way padmanabh Ji, that frauds are not detected in large companies then what will give you assurity for small companies .
      → Many statutory Auditor are also under lens .
      → So its a totally different topic you are dragging the crowd.
      → I am saying if Section 139 is made re commendatory ( which is little illogical but just imagine) can you ensure me that companies will not appoint auditors.
      → What is recommendatory is never given imporatance
      → The recommendation was with paid up capital and prescribed turnover, but they kept with Paid up capital.
      → There is a situation that a company with less turnover may require good governance support and vice versa with Paid up 10 cr. Its about governance not about only paid up capital .
      → Rest i personally believe a internal professional could help to boost compliance in good manner.
      → A statutory auditor or PCS or PCA is an independent person, a whole time CS respects them, then why you are dragging the particular topic in other manner
      Rajesh Lachhwani
      Company Secretary

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