This article is written by Anurag Verma, pursuing a Certificate Course in Companies Act from LawSikho.com. Here he discusses “Appointment, Role, Functions, and Removal of Company Secretary in India”.
Introduction
Similar to Hindu Religion which has 3 main deities namely Brahma, Vishnu and Mahesh, the corporate sector in India is aided by 3 powerful professionals – Chartered Accountant (“CA”), Company Secretary (“CS”) and Cost Accountant. In spite of the fact that CS’s have received statutory recognition almost 4 decades back[1], the role of a CS, its perception and its removal have changed a lot since its inception causing lack of clarity. This article discusses at length on the mandatory appointment of CS, role, and functions of CS along with the removal of CS.
Mandatory appointment of CS
As per section 2(1)(c) of the Company Secretaries Act, 1980 ‘Company Secretary’(“CS”) means a person who is a member of the Institute of Company Secretaries of India. CS has been defined as ‘Key managerial personnel’, in relation to a company[2]
S.203[3] of Companies Act, 2013 read with Rules 8 and 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provide that following companies must appoint a qualified company secretary –
(a) Listed Company
(b) Public company which have a paid-up capital of Rs.10 crores or more;
(c) Other companies which have a paid up capital of Rs.5 crores or more.
It is to be noted that the provisions of compulsory appointment of CS are not applicable to S.8 (licensed i.e. non-profit) companies.[4]
Process of appointment of CS – A CS shall be appointed by resolution of Board of Directors, containing the terms and conditions of appointment including the remuneration.[5]
Penalty for not appointing CS when mandatory – If any company makes any default in complying with the provisions of section 203, such company shall be liable to a penalty of Rs.5 lakh and every director and key managerial personnel of the company who is in default shall be liable to a penalty of Rs.50,000 and where the default is a continuing one, with a further penalty of Rs.1,000 for each day after the first during which such default continues but not exceeding Rs.5 lakh.[6] Until 2-11-2018, the section provided for a fine which could be imposed only by Court but now, the penalty can be imposed by Registrar of Companies (“ROC”) who is authorized for this purpose. Earlier, the offence was compoundable but the procedure of compounding had to be complied with but now, directly penalty can be imposed.
Role and Functions of CS
The profession of CS began on a humble note in the late 19th century. There have been many instances of courts viewing CS as a clerk or even a servant in the past.[7] This view was changed by the landmark English decision of Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd[8]. Lord Denning MR observed that there has been a change in the role of CS’s over a period of time, they are no longer mere clerks and may sign contracts on the company’s behalf. Salmon LJ observed that CS is like ‘chief administrative officer’ of the company so he has ostensible authority regarding administrative matters.
This view has been incorporated in the Companies Act, 2013 which has included CS in the category of Key Managerial Persons.
Functions
The functions of Company Secretary shall include the following u/s 205(1) of Companies Act, 2013 —
- to report to the Board about compliance with the provisions of this Act, the rules made thereunder and other laws applicable to the company;
- to ensure that the company complies with the applicable secretarial standards;
- to discharge such other duties as may be prescribed.
Other duties of Company Secretary – Other duties of Company Secretary, as specified in Rule 10 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 such as guiding directors of a company, facilitate the convening of Board meetings, obtaining approvals, representing before regulators, assisting the Board in discharge of affairs including good corporate governance and such other matters as may be entrusted to him.
Record keeping and filing of returns – A CS is expected to maintain registers and keep records as are required under Companies Act. CS has to ensure that required returns and documents are filed with ROC in time as per legal requirements. CS has to coordinate between Registrars and Share Transfer Agents.
Demat shares – CS coordinates between depository and stock exchange in case of issuance of Demat shares.
Service to shareholder – A CS is expected to serve as a link between shareholders and the company. He has to ensure that shareholders get proper service, like transfer and transmission of shares, keep proper records of members, payment of dividend, rights/bonus issue, etc. He has to solve the difficulties and problems of shareholders and reply to their correspondence.
Meeting of members and board – CS is required to coordinate Board meetings and general meetings e.g. finalising dates, sending notices, making arrangement for meetings, advise Chairperson of meeting on legal requirements, etc. He has to draft minutes of meetings of members, the board of directors and committee of directors, get them approved by Chairperson, record the minutes and get them signed within the prescribed time.
Service to Board – CS is expected to provide services to the Board of Directors to enable them to do their work effectively. He should organise Board meetings, keep minutes, etc. If the Board of Directors is the brain of the company, the Secretary is the ears, eyes, and hands of the Board. He is expected to work as ‘friend, philosopher and guide’ of the Board of Directors to advise them about legal provisions. It is expected that he advises directors about their legal responsibilities. He should keep them informed of the company’s operations so that they can make effective decisions for the management of the company and ensure that provisions of the law are not violated.
Coordination between departmental heads and Board – CS is a link between the Board of Directors and other executives who have to function under overall supervision and control of the Board. He has to coordinate approvals required by various departments. He is also normally expected to advise other departments about legal requirements.
Secretary of the audit committee – CS will be secretary of the Audit Committee which is required to be formed by listed companies under SEBI’s listing agreement. He is appointed as ‘Compliance Officer’.
CS as Compliance Officer ofa listed company – As per Regulation 6 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015[9], the listed entity shall appoint a qualified company secretary as the compliance officer (not applicable to mutual funds). The CS should (a) ensure conformity with regulatory provisions applicable (b) coordinate with Board, stock exchange and depositories (c) ensure that correct procedures have been followed (d) monitoring email address of grievance redressal division for registering complaints by investors.
Conscious keeper – CS is often termed as ‘conscious keeper’ of the company. He should ensure that all legal requirements in respect of various laws are complied with and the company is a ‘good corporate citizen’, fulfilling its social obligations as well.
Additional duties – In addition to duties as CS, he is entrusted with additional duties like looking after legal, personnel, financial matters and even general administration.
Removal of CS
A CS can be removed/dismissed like other employees. Since he is appointed by Board, the removal can also be only by Board. The removal has to be in accordance with the employment agreement. A resolution from the Board would be necessary for removal. There is a need for clear and sufficient reason for removal. Principles of natural justice (“PNJ”) like Audi alteram partem, nemo judex in causa sua, reasoned order etc. need to be followed. A Secretary appointed for a fixed period can also be removed. If a Secretary resigns or is removed, the change must be filed with ROC within 30 days in e-Form.
Conclusion
Today as a key managerial person of a company at the centre of the decision-making process, the CS is in a powerful position of influence. CS assists and guides the directors and other key managerial persons in their pursuit of profit and growth and needs to act with integrity and independence to protect the interests of the company, its shareholders and its employees. Besides, he is expected to guide management in legal matters, particularly relating to corporate laws. Today’s CS plays a pro-active and central role in the governance of the company far beyond the traditional role of a compliance officer as required by various laws. To conclude, we can say that compliance with the law is the only key to success.
References
- Company Secretaries Act, 1980 (w.e.f. from 1st Jan, 1981)
- S.2(51) of Companies Act, 2013. Though he is not ‘managerial personnel’ for purpose of restrictions on managerial remuneration
- S.203(1)(ii) of Companies Act, 2013 [corresponding to section 383A(1) of the 1956 Act]
- MCA Notification dated 5-6-2015 issued under S.462 of Companies Act, 2013.
- S.203(5) of Companies Act, 2013 amended by the Companies (Amendment) Second Ordinance, 2019.
- S.203(5) of Companies Act, 2013 amended by the Companies (Amendment) Second Ordinance, 2019.
- K.A. Krishna v. Indo Union Assurance Co. Ltd. [1944] 14 Comp. Cas. 10 (Mad.)
- [1971] 2 QB 711
- w.e.f from 1-12-2015
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