1004:7:DR
November 28, 2006
Shri Prem Chand Gupta
Hon’ble Minister of Company Affairs
Ministry of Company Affairs
Shastri Bhawan
New Delhi – 110 001
Respected Sir,
SUB:
COMPANY
SECRETARY’S POSITION
NEED
STRENGTHENING TO ENSURE GOOD GOVERNANCE
FOR
FURTHER
The Government is in the process of enacting New Company Law with the aim to bring about a
compact and simplified Company Law that would be able to address the issues arising out of
changes taking place in the national and international scenario. It is envisioned that the law
should enable self-regulation but impose greater accountability through disclosures and speedy
administration of reasonable legal sanctions. The emphasis of new law is also on enacting
measures to protect the interest of stakeholders and investors, including small investors, through
legal basis for sound corporate governance practices.
COMPANY SECRETARY - A CATALYST TO GOOD GOVERNANCE
Good governance relates to systems of supervision, monitoring and sharing of information with
the stakeholders to generate confidence and trust with customers, suppliers, creditors and
maximizing corporate value for its shareholders. Although corporate governance varies across
countries, there is a growing consensus about the need for four key elements — transparency,
fairness to all stakeholders, disclosure of all financial and non-financial information in an easily
understandable manner and supervision of the company's activities by professionally competent
and independent Board of directors. To build this confidence, it is desirable that some system be
in place, firstly to ensure due compliance of laws and secondly to bring transparency in informing
the shareholders and other stakeholders about how the business is being managed.
It is here that the company secretary, as an integrated manager, fills the gap. He not only advises
the Board on various compliance requirements and co-ordinates and translates the policies of the
Board into action, but also communicates the same to stakeholders.
THE PROFESSION OF COMPANY SECRETARIES – HISTORICAL BACKGROUND
In 1956, when the Companies Bill was laid before the Parliament, the then Finance
Minister, Late Dr. C D Deshmukh had assured the Parliament that the Companies Act
would be amended in due course so as to ensure that every company should have
a qualified company secretary analogous to the provisions of the UK Companies Act. In
1970 when the system of managing agents and secretaries and treasurers was
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abolished, the Government of India envisioned that the company secretaries would fill the
bill.
Indeed, company secretaries have been functioning in the corporate sector long before the
statutory requirement of compulsory appointment of company secretary was introduced in the
year 1975. In 1970, recognizing the important role which the company secretaries played
for the proper working of the company, the Department of Company Affairs had instructed
all public sector undertakings to appoint qualified secretaries.
The Administrative Reforms Commission had also examined the desirability of encouraging
the growth of the profession of company secretaries as a necessary adjunct for a more efficient
working of the corporate sector and had recommended that companies with a certain paid-up
capital should compulsorily appoint qualified secretaries and that suitable qualifications
should be prescribed by the Government (Recommendation no. 10 Chapter VI paragraph 12).
In the year 1978, the Sachar Committee had observed as under :
"There is growing evidence that, in order to cope with the complexities of modern business, more
and more professional people are taking up positions in companies previously held by ownermanagers. One important step which the Government had taken right in 1956 was to conceive of
the profession of company secretaries. Finally, the Amendment Act of 1974 provided for
compulsory appointment of whole-time secretaries in companies of certain size, namely,
companies having a paid-up capital of Rs. 25 lakhs or more. This process of
professionalisation of management needs to be carried forward." (para 5.5)
In 1980, while piloting the Company Secretaries Bill in Parliament, and reiterating the
Government's commitment to professionalise management of the corporate sector through the
medium of company secretaries, Shri P Shivshankar, the then Union Minister for Law ,
Justice & Company Affairs had assured the Parliament that depending on the growth of
the corporate sector, the paid-up capital limit of Rs.25 lakhs for the appointment of company
secretary would be reduced further.
The company secretary has all along been conceived as an extended arm of the
Government for the purpose of ensuring compliance of various laws by the companies
and is recognised under the MRTP Act, Income-tax Act and various other statutes as the
principal officer of the company.
Company Secretary being a key functionary in the corporate sector, his role, functions and
responsibilities have widened over the years. With increasing emphasis on the principles of good
governance and introduction of various provisions in relation thereto, he now has added
responsibility for safeguarding the interests of stakeholders.
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Setting up of the Institute
Following the assurance given to the Parliament by the then Finance Minister during debates on
the Companies Bill, the Government set up in 1960, an Advisory Board for company
secretaryship on a non-statutory basis. The Advisory Board was entrusted with the duties of
advising the government on all matters relating to the profession of company secretaries
including drawing up of scheme of examination, prescription of syllabi, registration of students,
training and coaching of students etc.
In accordance with the scheme of examination, the
Department of Company Affairs started conducting in 1960, an examination leading to the
award of Government Diploma in Company Secretaryship (GDCS).
As the number of
students taking up the company secretaryship course grew, the Government promoted on
4th October, 1968, the Institute of Company Secretaries of India under section 25 of the
Companies Act, 1956 for taking over from the Government the conduct of company
secretaryship examination.
Conversion of the Institute into a Statutory Body
The Institute of Company Secretaries of India fully justified the support given to it by the
Government and in 1980, the Government moved the Company Secretaries Bill, 1980 to convert
the Institute into a statutory body on the lines of the Institute of Chartered Accountants of India
and the Institute of Cost and Works Accountants of India.
While moving the Company Secretaries Bill, 1980 for consideration by the Lok Sabha on 16 th
June, 1980, the Minister of Law, Justice and Company Affairs, Shri P Shiv Shankar had
said, “An essential ingredient in the healthy growth of the corporate sector is the induction of
professional management. The Government attaches special importance to the development of
professional management, so that the corporate sector can evolve and function in tune with the
changing needs of the times, and the social responsibilities that this important segment of the
economy has to shoulder. The profession of Company Secretaries has an important part to
play in the introduction of professionalism in the area of corporate management”.
The Institute of Company Secretaries of India has since been converted into a statutory body
w.e.f. 1.1.1981 under the Company Secretaries Act, 1980 (56 of 1980) to regulate and develop
the profession of Company Secretaries.
The Institute is instrumental in promoting good corporate governance norms and practices as well
as creating conducive environment and acceptability of Government policies on trade, commerce
and industry.
The Institute has about 20,000 members and over 1,00,000 current students. It functions through
its 4 Regional Offices and 69 Chapters spread throughout the length and breath of the country.
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Practising Company Secretary
The Company Secretaries Act, 1980 recognises the concept of ‘Practising Company Secretary’.
A member of the Institute may practise on Whole-time basis after obtaining a Certificate of
Practice.
A large pool of our members are
holding certificate of
practice and are
practising as whole time company secretaries known as “PCS”. Recently, the practicing side
of the profession has witnessed phenomenal upward growth owing to the trust and confidence
reposed by the Government and Regulatory authorities in respect of corporate governance and
compliances.
Practising Company Secretaries are rendering value added services to
various industry segments and corporate sector.
CORE COMPETENCY OF COMPANY SECRETARIES
In UK, the Cadbury Committee in its report on the Financial Aspects of Corporate
Governance also recognized the importance of the role of Company Secretary and
observed “The Company Secretary has a key role to play in ensuring that the board procedures
are both followed and regularly reviewed.
The Chairman and the Board will look to the
Company Secretary for guidance on what their responsibilities are under the rules and
regulations to which they are subject and on how these responsibilities should be
discharged”.
The OECD Principles of Corporate Governance provide that the Chairman of a company
may be supported by the company secretary and that the contributions of non-executive
board members to the company can be enhanced by providing access to certain key
managers within the company such as, the company secretary.
A Company Secretary as competent professional comes in existence after exhaustive exposure
provided by the Institute through compulsory coaching, examinations, rigorous training and
continuing education programmes. The members of the Institute are not only conversant with
the technicalities and provisions of the corporate legal areas but are highly specialized
professionals in the matters of procedural and practical aspects involved in the compliances
enjoined under various statutes and the rules, regulations bye-laws and guidelines made
thereunder. The detailed syllabus for Company Secretaryship synthesizes corporate, taxation,
economic, financial, commercial, industrial and allied laws in addition to the management,
administration, finance and accounts. It is well recognized that corporate laws is the core area
of specialization of company secretaries.
He is essentially a compliance man with
compliance bent of mind.
Company Secretary being a key functionary in the corporate sector, his role, functions and
responsibilities have widened over the years. With increasing emphasis on the principles of good
governance and introduction of various provisions in relation thereto, a Company Secretary now
has enhanced responsibility for safeguarding the interests of stakeholders.
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A Company Secretary deals with a wide spectrum of legislations, finance and management far
transcending the provisions of the Companies Act and most importantly acts as an agent on
behalf of the Board. Raising of finance in India and abroad, dealing with deposits, intercorporate loans and investments, raising of funds from financial institutions, joint
ventures and foreign collaborations, corporate restructuring, vetting of contracts,
arbitration and other legal matters which every company has to address, are being
handled by the professionally qualified company secretaries.
A Practicing Company Secretary not only ensures compliance of various provisions of
company law by its client companies but in the process extends all professional help to
the company in carrying out effective legal compliance and establishment of proper
systems with proper checks and balances.
Core competences of CA, CS and CWA
In this era of professionalism, where every aspect of management is sought to be specialized, the
core strength of the three sister professions should be maintained so that efficient and
expert services are available to companies. The functions of three Institutes viz. The Institute
of Chartered Accountants of India, the Institute of Cost and Works Accountants of India and the
Institute of Company Secretaries of India are administered by the Ministry of Company Affairs.
Each of the above professional Institute is governed by the respective acts of Parliament and
hence there is need for defining and demarcating the Core Competence of the respective
professions for assigning the statutory responsibilities.
In fact, there are clearly demarcated areas for the three professions i.e. CA, CS and CWA.
While financial audit is the forte of a CA and Cost Audit of a CWA, the legal compliance
Management of corporate laws and in particular, Company Law is the core strength of a
Company Secretary. The Supreme Court in T D Venkata Rao v. Union of India (1999), 237
ITR 315 also recognized this criteria and held that Audit of accounts should be done by CA only
and not by income tax practitioner since CAs by reason of their training have special aptitude in
the matter of audits and form a class by themselves for audit purposes whereas an income tax
practitioner does not have the same expertise as a CA in the matter of accounts.
In a similar manner CS are specially skilled and trained professionals in the matters arising out of
practice of the Corporate Laws and therefore CA & CWA cannot be treated at par with Company
Secretaries in the matter of such compliances.
It may be reiterated that the Government should recognize the core competency of members of
each of the professional institutes and entrust the work accordingly so as to enhance the quality
of compliances.
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SERVICES BEING RENDERED BY PCS UNDER THE COMPANIES ACT, 1956
Issuance of Compliance Certificate
Presently, a Company Secretary in practice certifies compliance by a company of legal and
procedural requirements under the Companies Act, 1956 by issuing a Compliance Certificate.
Section 383A of the Companies Act, 1956 requires every company having paid up share capital
of rupees 10 lakh or more but less than rupees 2 crore to file with the Registrar of Companies a
compliance certificate
from a Company
Secretary
in Whole-time Practice as to whether the
company has complied with all the provisions of the Companies Act. This Compliance Certificate
is also to be attached with the Board’s Report. The certificate acts as a pre-emptive check to
monitor compliance with the requirements of the Companies Act and the Rules made thereunder.
It cannot be denied that a large number of errors and omissions arise on account of misrepresentation or ignorance of law. Further, the MCA launches a large number of prosecutions
against the private limited companies and/or small public limited companies, which do not have
the benefit of expert professional services of qualified Company Secretaries. Compliance
Certificate by PCS is therefore salutary as it creates awareness among companies to
comply with the provisions of Companies Act and also provides a mechanism of selfregulation of companies.
Certification of Annual Return
A Company Secretary in Practice certifies the Annual Return of a listed company. Section
161(1) of the Companies Act, 1956 requires that the Annual Return of a company whose shares
are listed on recognized stock exchange, should also be signed by a secretary in whole time
practice. By such signing of the Annual Return, the secretary certifies that the facts stated and
the material furnished in the Annual Return are duly and fully (i.e. correctly and completely) stated
and given. In other words, the company secretary in practice, testifies that the contents of
the annual return are accurate and are in conformity with the information stated in the
books and records of the company.
Declaration of Compliance with requirements of the Companies Act at the time of
incorporation of a company
To make statutory declaration in Form 1 that all requirements of the Companies Act, 1956 and
the rules made thereunder have been complied with in respect of registration of a company and
matters precedent and incidental thereto [section 33(2)].
Certifying the compliance of Schedule XIII requirements
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To certify that requirements of Schedule XIII have been complied with in respect of appointment
of managerial personnel and payment of managerial remuneration to them without the approval
of the Central Government [section 269(2) and Schedule XIII].
Declaration of Forms 19, 20 and 20A
To make a verified declaration in
Forms 19, 20 and
20A
of compliances for obtaining a
certificate of commencement of business/ commencement of other business [section 149].
Appearance before CLB
To act as authorised representative before the Company Law Board.
NEED TO WIDEN AREAS OF PRACTICE OF COMPANY SECRETARIES
As the Government is in the process of bringing out a New Company Law with the aim of
professionalising corporate management, it is requested that not only the existing areas of
recognition for a company secretary be retained, but these should also be strengthened as
suggested below:
PCS BE EXCLUSIVELY RECOGNIZED TO PRE-CERTIFY E-FORMS
Training, education and course coverage
Company Secretaries are specially skilled and trained professionals in the matters connected
with ensuring the compliance of the Companies Act.
A Company Secretary as competent professional comes in existence after exhaustive exposure
provided by the Institute through compulsory coaching, examinations, rigorous training and
continuing education programmes.
Corporate law and practice form a major part of the syllabus and training curriculum of Company
Secretaryship course. A look at the course contents of Company Secretaryship reveals that
more than 51% of the syllabus comprises of Corporate Laws of which 27% is Company
Law. Further, the training requirements of the CS Course, emphasise on building skills of due
diligence and compliance. A part of the training is also carried out at the office of ROC
where a first hand exposure of the functioning of ROC office and matters related thereto is
given to the students.
Compliances and Secretarial Audit – Core area of competence of a Company Secretary
There are clearly demarcated areas for the three professions i.e. CA, CS and CWA. While
financial audit is the forte of a CA and Cost Audit of a CWA, the compliance of company law is
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the core strength of a Company Secretary. This is evident from section 2(2) of the respective
Acts, which specifies the practice areas, as below:
Company Secretaries Act, 1980
Section 2(2)
“Save as otherwise provided in this Act, a member of the Institute shall be deemed "to be in
practice" when, individually or in partnership with one or more members of the Institute in practice
or in partnership with members of such other recognised professions as may be prescribed, he, in
consideration of remuneration received or to be received(a) engages himself in the practice of the profession of Company Secretaries to, or in
relation to, any company; or
(b) offers to perform or performs services in relation to the promotion, forming, incorporation,
amalgamation, reconstruction, reorganisation or winding up of companies; or
(c) offers to perform or performs such services as may be performed by(i) an authorised representative of a company with respect to filing, registering,
presenting, attesting or verifying any documents (including forms, applications and
returns) by or on behalf of the company,
(ii) a share transfer agent,
(iii) an issue house,
(iv) a share and stock broker,
(v) a secretarial auditor or consultant,
(vi) an adviser to a company on management, including any legal or procedural matter
falling under the Capital Issues (Control) Act, 1947 (29 of 1947), the Industries
(Development and Regulation) Act, 1951 (65 of 1951), the Companies Act, 1956 (1
of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), any of the
rules or bye-laws made by a recognised stock exchange, the Monopolies and
Restrictive Trade Practices Act, 1969 (54 of 1969), the Foreign Exchange Regulation
Act, 1973 (46 of 1973), or under any other law for the time being in force,
(vii) issuing certificates on behalf of, or for the purposes of, a company; or
(d) holds himself out to the public as a Company Secretary in practice; or
(e) renders professional services or assistance with respect to matters of principle or detail
relating to the practice of the profession of Company Secretaries; or
(f) renders such other services as, in the opinion of the Council, are or may be rendered by
a Company Secretary in practice;
and the words "to be in practice", with their grammatical variations and cognate expressions, shall
be construed accordingly.”
Chartered Accountants Act, 1949
Section 2(2)
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“A member of the Institute shall be deemed, "to be in practice", when individually or in partnership
with chartered accountants in practice, he, in consideration of remuneration received or to be
received(i) engages himself in the practice of accountancy; or
(ii) offers to perform or performs services involving the auditing or verification of financial
transactions, books, accounts, or records or the preparation, verification or certification of
financial accounting and related statements or holds himself out to the public as an accountant; or
(iii) renders professional services or assistance in or about matters of principle or detail relating to
accounting procedure or the recording, presentation or certification of financial facts or data; or
(iv) renders such other services as, in the opinion of the Council, are or may be rendered by a
chartered accountant in practice;
and the words "to be in practice" with their grammatical variations and cognate expressions shall
be construed accordingly.
Explanation: An associate or a fellow of the Institute who is a salaried employee of a chartered
accountant in practice or a firm of such chartered accountants shall, notwithstanding such
employment, be deemed to be in practice for the limited purpose of the training of articled clerks.”
Cost and Works Accountants Act, 1959
Section 2(2)
“Save as otherwise provided in this Act, a member of the Institute shall be deemed ‘to be in
practice” when, individually or in partnership with one or more members of the Institute in
practice, he, in consideration of remuneration received or to be received, -(i)
engages himself in the practice of cost and works accountancy; or
(ii)
offers to perform or performs services involving the costing or pricing of goods or
services or the preparation, verification or certification of cost accounting and related
statements or holds himself out to the public as a cost accountant in practice; or
(iii)
renders professional services or assistance in or about matters of principle or detail
relating to cost accounting procedure or the recording, presentation or certification of
costing facts or data; or
(iv)
renders such other services as, in the opinion of the Council, are or may be rendered
by a cost accountant in practice;
and the words “to be in practice”, with their grammatical variations and cognate expressions, shall
be construed accordingly.
Explanation : A member of the Institute who is a whole-time salaried employee of any person
shall not be deemed to be in practice within the meaning of this sub-section”.
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As is evident from the above, the very purpose of establishment of ICSI by an Act of
Parliament was to develop the profession of Company Secretaries independently. It may
be noted that under sub-clause (i) of clause (c) of section 2(2), a member of the ICSI in
practice is authorized to perform the services of a company with respect to filing,
registering, presenting, attesting or verifying any documents including forms, applications
and returns by or on behalf of the company. Further, in terms of sub-clause (v) of clause
(c) of sub-section (2) of Section 2, a Company Secretary in practice has been specifically
authorized to perform the services of a Secretarial Auditor or Consultant.
Company Secretaries have been rendering yeomen services to the corporate sector starting from
incorporation of a company, maintaining all registers and records of the company, filing of various
documents, forms and records at ROC offices, seeking Government approval on behalf of the
company wherever required etc.
Since the task of pre-certification involves checking of compliance of the provisions of Companies
Act and rules framed thereunder, Company Secretary in Practice is the appropriate professional
and the only choice.
With his vast exposure in Corporate Laws and specialization in
Company Law, a Company Secretary is the only suitably qualified professional to ensure
compliance with corporate laws and pre-certification.
Recommendations of various Committees/ Bills
Department Related Parliamentary Standing Committee on Home Affairs in its 64th Report
on Companies (Second Amendment) Bill, 1999 issued in the month of July, 2000 endorsed the
Government’s view and observed that a practising Company Secretary is specially trained
in corporate laws and his practical training includes study of compliance of corporate laws
by studying records in the office of Registrar of Companies. The requirement of carrying
out check of compliance of Companies Act, 1956 by a qualified Company Secretary in
whole-time practice alone, and not by a Chartered Accountant is fully justified.
Naresh Chandra Committee on Corporate Audit and Governance in its report issued on
16.12. 2002 recommended for the system of pre-certification by Company Secretaries.
The Companies (Amendment) Bill, 2003 had proposed pre-certification to be done only by
Practising Company Secretaries (PCS).
Concept Paper published by MCA on 4.8.2004 contemplating to enact a new Company Law,
stated that the statutory work of pre-certification shall be the exclusive domain of
Company Secretaries.
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Keeping in view the specialized era of professionalism and the core competency of
Company Secretaries, it is requested that the statutory work of pre-certification of the
e-forms under E-Governance Project (MCA-21) be exclusively assigned to Company
Secretaries.
A Company Secretary is undoubtedly the only suitably qualified professional to undertake
pre-certification of forms/returns filed with the ROCs.
SECRETARIAL AUDIT
The Government, trade and industry, all have to operate within the framework of the multifarious
corporate and industrial legislations, giving due recognition to public interest. In fact, the
legislative framework is aimed at balancing the interests of various sections of the society as well
as economy.
However, the experience so far shows that enactment of various laws is not enough and
the desired results cannot be achieved unless their implementation is geared up. In fact,
lack of implementation of laws with no mechanism of audit to check their compliances
have ultimately resulted into various scams : the Harshad Mehta Scam, the NBFC Scam, the
Teak Equity Scam etc. There have also a large number of cases of mis-management and
misuse of public funds by listed companies. These extend to failure to disburse the declared
dividend, switching of shares, refund of application money, repayment of fixed deposits and non
payment of principal amount and interest on maturity of debentures, non-creation of security in
respect of secured debentures, unfair forfeiture of shares, illegal issue of duplicate shares, etc.
The scams which have been deterimental not only to capital market but have been a set back to
the economy as a whole, have occurred despite and inspite of financial audit as well as plethora
of laws viz. Companies Act, MRTP Act, IDRA, SCRA, Consumer Protection Act, Industrial and
Labour Laws, Pollution Control Laws, FEMA (earlier FERA) etc. The law enforcement agencies
have not been able to tackle these problems and ensure effective enforcement of laws. It is also
on record that several companies that have fallen sick had committed violations of various
legal provisions and shown utter disregard for the various statutory compliances.
A need is therefore felt to ensure compliance of laws in letter and spirit on continuous basis by an
independent professional.
Secretarial Audit of company conducted by a PCS on the same lines as financial audit,
conducted by Chartered Accountants, seems to be the only answer to ensure that the
legislations, the immaculate framing of which is such a Herculean task, are duly respected
and obeyed.
Concept of Secretarial Audit
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Secretarial Audit comprises of verification of compliance of provisions of Companies Act with
rules, procedures, maintenance of books, records etc. by an independent professional to ensure
that the company has complied with the legal and procedural requirements and also followed due
processes. It is essentially a pre-emptive check to monitor compliance with the requirements of
the Companies Act.
Just as statutory audit deals with financial audit of companies and cost audit with audit of
costing and pricing systems and records, compliance audit deals with legal and procedural
compliances that are expected from a company. It is conducted annually. While conducting
Secretarial Audit, the compliance auditor carries out an elaborate checking mechanism to verify
from all the records and books maintained by the company as well as from the information
provided to him and the information gathered by him, that the company is complying with the
various requirements of different legislations.
Secretarial audit creates awareness among companies to comply with the provisions of various
corporate laws and also provides a mechanism for self-regulation by companies.
The
independent professional carrying out secretarial audit, not only ensures that the
company has complied with the provisions of Company Law but also extends professional
help to the company in carrying out effective compliance and establishment of proper
systems with proper checks and balances.
The concept of Secretarial Audit is not to burden the corporate sector with another audit but to
ensure due compliance of legislations other than financial or costing aspects.
Companies entering into joint ventures and foreign collaborations will need such an audit at least
to assure foreign partners that the laws of the land are duly complied with. The secretarial audit
will provide an in-built mechanism for enhancing corporate compliance generally and help
restore the confidence of investors in the capital market through greater transparency in
corporate functioning.
A Company Secretary in practice can act independently and fearlessly in giving his compliance
report, which would give comfort and satisfaction to the banks, financial institutions, creditors,
suppliers and other stakeholders.
How the Secretarial Audit will Help
Secretarial Audit can be an effective multi-pronged weapon to assure the regulator, generate
confidence amongst the shareholders, the creditors and other stakeholders in companies, assure
FIs/SFCs/SIDCs/Banks and instill self regulation and professional discipline in companies.
Once the Secretarial Audit Report is submitted by the Secretarial Auditor, the Government
can gauge in first instance the level of compliances or non compliances by the company
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concerned. It can then immediately take suitable corrective measures under the specific
applicable legislations. The measure would reduce the number of prosecutions by
Government and consequent litigation on account of non-compliance with the provisions
of corporate laws, thereby resulting in healthy and orderly development of the corporate
sector. This would in turn lead to reduction of investor grievances and enhance their
confidence.
Not only for the Government and shareholders, introduction of Secretarial Audit would be in the
interest of companies themselves.
Secretarial Audit besides ensuring due compliance of the statute, will act as an aid to the
management by proving to be a strong internal control device. The inclusion of Secretarial
Audit Report in the Directors’ Report would go a long way in reassuring public, financial
institutions and all others dealing with the company about the quality of corporate
governance in the concerned corporate entity.
Besides the Secretarial Auditor can act as a fearless adviser to the company so that the mistakes
and lapses if any could be rectified well in time and management is reassured that internal
systems are guarded.
Further introduction of effective control and proper corporate governance can relieve the
company and their directors from consequences of unintended non-compliance of law. Even
FIs/SFCs/SIDCs/Banks and their Nominee Directors can be assured that the affairs of assisted
company are being conducted as per law.
Exclusive Area of Practice for Company Secretaries
Just as a Chartered Accountant is entrusted to conduct financial audit and Cost Accountant to
conduct Cost Audit, a Company Secretary in Practice should be exclusively entrusted to
conduct the Secretarial Audit as legal compliance of corporate laws is the core area of
specialisation of Company Secretaries.
If this area is exclusively provided to company secretaries in practice, it will ensure proper
utilisation of their expertise and core competency in the field of corporate laws.
Appointment of Secretarial Auditor
For effective functioning, secretarial auditor should be appointed by the members in general
meeting from among the Secretaries in Whole-time Practice and all the provisions relating to
appointment, remuneration and removal of auditors contained in sections 224 to 226 of the
Companies Act, 1956 should apply to appointment, remuneration and removal of compliance
auditor mutatis mutandis.
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Reporting by Secretarial Auditor
Secretarial Auditor shall make a report to the members of the company on the statutory
compliances examined by him and shall state whether in his opinion the company is carrying
out/not carrying out due compliances of the provisions of various corporate laws.
The report of the Secretarial Auditor should be attached to the Directors’ Report along with the
Auditors’ Report. The Board of directors should be bound to give in their report under section 217,
full information and explanations on every reservation, qualification or adverse remark contained
in the compliance audit report.
Accountability of Secretarial Auditor
On the question of accountability for Secretarial Audit by the Company Secretary in Practice, it
may be stated that a Company Secretary in Practice is subject to the Code of Conduct
prescribed under the Company Secretaries Act, 1980 and runs the risk of cancellation of
certificate of practice and even the basic membership, if found guilty of dereliction of
duties, besides attracting penalty for false statement under section 628 of the Companies
Act, 1956.
The proposal of the Institute to amend the Company Secretaries Act, 1980 to further strengthen
the Code of Conduct is already under the consideration of the Government.
Secretarial Audit already being conducted
It is heartening to note that many forward looking companies have already introduced Secretarial
Audit in their companies and are attaching the Secretarial Audit Report to their Board’s Report.
To name a few, these companies are – Satyam Computer Services Ltd., Indian
Petrochemicals Corporation Ltd., Infosys Technologies Ltd., CMC Ltd., ICICI Bank Ltd.,
Reliance Industries Ltd., ONGC Ltd., Larsen and Toubro Ltd., CLC Global Ltd., Mastek Ltd.,
Clariant (India) Ltd., etc.
It is also heartening to note that many financial/investment/industrial development
corporations have already prescribed annual Secretarial Audit of companies assisted by
them. These institutions to name a few are Manipur Industrial Development Corpn. Ltd., Imphal,
Assam Indl. Dev. Corpn. Ltd., Guwahati, Gujarat Industrial Investment Corporation Ltd.,
Ahmedabad, Arunachal Pradesh Industrial Development & Financial Corpn. Ltd., Naharlagun,
Gujarat State Financial Corpn. These financial institutions find it imperative to know that the
assisted company has complied with the core legislations.
They also find it necessary to
ascertain that the company is following the conditions/stipulations in the form of covenants in the
loan agreement. The Secretarial Audit Report provides them with the desired information and the
comfort level.
Advantages of Secretarial Audit :
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
Better compliance of laws leading to reduction in number of prosecutions.

Protecting the interest of stakeholders and strengthening their faith in the corporates.

Protecting the company/directors from the consequences of unintended noncompliance of laws.

Independent assurance and comfort to independent/non-executive/nominee directors
that the affairs of the company have been conducted as per law.

Instilling professional discipline and self-regulation.

Reducing workload of ROCs due to better and timely compliances.

Enhancing quality of services to investors.

Any qualification in the Report will immediately alert the investor.
It is therefore, requested that the concept of Secretarial Audit of companies by a Company
Secretary in Practice be built in the New Company Law. This would instill professional
discipline and self-regulation amongst companies and thereby secure better compliance
of laws by them. The move would, in turn give greater comfort to the stakeholders and
strengthen their faith in the corporates besides leading to reduction in number of
prosecutions being initiated/launched by the Government against companies and their
directors. To begin with, Secretarial Audit be made mandatory for listed companies.
Till such time the Secretarial Audit is introduced, it is suggested that every company other
than a one person company or a small company having upto such paid-up capital as may
be prescribed, should file with the registrar a Compliance Report by the company
secretary and where there is no company secretary or where the company is a listed
public company, by a company secretary in practice. A copy of such Compliance Report
should be attached to the Board’s Report and the Board should provide in it’s Report its
full explanation on any adverse remark, reservation or qualification contained in the
Compliance Report.
ANNUAL RETURN
Annual Return of a company should be a comprehensive document, giving detailed
information to shareholders and other stakeholders. It should disclose information, apart
from existing requirements of its to capital structure, borrowings, indebtedness, past and present
members and directors etc., information regarding composition of its Board and other Committees
as well as details of their meetings, remuneration of directors and key managerial personnel etc.
The Annual Return should be signed by (i) the managing director and where there is no
managing director, by a director and (ii) by the company secretary and where there is no
company secretary, by a company secretary in practice. However, in relation to a one
person company or a small company having upto such paid-up capital as may be
prescribed, the annual return can be signed by a director or by the company secretary, if
any.
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In view of the fact that public interest is much involved in listed public companies, such
companies should be required to file along with the annual return, a certificate from a company
secretary in practice certifying that the annual return states the facts correctly and
adequately. An extract of the annual return may also form part of the Board’s Report.
APPOINTMENT OF A COMPANY SECRETARY IN EMPLOYMENT BY BOARD OF
DIRECTORS
With a view to build in professional independence, the appointment and removal of a
company secretary in employment should be only through a resolution passed by the
Board of Directors of the company.
SIGNING AND AUTHENTICATION OF ANNUAL ACCOUNTS
The signing / authentication of annual accounts by certain person including a company
secretary should be provided in the substantive law and not prescribed through rules.
The company secretary should continue to sign the annual accounts to ensure that due
process of approval of accounts has been carried out by the company.
PROSPECTUS
With a view to enlighten the investors about the compliance track record of the company,
it is suggested that three years secretarial audit report by company secretary in practice
be made part of the prospectus or letter of offer.
NEED TO MAKE SECRETARIAL STANDARDS MANDATORY FOR GOOD GOVERNANCE
The Institute, being pioneer in inculcating culture of good governance in corporate India, and in
pursuance of its mission of developing high caliber professionals ensuring good corporate
governance, has taken a major initiative in formulating and issuing Secretarial Standards. The
Secretarial Standards seek to integrate, harmonise and standardize the diverse secretarial
practices prevalent in the corporate sector. The Secretarial Standards are formulated by the
Secretarial Standards Board of the Institute comprising eminent members of the profession and
representatives of the Ministry of Company Affairs, the Institute of Chartered Accountants of India
and the Institute of Cost & Works Accountants of India.
The Institute has so far issued four Secretarial Standards, namely, Secretarial Standard on
Meetings of the Board of Directors (SS-1), Secretarial Standard on General Meetings
(SS-2), Secretarial Standard on Dividend (SS-3) and Secretarial Standard on Registers and
16
Records (SS-4). These Standards have been formulated after giving them wide exposure and
after considering the views and suggestions of the various professionals, corporate entities,
Chambers of Commerce, Stock Exchanges as well as the regulatory authorities such as MCA,
DEA, SEBI, RBI, DPE etc.
A number of forward looking companies, to name a few, Reliance Industries Ltd., Tata
Metaliks Ltd., Reliance Energy Ltd., Ashok Leyland Ltd., have adopted the Secretarial
Standards and reported the compliance of these Standards in their Annual Reports. There is
therefore a need to make mandatory the adoption of Secretarial Standards by Companies as
such
adherence to
Secretarial Standards in true
letter and spirit
will enable companies to
ensure uniformity, consistency and best secretarial practices, making them comparable with the
best practices in the world. Such uniformity of best practices, consistently applied, will result in
better corporate disclosures thereby adding value to the endeavours of companies to strive for
good governance.
It is therefore requested that Secretarial Standards issued by the Institute of Company
Secretaries of India be made mandatory for compliance by companies as such
compliance would lead to uniformity and consistency of secretarial practices, besides
making them comparable with the best services in the world. Listed companies, to
begin with, may be mandatorily required to adopt Secretarial Standards.
SUBMISSIONS TO THE HON’BLE MINISTER
Sir, we summarise our submissions hereunder for your kind consideration :
1. The existing areas of recognition for company secretaries be retained in the
New Company Law viz.
(i)
Mandatory appointment of company secretaries in companies
having a paid up share capital of Rs. 2 crores and above.
(ii)
Issuance of compliance certificate by company secretaries in
practice in respect of companies having a paid up share capital
between Rs. 10 lakhs to Rs. 2 crores.
(iii)
Signing of Annual Return of a listed company by a company
secretary in practice.
(iv)
Declaration of compliance with the requirements of the Companies
Act at the time of incorporation of a company.
(v)
Certifying compliance of schedule XIII requirements.
(vi)
Making a verified declaration of compliances for obtaining a
certificate of commencement of business.
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2. Keeping in view the specialized era of professionalism and the core competency of
Company Secretaries, the statutory work of pre-certification of the e-forms under
E-Governance Project (MCA-21), be exclusively assigned to Company Secretaries.
A Company Secretary is undoubtedly the only suitably qualified professional to
undertake pre-certification of forms/returns filed with the ROCs.
3. The concept of Secretarial Audit by a Company Secretary in Practice be built in the
New Company Law. This would instill professional discipline and self-regulation
amongst companies and thereby secure better compliance of corporate laws by
companies. The move would, in turn, give greater comfort to the stakeholders and
strengthen their faith in the corporates besides leading to reduction in number of
prosecutions being initiated/launched by the Government against companies and
their directors.
To begin with, Secretarial Audit be made mandatory for listed companies.
4.
Till such time the Secretarial Audit is introduced, it is suggested that every
company other than a one person company or a small company having upto such
paid-up capital as may be prescribed, should file with the registrar a Compliance
Report by the company secretary and where there is no company secretary or
where the company is a listed public company, by a company secretary in practice.
A copy of such Compliance Report should be attached to the Board’s Report and
the Board should provide in it’s Report its full explanation on any adverse remark,
reservation or qualification contained in the Compliance Report.
5. Annual Return of a company should be a comprehensive document, giving
detailed information to shareholders and other stakeholders etc. The Annual
Return should be signed by (i) the managing director and where there is no
managing director, by a director and (ii) by the company secretary and where there
is no company secretary, by a company secretary in practice. However, in relation
to a one person company or a small company having upto such paid-up capital as
may be prescribed, the annual return can be signed by a director or by the
company secretary, if any.
In view of the fact that public interest is much involved in listed public companies,
such companies should be required file along with the annual return, a certificate
from a company secretary in practice certifying that the annual return states the
facts correctly and adequately. An extract of the annual return may also form part
of the Board’s Report.
18
6. With a view to build in professional independence, the appointment and removal of
a company secretary in employment should be only through a resolution passed
by the Board of Directors of the company.
7. The signing / authentication of annual accounts by certain person including a
company secretary should be provided in the substantive law and not prescribed
through rules.
The company secretary should continue to sign the annual
accounts to ensure that due process of approval of accounts has been carried out
by the company.
8. With a view to enlighten the investors about the compliance track record of the
company, the three years Secretarial Audit Report by company secretary in
practice be made part of the prospectus or letter of offer.
9. Secretarial Standards issued by the Institute of Company Secretaries of India
be made mandatory for compliance by companies as such compliance would
lead to uniformity and consistency of secretarial practices besides making
them comparable with best services in the world.
Listed companies, to begin with, may be mandatorily required to adopt
Secretarial Standards.
We hope you would consider our requests favourably. We would be pleased to provide any
further information or clarification on the matter as may be desired by your goodself.
Thanking you,
Yours faithfully,
(N.K. JAIN)
SECRETARY & CEO
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