Role of Company Secretary in Corporate Sector

Role of Company Secretary in Corporate Sector

From a mere compliance officer, few decades back, the Company Secretary has now

come to be recognized as key managerial personnel on par with directors. This article

portrays the transformation and pin points the role and importance of company

secretaries in the corporate sector.

e-mail :

sankara@cacsindia.com

“Development after Disasters” is the say. Immediately after

the Indo-Pak war in 1971, several measures were considered

by the Government to strengthen the country from the

unwarranted situation. The country was in so bad shape worse

than natural calamities. Economy was in shambles The

Government scrambled to restore both the agricultural and

industrial production which were the two major activities for

the overall revival of Indian economy. The agricultural sector

is to be nourished by farmers and the industrial sector is to be

looked after none other than the professionals.

PROFESSION OF SECRETARY

The Government realized that losses were heavy and at the same

time the compliance of laws were heavy on Companies.

Companies on the one hand found it difficult to restore normalcy

and on the other hand found it harder to comply with various

applicable provisions of laws for a good Corporate Governance.

In the year 1972 itself, the Government realized that a company

registered under the Companies Act (Act) has to comply with

the requirements of several laws in our country. An idea was

conceived in that year that in order to ensure such compliances

medium sized and large companies should be required to employ

a secretary to take care of the compliance of various laws. As a

consequence clause 29 providing for compulsory appointment

of a secretary was inserted in the Companies (Amendment) Bill,

1972. After deliberations, in the year 1974, the Companies

(Amendment) Act, 1974 made it clear about the appointment

of a Secretary which came into effect from 1st February, 1975.

At that time in U.K., it was mandatory for every company to

appoint a Secretary. It was aptly felt that such a compulsory

provision in small sized companies may be a burden on such

companies. It was, therefore, stipulated that only companies

having a paid up capital of Rs. 25 lacs and above to have a

whole time employed Secretary. Section 383A was inserted

in the Act.

The notes on clauses explained the reasons for insertion of

such compulsory provision. It is interesting to note that at that

time of introducing such a compulsory appointment of a whole

time employed Secretary, the object was two fold namely (1)

for proper compliance of various laws which a company is

required to comply with; and (2) to help the growth of the

profession of company secretaries and provide employment

opportunities to qualified secretaries.

DESIGNATION OF COMPANY SECRETARY

The Institute of Company Secretaries of India (ICSI)

constituted under an Act of Parliament i.e. the Company

Secretaries Act, 1980 (Act No. 56 of 1980) is the only

recognized professional body in India to develop and regulate

the profession of Company Secretaries in India and the Institute

awards the certificate bestowing the designation of Company

Secretary to a candidate qualifying for the membership of the

Institute of Company Secretaries of India (Source:ICSI

website). The companies which employ a member of ICSI

also designate him as the “Company Secretary”. The definition

clause in the Company Secretaries Act, 1980 also defines

“Company Secretary” to mean a person who is a member of

the Institute. The definition clause in the Companies Act was

also amended by the Companies (Amendment) Act, 1988.

After amendment “Secretary” means a Company Secretary

within the meaning of clause (c) sub section (1) of section 2

the Company Secretaries Act, 1980.

MEANING OF CORPORATE SECTOR

Corporate sector is of two components. It is the combination

of both Government sector and of private sector. It is a section

*Views expressed in the article are the personal views of the author and do

not necessarily reflect the views of the Institute.

Articles

of society consisting of Companies, Industries, Business

Houses, Banks and Financial Institutions from both

components. It contributes immensely for the development of

the economy of the Country by virtue of its large and huge

presence across all sectors, be it an Industry or Infrastructure

or education or simply every other conceivable activity.

Corporate sector makes a lot of contribution towards meetings

its social responsibility too. Thus corporate sector contributes

to National Income Generation, Infrastructural Growth and

Development of the Economy. The size of both components,

in terms of both number and capital has grown fast, particularly

after the beginning of the seventies.

The number of companies limited by shares in 1972 and 1974

when the Government considered the mandatory appointment

of Company Secretary were as under:

Year Government Private sector Total

1972 352 31,915 32,267

1974 450 37,035 37,485

The number of companies limited by shares as on 31st March,

2008 stood as* :

Public Private Total

Limited Limited

Government sector 1,077 551 1,628

Private Sector 80,733 6,86,784 6,87,335

Total 81,810 6,87,335 7,69,145

Besides, the above, several banks and financial institutions

falling under the ambit of body corporate also form part of

the corporate sector.

ROLE OF COMPANY SECRETARY IN

CORPORATE SECTOR

The Companies Amendment Act, 1974 enlarged the scope of

services of a company secretary. His duties and responsibilities

initially were ministerial or administrative in nature. His duties,

inter alia, were:

(a) towards Board of Directors : arrangement of meetings of

the Board including its committees; preparation of agenda

and proceedings of all meetings; briefing and liasioning

with promoter directors and other directors etc.

(b) towards stockholders : conducting shareholders meetings,

serving notices, reports, dividend, interest payments and

other correspondence with them and so on;

(c) towards legal and administrative functions : compliance

and liasioning with Government departments, stock

exchanges, regulators, drafting of contracts, agreements,

filing of documents, maintenance of registers and records

and other administrative duties.

The Government has consciously created an institution to cater

to the specialized governance and compliance needs of

Corporate Sector. The Government has also recognized

adequately the quality and professional competency of the

members of ICSI. ICSI has also lived up to the great

expectations of the Government and has produced several

stalwarts to serve the Corporate Sector. Thus there is no doubt

about the role of Company Secretary in the Corporate Sector

which includes small, medium and large enterprises. The scope

of the profession Company Secretary has been widening year

by year and to day the Government has recognized Company

Secretary as one of the “Key Managerial Personnel”

The role of Company Secretary in corporate sector is mani

fold and ICSI has projected the same to include:

(a) Corporate Laws;

(b) Corporate Governance;

(c) Corporate Administration;

(d) Board and Shareholders meetings;

(e) Corporate Compliance Management;

(f) Stakeholder Relationship;

(g) IPO, ADRs/GDRs

(h) Capital markets, stock exchanges and listing agreement;

(i) Mergers and Amalgamations;

(j) Insider Trading & Takeovers;

(k) Representations;

(l) Arbitrations & Reconciliation;

(m) Direct and Indirect Taxes;

(n) Investor Education and Protection.

Besides, Company Secretary renders the following services

too.

(a) Acts as an advisor in Joint Venture and Foreign

collaboration and in drafting of agreements thereto;

(b) Offers consultancy and acts as an advisor in Corporate

Restructuring which includes demerger, sale, revival of

sick companies and so on;

(c) Offers services towards Protection of Intellectual

Properties.

(d) Offer services on Alternative Dispute Resolutions;

*(Source : 52nd Annual Report of Ministry of Corporate Affairs) (e) Acts as an advisor on matters relating to Foreign Direct

Role of Company Secretary in Corporate Sector

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Investment, Foreign Loans (ECB) including FEMA

related issues.

In brief, the role of Company Secretary in the corporate sector

is multifaceted and he has come to be recognized as a versatile

personality and therefore, there is little doubt that an

experienced CS is definitely a Key Managerial Personnel who

protects the overall interests of all stakeholders.

IS MANDATORY PROVISION JUSTIFIED?

The Indian corporate sector is mostly family owned and limited

in its exposure t professionalism. If one considers the corporate

compliance management, companies tend to comply only

those provisions which are mandatory and self regulation has

to go a long way. In other words, voluntary compliance is

very limited. The mantra of corporate governance is the

combination of ethics, transparency and best legal and

management practices without diluting commercial objectives.

This has been made as a mandatory provision under the listing

agreement. It needs no saying that some of the requirements

relating to corporate governance are scattered in the Companies

Act, 1956. Consider the following two situations of which

one is mandatory. One can get the answer whether appointment

of Company Secretary is to be made as a mandatory provision.

(1) Before introduction of mandatory provisions of tax audit,

which company has voluntarily prepared such a report?

Withdraw the said mandatory provision and then

consider how many companies would continue to prepare

such report. In fact, such a report is a ready referencer

for the regulator as well as Corporate Sector for proper

compliance of Tax Laws. It is complied with because it

is mandatory.

(2) The objective of keeping the amount of unclaimed

dividend, in a separate bank account is that that amount,

after the dividend is declared, does not belong to the

company that declared the dividend and therefore, in

order to protect the overall interest of investors such

amount has to be kept in a separate bank account and

Corporate Sector is barred from utilizing such amount.

On the other hand, unclaimed deposits after its maturity

do not belong to the company that accepted the deposits

and has to be kept in a separate bank account But, the

unclaimed deposit amount is being utilized by the

Corporate Sector for their working capital requirements

since, there is no such mandatory provision to keep such

amount in a separate account. Does this augur well in

the context of corporate governance? But through the

Rules the amount get transferred to the IEPT at the end

of seven years.

It was initially in the year 1975 that the law made appointment

Company Secretary in companies of particular size,

compulsory. But the Corporate Sector did not recognize

Company Secretary and his importance. Therefore, another

mandatory provision in the form of penal action was

introduced in the year 1988.

ROLE OF COMPANY SECRETARY IN

CORPORATE GOVERNANCE

Several institutions and organizations world wide recognize

and award Corporate Governance shields to so many Indian

companies. The MCA in the year 1972 itself realized and

recognized the importance of Company Secretary in certain

size of companies for proper compliance of various provisions

of the Act. SEBI in its part extended such recognition promptly

by stipulating the requirement of the appointment of Company

Secretary as Secretary for every committee as well as

compliance officer of a listed entity. Goint a step further,

SEBI has extended the issuance of certificate on compliance

of conditions of CG by Company Secretary in practice.

Initally, businessmen and their family members formed part

of the Board. Hardly there used to be any external person

occupying directorships in a company except to the extent of

overcoming certain mandatory statutory provisions that

prohibited interested directors from voting. Subsequently, with

the growth of the value of services rendered by professionals,

they entered the Board rooms. SEBI also brought the concept

of mandatory appointment of independent directors. There

are several conditions attached to the CG and the Board,

comprising of the entrepreneurs, businessmen and independent

directors who are normally professionals of different fields.

Company Secretary being in touch with the Board members

at every point of time, is the right employee professional to

inform the Board from time to time in complying the

provisions of CG. He has to explain the concept of independent

director and their eligibility for appointment as such an

independent director, to inform and collect various forms and

papers to be provided by such director, besides communicating

to various authorities about the constitution of Board. He acts

as Secretary for every committee such as Audit,

Remuneration, and Investors’ Grievances. Compliance of

clause 49 of the listing agreement is the total responsibility of

employed Company Secretary which is also one of the

ingredients for achieving good CG.

ROLE OF COMPANY SECRETARY IN

INVESTORS’ PROTECTION

The meaning of “investors” is not limited to only shareholders

Role of Company Secretary in Corporate Sector

Articles

but to extend to all others who are part and parcel of the

organization. Deposit/debenture holders, trade creditors,

secured and unsecured lenders, any holder of securities issued

by a company in the forms of warrants, ADRs/GDRs,

employees and last but not least the revenue authorities are

one way or other is “Investor” and collectively termed as

stakeholders. An employed Company Secretary is the bridge

between all such stakeholders and the company in which he is

employed. He is sincere not only to the company but also to

all the stakeholders in proper communication, compliance and

so on. He is also a link between a company and intermediaries

at the time of issuance of any securities and ensures compliance

of various provisions of law applicable to his company and

the relevant issue of securities.

COMPANY SECRETARY AS AN “OFFICER IN

DEFAULT”

The Act as well as the Bill 2009 duly recognize the role an

employee Company Secretary is expected in the matter of

compliance with the various provisions of the Act and that is

why he is included as an “officer in default” for all noncompliances.

One can find a citation under the Act on mergers

and amalgamations, winding up, oppression and

mismanagement but not on other non-compliances of other

provisions of the Act. This is one of the credentials for an

employee Company Secretary.

He has also actively to take part in follow up of all investors’

grievances both inside the office and at the office of Registrar

and Share Transfer Agents and Regulators. The very minimal

investors’ complaints almost in all big and medium size

companies prove that the employed Company Secretary do give

top priority in redressing the grievances, if any, of the investors.

THE NEED FOR COMPANY SECRETARY

From the above, every one be it a Board Member, an investor,

a stakeholder and regulator will easily accept that a company

which is widely held does need a whole-time Company

Secretary. The syllabus offered by ICSI covers all legal and

managerial issues which Corporate Sector faces on day to day

basis. Other professionals such as Chartered Accountants, Cost

Accountants and Corporate Lawyers do take advantage of the

extensive coverage of corporate laws in the Company Secretary

curriculum and become members of ICSI to excel in their

respective profession. It is also added feather to the cap of

Company Secretary, the recognition awarded by certain

Universities to enroll for Ph.D courses. The recognition to

certify various returns and issuance of certificates by a

Company Secretary in practice further enhances the credibility

of employee Company Secretary. At the same time, there is a

concern in some corner on the mis-match of available

Company Secretary vis-a-vis the requirement in Corporate

Sector. The Bill recognizes the role of Company Secretary

and has included him as Key Management Personnel. The

criteria for compulsory appointment based on the paid up capital

also requires re-consideration. Several companies with low

capital base with huge reserves and with huge borrowings play

a significant role in the Industry to which it belongs. In the

overall interest of Corporate Sector it is better to consider

appointment of CS on a mandatory basis :

(a) in a widely held company with a particulars number of

shareholder base ; and

(b) in an unlisted public company and smaller base

shareholders of listed companies with a combination of

long term capital deployed which includes the paid up

capital, free reserves, borrowings powers and turnover

of such companies.

The stakeholders’ interest in all such companies is very

important and the active role of full time Company Secretary

will certainly take care of all issues and recognize as the good

CG in Corporate Sector and also keep the profession of

Company Secretary in high esteem. 􀂉

Role of Company Secretary in Corporate Sector

 

Published in Corporate Law
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