clsp - unit 8 - secretarial practices

Company Law and Secretarial Practice

Unit 8 – Secretarial Practices (Procedure and

Secretarial Duties)

Topics covered under this chapter

• Meaning • Definition • Qualification • Qualities • Appointment • Functions • Duties & Liabilities • Removal of Company Secretary

• Secretarial Practices relating to – • Incorporation of Private & Public

Limited Company• Issue of capital • (i) Statutory meeting (ii) Annual

General Meeting, Company Borrowings. • Concept of recent Corporate Bill 2013• Introduction, Need and Objectives of

Corporate Bill

Meaning and Definition • According to Section 2(24) of the Companies Act, 2013, “Company Secretary” or

‘Secretary’ means a company secretary as defined in clause (c) of Sub-section (1) of Section 2 of the Company Secretaries Act, 1980 and who is appointed by a company to perform the functions of a company secretary under this Act.

• According to clause (c) of Sub-section (1) of Section 2 of the Company Secretaries Act, 1980, a company secretary means a person who is a member of the Institute of Company Secretaries of India.

• Therefore, ‘Company Secretary’ means a person who is a member of the Institute of Company Secretaries of India (ICSI) and who is appointed by a company to perform the functions of a company secretary. The functions of company secretary have been defined in section 205 of the Act.

Qualification of CS Educational qualifications of company secretary:

• A company secretary has to deal with many people of name and fame. So he must have higher education for better understanding.

• He represents the company to the outside world and therefore he should have language proficiency to be well conversant.

• He should be updated with wide general knowledge relevant to run the company activities.

Qualification of CS Professional qualifications of company secretary:

• A company secretary requires specialized knowledge on secretarial practice to deal with notice, agenda, resolution, minutes of a meeting. He must know about office correspondence for communication.• A company secretary must have sufficient knowledge on Companies Act,

Industrial & Commercial Law and Law of Income Tax, Stamp Act, Accounting Principles and Rules of Securities and Exchange Commission (SEC) to deal with legal and statutory affairs.• A company secretary should have better understanding about money and

capital market, foreign exchange and socio-economic condition to deal with trading and financing.

Qualities of CS • Good knowledge of interpretation of law (Legal Know-How)• Very good understanding of business and products• In-depth knowledge of finance and financial aspects• Good communication, planning and organization skills• Networking and Interpersonal skills• Readiness to work for long hours if required by company• Continuous learning, improvement and development • Critical Thinker, Problem Solver and Independent Judgement • Integrity, Honesty and Commitment

Appointment of CS• Under section 2 (51) of the Companies Act, 2013, Company

Secretary has been defined as “Key managerial person”.

• Under section 203 of the Companies Act, 2013, being a key managerial person, company secretary is required to be mandatorily appointed in every company belonging to such class or classes of companies as may be prescribed.

Appointment of CSProcedural steps should be taken for appointing a company secretary – 1. Advertise the post, collect applications, hold interview, short list the

individuals for the position, and finalize the terms of appointment. 2. Convene a Board meeting after giving notice to all the directors of the

company as per section 173 of the Act. At the board meeting, place the proposal of appointing Company Secretary with the details of the person finalized and pass a resolution appointing the company secretary and approving the terms and conditions of his appointment.

3. File return of appointment of company secretary with the Registrar in Form DIR 12 within thirty days from the date of appointment (date of joining office) and Form MGT. 14 is also required to be filed along with such fee as specified in Companies (Registration of offices and Fees) Rules, 2014.

Appointment of CS4. A Company Secretary shall not hold office in more than one company except in its subsidiary company at the same time.

5. Make entries in the Register of directors and key managerial personnel under Section 170 of the Act.

6. Inform the Stock Exchange(s) where the company is listed.

7. Since key managerial personnel are included in ‘related party’ as defined in section 2(76) of the Act, Please verify whether the company secretary so appointed involved in any related party transactions within the provisions of Section 188 of the Act.

Appointment and Remuneration of CS

Rule - 8A of Companies Rules, 2014 (Appointment and Remuneration of Managerial Personnel)

• A company other than a company covered under Rule 8A which has a paid up share capital of five crore rupees or more shall have a whole–time Company Secretary.

• This means that all companies (including Private Companies) are required to appoint Company Secretary in whole time employment whose paid up Share Capital is five crore rupees or more.

Functions of CS• According to Section 205 the functions of the company secretary shall

include —

(a) To report to the Board about compliance with the provisions of this Act, the rules made thereunder and other laws applicable to the company;

(b) To ensure that the company complies with the applicable secretarial standards issued by the Institute of Company secretaries of India (ICSI) and approved by the Central Government.

(c) To discharge such other duties as may be prescribed by company.

Duties of CS• The Central Government has prescribed following duties of Company

Secretary:(1) To provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities and powers; (2) To facilitate the convening of meetings and attend Board, committee and general meetings, and maintain the minutes of these meetings; (3) To obtain approvals from the Board, general meetings, the Government and such other authorities as required under the provisions of the Act; (4) To represent before various regulators, Tribunal and other authorities under the Act in connection with discharge of various functions under the Act;

Duties of CS(5) To assist the Board in the conduct of the affairs of the company;

(6) To assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices; and

(7) To discharge such other duties as have been specified under the Act or rules; and

(8) Such other duties as may be assigned by the Board from time to time.

Roles and Responsibilities of CS

Under the Companies Act, the role of a secretary is three-fold, viz., as a statutory officer, as a co-ordinator and as an administrative officer if so authorized.

Similarly, the responsibility of company secretaries extends not only to a company, but also to its shareholders, depositors, creditors, employees, consumers, society and government.

The role of a company secretary may conveniently be studied from three different angles: (a) as a Statutory Officer, (b) as a Co-ordinator, (c) as an Administrative Officer.

Relationship of CS with the Board, Chairman and Managing Director

(i) Arranging meetings, both Board and general, drafting out the minutes and reports.

(ii) Keeping the Board informed as an advisor on matters regarding legal, financial and other laws and problems as far as they relate to the company. This will include advising the Board of the various obligations imposed on the directors by various statutes, including changes in laws which will have a bearing on the activities of the company.

(iii) Must ensure that all decisions taken by the Board are in compliance with legal requirements, and the powers they exercise do not require approval of the shareholders, Central Government or any other authority.

(iv) Since meetings of the Board are confidential in nature, he should ensure secrecy regarding matters discussed at such meetings.

Liabilities of CSCompany Secretary has been defined as ‘Officer in default’ along with Managing Director, Manager and Whole time Director etc. Thus, he can be punished in respect of offences under Companies Act. A Secretary is guilty if he was responsible to the company for conduct of its business.

Summons to company in civil matters can be served on a secretary As per rule 2 of order 9 of Code of Civil Procedure, in case of suit against a corporation, summons can be served on (a) Company Secretary, Director or other principal officer of the corporation or (b) By leaving it or by sending by post to registered office of the corporation.

Statutory Duties & Liabilities of CS

1. Declaration regarding compliance with requirement of registration In terms of section 7(1) (b) of the Companies Act, 2013.

2. Authentication of documents, proceedings and contracts [Section 21]

3. Signing Share Certificate of the company

4. Signing Annual Return to be filed with Registrar of Companies

5. Signing of Financial Statements on behalf of the Board

Statutory Duties & Liabilities of CS

6. Appear before National Company Law Tribunal (NCLT) on behalf of the company [Section 432] 7. Secretary of Audit Committee as per Corporate Governance Code prescribed by SEBI through listing agreement. 8. Secretary as Compliance Officer of listed company as per clause 47(a) of the equity listing agreement of the stock exchange (NSE, BSE)9. Secretary has to coordinate between depository and stock exchange in case of Demat Shares. 10. Additional Duties like looking after legal matters, personnel matters, finance and sometime even general administration.

Removal of Company Secretary• A company secretary can be removed or dismissed like any other

employees of the organization.

• Since he is appointed by Board, the Board of directors of a company has absolute discretion to remove a company secretary or to terminate his services at any time for any reason or without any reason.

• However, principles of natural justice like show cause notice, hearing, reasoned order etc. must be followed.

Removal of Company Secretary1. A Company Secretary can be removed in

accordance with the terms of appointment and the Board can record the same.

2. Convene a Board meeting after giving notice to all the directors of the company as per section 173, place the matter of removal/resignation of the Company Secretary and pass a resolution to the effect.

3. File Form DIR-12 in electronic mode within thirty days with the Registrar of Companies together with requisite filing fees. Evidence of Cessation (for example

Resignation Letter) is an optional attachment.

4. Inform the stock exchange where the company is listed.

5. Make entries in the Register maintained for recording the particulars of Company Secretaries under section 170.

6. Issue a general public notice, if it is so warranted, according to size and nature of the company.

7. The resulting vacancy shall be filled up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

Secretarial Practices - Incorporation of a Company

• Section 7 lays down the procedure for incorporation of a company. A company was incorporated by submitting memorandum and articles duly signed along with a declaration in prescribed form to the effect that the requirements of the Act in respect of registration have been complied with. • Section 7 (1) provides that there shall be filed with the Registrar within whose

jurisdiction the registered office of a company is proposed to be situated, the following documents and information for registration, namely:

(a) the memorandum and articles of the company duly signed by all the subscribers to the memorandum in such manner as may be prescribed; (b) a declaration in the prescribed form by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company, and by a person named in the articles as a director, manager or secretary of the company, that all the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.

Secretarial Practices - Issue of Capital

– Preparation of Project Reports and Feasibility Studies. – Syndication of long term and short term loans from financial institutions, banks and other agencies. – Loan documentation, registration of charges, search and status report. – Advisor/Consultant in issue of shares and securities. – Drafting of prospectus/offer for sale/letter of offer/other documents related to issue of securities, and obtaining various approvals in association of lead managers. – Listing of securities/delisting of securities with recognized stock exchanges.– Private placement of shares and securities. – Buy back of shares and securities.

Secretarial Practices - Issue of Capital

– Raising of funds from international markets – Investment subsidies, sales tax and other incentives. – Liaisoning with financial institutions, banks, other lenders, and stock exchanges, and furnishing periodical returns, reports and information required by them. – Advising sick companies with respect to the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, and drafting of rehabilitation schemes. – Advisor and Consultant in raising funds from Money Market and Capital Market. – Advising and guiding in ascertaining Stamp Duty, Payment of Duty and other related services under Central and State Stamp Laws.

Secretarial Practices - Statutory Meeting & Annual General

MeetingFunctions of CS U/S 205 of 2013 Act and Rule 10 of Companies Act.

(A)PRELIMINARY DUTIES BEFORE THE MEETING

(B) AT THE MEETING

(C) AFTER THE MEETING

Secretarial Practices - Statutory Meeting & Annual General Meeting

(A) PRELIMINARY DUTIES BEFORE THE MEETING

• To prepare final accounts• To get approval from the board• Submission of final accounts to the statutory auditors• To draft various documents• To fix the schedule of the AGM• To fix board meeting to finalize the annual general meeting• Correspond and intimate the stock exchange• To issue notice of AGM and fix the agenda of the meeting • Publication of notice of closure of register of members• To prepare dividend list and list of proxy forms


(B) AT THE MEETING

• To collect attendance slips• To assist the chairman in ascertaining the quorum• To read the notice of the meeting• Chairman’s speech• Duty to read director’s and auditors report• To assist the chairman in answering the queries • Duty to take notes of proceedings of the meeting


(C) AFTER THE MEETING

• Prepare minutes• Deposit the amount of dividend in the separate bank account• To make arrangement for the issue of dividend warrants• Deposit the corporate dividend tax• To file copies of final account with the registrar• To prepare annual return• To get the special resolution registered

Corporate Bill 2013 - Introduction

1. Government constitutes an Expert Committee on Company Law under the Chairmanship of Dr. J. J. Irani on 2nd December 2004 to advice on new Companies Bill.

2. The Committee submitted its report to the Government on 31st May 2005.

3. Companies Bill 2008 was introduced on 23rd October, 2008 in the Lok Sabha to replace existing Companies Act, 1956.

4. Dissolution of the 14th Lok Sabha, leads to lapse in Companies Bill, 2008 lapsed.

5. Ministry of Corporate Affairs introduces the Companies Bill, 2009 in the Lok Sabha on August 3, 2009.

6. Bill referred to the Standing Committee on Finance (SCF) of the parliament for examination in September 09, 2009.

7. Report of the SCF on Companies Bill introduced in the Lok Sabha on 31st August, 2010.

Corporate Bill 2013 - Introduction8. In view of amendments made by recommendation made by SCF and suggestions of Stakeholders the

Companies Bill 2009 was withdrawn by the Central Government.

9. A fresh Companies Bill 2011 was introduced in Parliament on Wednesday, 14th December 2011.

10. The Companies Bill, 2011 was referred to the Standing Committee on Finance on 5th January, 2012 after an objection was raised against it in Parliament.

11. Based on the SCF’s recommendations, the Bill was amended and introduced as the Companies Bill 2012.

12. The Lok Sabha on 18th December, 2012 approved the Companies Bill 2012; but could not be placed in that session in the Rajya Sabha.

13. In the Current Session of the Parliament Rajya Sabha passes the Bill on 8th August 2013

14. Now the assent of the President of India and the Bill‘s publication in the Official Gazette will be necessary before the Bill becomes an Act

2008• Companies bill Introduced in Lok Sabha on 23rd October 2008 for the first time

to replace 52 year old Companies Act 1956

2012• Companies Bill passed in Lok Sabha on 18th December 2012 at 10:46 pm

2013 • Bill passed in Rajya Sabha on 8th August 2013 at 5:16 pm

2013• Enacted as Companies Act 2013 with President’s Approval on 29th August 2013

Important Milestones - COMPANIES ACT 2013

Comparison

Companies Act 1956

13 Parts

658 SectionsAnd

15 Schedules

Companies Act 2013

29 Chapters

470 Sections And

7 Schedules

FEATUREOLD COMPANIES

ACT 1956.NEW COMPANIES

ACT 2013.

Members

There are maximum of 50 members.

There are maximum number of 200 members.

One personCompany Does not exists.

The concept of one person company was introduced to form a private limited

company.

In-

corporation

It can be treated has conclusive evidence.

It cant be treated has conclusive evidence because action can be taken

even after incorporation.

FEATURE OLD COMPANIES ACT 1956.

NEW COMPANIES

ACT 2013.

Memorandum of association

It consists of name clause, situation clause, object clause,

subscription clause, etc.,.

It consists of all the clauses but in object clause the sub-

clause named other objectives is excluded.

Articles of association

It has companies limited by share, limited by guarantee &

unlimited companies.No changes have been done in

this regard.

Resident DirectorNo such provision existed.

Every company shall have one director who lives in India for a period of 180 days for last

calendar year.

FEATURE

OLD COMPANIES ACT 1956

NEW COMPANIES

ACT 2013.

E-governance No such provision

existed.

Inspection of documents in electronic form is made.

Women director No such provision

existed.

In prescribed companies classes or class women can

be a director.

Maximum no. of

Directors

Max. no of directors are 12 not beyond them with approval of central govt.

Number increased to 15 but by passing with special

resolution .

FEATURE

OLD COMPANIES ACT 1956

NEW COMPANIES

ACT 2013.

Applicability of

law

It is acceptable whole India except in Sikkim has they has

their own company’s act.

It is applicable to whole India.

Issue of bonus shares

No such provision existed. However rules framed in unlisted public company.

Private limited company’s are not permitted to issue bonus

shares.(clause 63 and 23)

Exit option of share holder

No such provision existed.Share holders can have exit

option if money raised has not been utilized.