The dictionary meaning of the word ALL means “the whole quantity or extent of a particular group or thing” and the adverb means completely, fully, entirely, totally, wholly, absolutely, utterly, outright, thoroughly.
In Companies Act, 2013 (the Act) the phrase “all applicable laws” is used in the three places and in Listing Agreement in one place. Most corporate, professional, even professional body seems to take a convoluted stand on this. The simple interpretation of “all applicable laws” would mean the Company is required to comply with all laws that are applicable to the company and it may be around 60 to 70 legislations to start with and will include Central, State and local laws. Since the Companies Act, 2013 (the Act) has already notified the sections that lists the phrase “compliance of all applicable laws”, where is the question of thinking which laws are required to be complied with as on March 31, 2015. The onus is on the Board & Professionals to ensure that the letter of law is complied and adhere to putting in a process to ensure compliance of all applicable laws.
Blame Game– pass the buck
The regulators have craftily drafted section 134(5)(f) under the Directors Responsibility Statement the Act to ensure that the primary responsibility of compliance of all laws lies with the entire Board. This inclusion under Responsibility Statement in the Directors’ Report has ensured that the onus is on the entire Board and not only with the Key Managerial Persons as the Board signs this report collectively.
On the other hand, the regulators have given the much required recognition to the company secretary by drafting section 205 read with the Rules where the functions are clearly listed out for a Company secretary and it includes overseeing the compliance of all applicable laws. The onus of compliance now is on the Board and the Company Secretary, if a Company has appointed one and then to the Board of Directors under section 134 of the Act.
The draftsman has ensured that section 204 which require every listed company and other companies to obtain a Secretarial Report from a Practising Company Secretary. Once the professional submits the report the onus of compliance of all applicable laws moves to this professional. This report in Form MR 3 has to be submitted to the Board every financial year, addressed to the members of the Company. This form lists out various legislation that needs to be covered by a Secretarial Auditor and concludes with an assurance stating that the Company is in compliance of other laws applicable to the Company.
The moot question is - can a Secretarial Audit Report replace the responsibility cast upon the Board of Directors and the Company Secretary by the Act? There seems to be a major drafting error as the language used in Form MR 3 is an assurance and an affirmation of compliance of applicable laws by the Practising Company Secretary to the members of the Company.
Interpretation of Convenience
These are the section that list out the requirement of Compliance of all applicable laws for a Company:
Section 134(5)(f)
(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
Penalty for contravening Section 134:
If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
Section 205 (1)
205. (1) 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 there under and other laws applicable to the company;
MR 3 – Section 204
I/We have conducted the secretarial audit of the compliance of applicable statutory provisions and the adherence to good corporate practices by.......
I/we have examined the books, papers, minute books, forms and returns filed and other records maintained by .............. (“the Company”) for the financial year ended on __, ______ according to the provisions of:
(vi) .............................................................. (Mention the other laws as may be applicable specifically to the company)
I/we further report that there are adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines.
Penalty for contravening Section 204:
If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Apart from this section 448 is applicable for penalty under section 204 Save as otherwise provided in this Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,—
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material, he shall be liable under section
Clause 49(D) 3 of the Listing Agreement
The Board shall periodically review compliance reports of all laws applicable to the company, prepared by the company as well as steps taken by the company to rectify instances of non- compliances.
Different persons to suit their convenience are interpreting this term and in fact professional bodies have a different version of this phrase and are recommending only a few acts to be covered in the Secretarial Report.
i) Can the professional bodies prescribe by way a communication from
ii) Can the Secretarial Auditor limit his report to a few laws and leave out
iii) Can a professional rely on another professional before certification?
Professionals beware
A regulator can only amend a regulation and such amendment cannot be by way of circulars, there has to be notifications published in the Gazette, and till date there is no notification on the content of applicable laws for a Company.
Professional institutions cannot take positions and cannot bring internal clarification to members suggesting what is the meaning of the term all applicable laws.
Section 204 seems to have cast huge responsibilities on the Secretarial Audit and has fixed the nail on his head for ensuring there is proper reporting on not only compliance but also non-compliance of all applicable laws for a Company.
Appeal to the Regulators
1. To give clarity on the term “all applicable laws for a Company”.
2. To extend the deadline for compliance and reporting by a year – March 31, 2016
3. To take on record the secretarial report for the year ended March 31, 2015 but not launch any prosecution for any errors & omissions.
4. The most developed nation in the world give at least ONE year to understand the nuances of any major legislation – why not India?
5. Is it possible for all Board of Directors to own up the responsibility of compliance of all applicable laws for a Company?
Such drafting lacunae in the draconian Companies Act 2013 will only force entrepreneurs to close shop and think of alternate means of doing business. This concept of thrusting bohemian responsibility of having to ensure compliance of all applicable laws by the company on Board of Directors and Professional seems to be an overdose of moral policing on corporates by the regulators.
CAclubindia
