Appointment of Company Secretaries
Loopholes Plugged in Companies Act 2013
In this article we will discuss and compare the provisions related to appointment of Company Secretary as per Companies Act 1956 and Companies Act 2013.
Provisions in Companies Act 1956
As per the Companies Act 1956, every company having a paid up capital of 5 crore or more must have a whole time company secretary and if the company is listed, it must also have a company secretary who acts as a compliance officer as per the provision of listing agreement of stock exchange (s) which are monitored by the Security Exchange Board of India.
Relevant section of Companies Act 1956 – Section 383A
383A. Certain companies to have secretaries
(1) Every company having such paid-up share capital as may be prescribed (Rs. 5 crores) shall have a whole-time secretary and where the Board of directors of any such company comprises only two directors, neither of them shall be the secretary of the company: Provided that every company not required to employ a whole-time secretary under sub-section (1) and having a paid-up share capital of 10 lakh rupees or more shall file with the Registrar a certificate from a secretary in whole-time practice in such form and within such time and subject to such conditions as may be prescribed, as to whether the company has complied with all provisions of this Act and a copy of such certificate shall be attached with Board’s Report referred to in Section 217.
(1A) If a company fail to comply with the provisions of sub-section (1), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.
Provided that in any proceedings against a person in respect of an offence under this sub-section, it shall be a defense to prove that all reasonable efforts to comply with the provisions of sub-section (1) were taken or that the financial position of the company was such that it was beyond its capacity to engage a whole-time secretary.
Penalty provision for non appointment of Company Secretary
As mentioned above in Sub Section 1A - Companies Act 1956 provides that if a company fail to appoint a company secretary the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.
There was a big Loophole in the above provisions which gave an escape route to companies. Following texts from provisions of Section 383A, stated herein above, created way for escape route for non-appointment of Company Secretaries:-
“Provided that in any proceedings against a person in respect of an offence under this sub-section, it shall be a defense to prove that all reasonable efforts to comply with the provisions of sub-section (1) were taken or that the financial position of the company was such that it was beyond its capacity to engage a whole-time secretary.”
Many company used this text as escape route for not appointing Company Secretary. These companies just gave an advertisements in News Paper for giving excuse that they did not find a suitable Company Secretary. These companies never realized the importance and competency of the “Company Secretaries’.
Provisions in Companies Act 2013
All this will change with the implementation of Companies Act 2013.
Section 203 of Companies Act 2013 which deals with the appointment of Key Managerial Personnel (Company Secretary is also a KMP as we all know) have plugged the loopholes Section 383A of the Companies Act 1956. Apart from this, it also imposes heavy penalty if a company contravenes the provisions of Section 203. Let us check out the provisions of all new Section 203 of the Companies Act 2013.
203. (1) Every company belonging to such class or classes of companies as may be prescribed (As per Draft Rules - For the purposes of sub-section (1) of section 203, every listed company and every other company having a paid-up share capital of five crore rupees or more shall have whole-time key managerial personnel) shall have the following whole-time key managerial personnel,—
(i) Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;
(ii) Company Secretary; and
(iii) Chief Financial Officer:
Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,—
(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses:
Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.
(2) Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.
(3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:
Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board:
Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:
Provided also that a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.
(4) If the office of any whole-time key managerial personnel is vacated, 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.
(5) If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and key managerial personnel of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.
As we can see from the (5) above, minimum penalty on Company for contravention of provision of section 203 is Rs 100000/- and which may extend to Rs 500000/-.
Apart from company every Director and KMP who is in default is also punishable with fine which may extend to Rs 50000/- and where the contravention is continuing one with a further fine of Rs 1000/- per day for the period during which contravention continues.
Now this is some penalty. I hope company will prefer to hire the Services of a CS for Rs 500000/- p.a. rather than paying penalty which may turn out to be of even higher amount.
Above all I hope the companies now realize the importance of Company Secretaries in their business set up who is a vital link between the company and its Board of Directors, shareholders, government and regulatory authorities. Not only does he ensures the compliance with all applicable laws, thereby protecting the organization from payment of penalty, but also guides board in decision making process under prevailing.
Thus we can say that – “Behind every well managed company there is always a hardworking and alert Company Secretary”.
With Best Regards
Sanjay Gupta
(M.Com, ACMA, ACS, DIM)
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