Companies Act - Section 217(2A)

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Gopinath Prabhu (Querist)
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02 October 2009 the above section requires a company to disclose particulars of the employees who draw a certain amount of salary (now Rs 2 lac per month or more) The disclosure includes the name, designation, qualification, experience and the name of the previous company where employed as an ANNEXURE to the Directors Report. This has been done so that shareholders can know if salary is infact to commesurate with the experience and qualification of such employees.

However, not many companies liked this disclosure. I suddenly realised many a companies started to avoid this disclosure right away. They quoted the following in order to avoid the disclosure

1. Proviso (b) (iv) of 219 (1) of the Companies Act
2. SEBI circular dated 26.04.2007 on sending abridged annual report to the shareholders.

And in turn told that in case any shareholder required the information of those employees they would be provided with the same if they write to the secretarial department.

I went through both of them. The Act superceeds all other enactments. The proviso to Section 219 (which refers to Balance Sheet and Auditors Report and NOT DIRECTORS REPORT) gives an option to the listed companies to send a statement containing salient feature of Balance Sheet and Auditors Report. In no way, a company can abridge their Directors Report or any of its annexure as it is dealt with a separate section which is section 217 and not Section 219.

With regard to the SEBI circular, page 3 says

" Having regard to the above, SEBI has decided to amend Clause 32 of the Equity Listing Agreement to align it with the provisions of Section 219(iv) of the Companies Act i.e. to permit listed companies to send a statement containing the salient features of the (i) Balance Sheet, (ii) the Profit and Loss Account and (iii) the Auditors’ Report instead of sending full Balance Sheet and Annual Report. "

Again, nowhere in the circular there is any clause which gives a listed company an option not to send the list of employees covered under section 217(2A) which is a part of the Directors Report. Yet there are many companies who have taken recourse to this proviso and SEBI circular and not send the list of employees along with Annual Report instead asking shareholder to write back to them in case they need the list.

Its also strange that while companies skip section 217(2A), all these companies went on to disclose the information as required by 217(1)(e) on the conservation of energy, technology absorption, foreign exchange earnings and outgo as an annexure to the Directors Report. I wonder how come these companies did not seek exemption using the same SEBI circular & proviso ?

Isnt non providing of this information along with the directors report amounts to non compliance of the Companies Act ?

Please let me know