Secretarial Standards - A brief analysis and FAQ

India is the pioneer in having Secretarial Standards as no other country in the world has yet adopted the Secretarial Standards. The Ministry of Corporate Affairs had accorded its approval under Section 118(10) of the Companies Act, 2013 to the Secretarial Standards (SS-1 relating to Meetings of the Board of Directors and SS-2 relating to General Meetings) specified by the Institute of Company Secretaries of India (‘ICSI’).
The Secretarial Standards (SS) have been notified by the ICSI in the Official Gazette and are effective from July 1, 2015. The said Secretarial Standards are slightly revised and new set of SS are now updated on the website of ICSI. Revised Secretarial Standards (SS-1 and SS-2) shall apply to Board Meetings and General Meetings, in respect of which Notices are issued on or after October 1, 2017.

The Secretarial Standards do not form parallel / conflicting regulatory framework relating to holding of Board Meeting / General Meeting, but they ensure smooth compliance of extant regulatory framework.

Moreover, in both the notified Secretarial Standards (SS – 1 & SS – 2), there is a statement that the Standard is in conformity with the Companies Act, 2013 and for any subsequent change in the Companies Act, 2013, the Standard (or part thereof) becomes inconsistent, and the provisions of Companies Act will prevail. Therefore, ICSI & Ministry of Corporate Affairs have ensured adequate precaution & cushioning in case of potential conflict between Companies Act, Rules made there under, Secretarial Standards and MCA’s Circular or Clarification.

a)   What is Secretarial Standards?
As per Companies Act, 2013 the expression “Secretarial Standards” means secretarial standards issued by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government. Secretarial Standards are the yardstick and in other words codifying a measure in order to avoid divergent approach towards compliance. Just like Accounting Standard or Auditing Standard provides for uniform practice across companies, Secretarial Standards.
The ultimate aim of the Secretarial Standards is to promote good corporate practices leading to better corporate governance. The Standards are basically compilation of good secretarial practices with a view to ensuring promotion of proper Board Process and shareholders democracy with utmost transparency, integrity and fair play, going beyond the minimum requirements of law. The adoption of the Secretarial Standards in true letter and spirit, will ensure adoption of uniform, consistent and best secretarial practices in the corporate sector.

b)     Who is responsible for compliance of Secretarial Standards in a Company?
In terms of the provisions of section 205 of the Companies Act, 2013, the functions of the Company Secretary inter-alia include ensuring compliance of the applicable Secretarial Standards. This means that it would be the duty of the Company Secretaries in employment, which is logical also, to ensure that Secretarial Standards relating to Board and General meetings or such other Standards, as may be specified by the ICSI, and approved by the Central Government are complied with. [Explanation to Section 205(1)].

c)   Why new Secretarial Standards? What are the changes?

Due to Companies Amendment Bill, the various exemptions notification issued by MCA, the existing SS were need to be revised. Also, the revision is in line with recent Ease of Doing Business initiatives by Government of India. Accordingly, SS-1 and SS-2 are revised by ICSI and the same have been approved by the Ministry of Corporate Affairs (MCA) vide its letter No. 1/3/2014-CL.I dated 14th June, 2017. As per the notification issued by MCA, all Board Meetings (including meetings of committees of Board) and General Meetings in respect of which Notices are issued on or after October 1, 2017 need to comply with the revised SS-1 and SS-2.

The ICSI has issued a comparative analysis on existing vs revised Secretarial Standards with detail rationale for changes, if any, in the SS-1 and SS-2.

You can access Old SS, New SS and comparative analysis by clicking link below:

Old Secretarial Standards
New and revised Secretarial Standards
Comparative Analysis by ICSI
(applicable for all meetings for which notices are issued on or after July 1, 2015 to September 30, 2017.)
(applicable for all meetings for which notices are issued on or after October 1, 2017.)


d)  Who issues Secretarial Standards?

Secretarial Standards Board (‘SSB’) constituted by the Central Council of ICSI is responsible for issuance and monitoring Secretarial Standards in India. It comprises of experienced members of CS profession, representatives of regulatory bodies such as MCA, SEBI, RBI, representatives from Industry Associations and chambers such as CII, FICCI, ASSOCHAM as well as the nominees of sister professional bodies, the ICAI & ICAI (Cost Accountancy).

e)  Is SS-1 applicable to only statutory committees or also to those committees which are constituted by the company voluntarily?

“Committee” has been defined in SS-1 to mean a Committee of Directors constituted by the Board. SS-1 is thus applicable to Meetings of Committees fulfilling the following conditions:
                 i.        All the Members of the Committee are Directors and
                 ii.        The Committee has been constituted by the Board.

Such committees may be constituted by the company statutorily or voluntarily. In case there is any Committee in which a Non-Director such as CEO/Manager, is a member, SS-1 will not apply to such Committee.


f)   Is it mandatory for all companies to Comply with the secretarial Standards?

As per FAQ issued by ICSI, Secretarial Standards on Meetings of the Board of Directors (“SS-1”) and Secretarial Standards on General Meetings (“SS-2”), issued by the ICSI for observance by all companies (except exempted class of companies).


g)   Are LLP’s also required to comply with secretarial Standards?

No. As of now SS are applicable only to Companies regulated under Companies Act, 2013. LLP and other forms or business are not required to comply with the SS.

h)  What are the penalties if a Company fails to comply with the requirement of Secretarial Standards?

Section 118 (11) provides that If any default is made in complying with the provisions of this section (which includes mandatory compliance of SS) in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees.
However, it is important to note that, since penalty is applicable for any default under Section. Which means that a Company will be liable for penalty of Rs. 25,000 and every Officer who is in default shall be liable for Rs. 5,000 for each meeting and each non-compliance. For example, if a Company holds 4 Board Meeting and 4 Committee Meeting during any FY where they fail to comply with the requirement of any provision of SS, penalty on Company will be Rs. 2,00,000 (Rs. 25,000 * 8 meetings) and every officer who is in default shall be liable for penalty of Rs. 40,000 (Rs. 5,000 * 8 meetings).

Posted by Jigar Shah

Disclaimer:
This material and the information contained herein are prepared by JMJA & Associates LLP, Practising Company Secretaries (JMJA) is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of JMJA, its associate firms, or its members/employees is, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. JMJA shall not be responsible for any loss whatsoever sustained by any person who relies on this material


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