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
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