Mandatory appointment of Company Secretaries: Is it required?

Mandatory appointment of Company Secretaries: Is it required?

After April 1^st 2014, one of the burning issues is the new Rule about KMP. As you may be aware, the new Rule makes KMP mandatory only for Public Companies with a Paid up capital of Rs. 10 crores or more only.  

There have been debates whether the appointment of Company Secretary should be mandated in certain type of Companies… also some section of the people are of the view and deliberations as to why a legislation should give employment opportunity to a professional.

Let me share some thoughts in favour as to why a Company Secretary is mandatorily required in certain Companies.

 

Ensuring Compliance

i)                    Company Secretary is the Compliance officer and he has been shouldered with the responsibility for compliance of various legislations that are made applicable to a Company.  In reality it is an undisputed fact that the Directors at the end of the day are entrepreneurs and their heart and soul is merged in sync with acquisition of new business and delivering the projects successfully. In other words, they are forced to worry about Topline and bottom line (Sales and Profit).  So in every Company there must be someone who is responsible for taking care of the compliance requirement and CS is the person who is recognized by profession and he has been successful to shoulder this responsibility for the last few decades and there is no reason as to why this needs to be reversed now

ii)                  Companies Act 2013 does not distinguish to a great extent between a Public Limited and Private Company; most of the provisions which are applicable to Public Company have been made applicable to Private Limited Company as well. Therefore the compliance requirement which needs to be adhered by a Private Limited Company has increased now; however it is a paradox that the KMP Rules exempts Private Limited Company from appointing KMP, more particularly a CS.

iii)                In general many Companies do not embrace compliance with warmth. Factually speaking, it is mostly given the last priority in the business, particularly in the Companies managed by individuals. (In case of Multi nationals they give more importance to compliance either by virtue of statue or practice).

iv)                The penalties that have been levied for non compliance in the Companies Act are quite steep. The cost that the Company is required to pay a Company Secretary to ensure the compliance is met is very negligible when compared to the penalty which may be awarded to the Company for a single offence in case of its non compliance. Hence it is imperative for the Companies to have a CS in its rolls to take care of Compliance not as a situation based activity but on day to day basis.

Indian scenario:

It is the general notion/mentality of an individual that as long as something is made mandatorily required by law only then it needs to be followed. Or else as long as it is optional then less attention or no attention needs to be adhered to it.

For instance, when you travel in road and where there is a traffic signal the action which we take when a police constable is present or absent varies hugely. When the police constable is present then the vehicles stop when the signal is red in his absence most of them pay no heed to the colour of the signal and continue their journey. In other words it is the mentality of the people to break the law when no one is looking or monitoring.

The role that a CS plays is similar to that of a traffic police and it is he who manages and balances between Directors, Government agencies, shareholders and other stakeholders.

He is entrusted with managing compliance inside the Company, who advises management about the applicability of various provisions on day today basis.

If compliance is made optional, not many may go for it. When Compliance is made mandatory, the appointment of a Company Secretary who is the Compliance Officer is also important.

Promises made...

ICSI is an Institute formed by the Government. It has conducted various career awareness programs in thousands of colleges and schools and has informed the Students that this is a course which provides excellent job opportunities and that every Company with Rs. 5 Crore capitals is required to appoint a Company Secretary and that this profession is one which has a bright future keeping in mind the growing Compliance requirement. Considering the promises and assurances made at the various programs, more than 4 lakh students have joined this course; now if Government shirks itself of the responsibility with which it had given life to a new profession so as to have made Company Secretary the guardian of law the object, aim and action plan and most importantly the future of its own child is at stake..

Future of CS Members & Students                                  

There is a feeling among many of the members that some of the provisions will be restored and our council members will ensure that the practice areas will not be affected. Also a section of the members are worried that practicing CS will take care of their interest and KMP provision may be left as it is.  

It is humbly stated that if KMP provision is not restored, many members will be forced to come out of employment and they will be coming to Practice only. If the practice area is so flooded, then the question of charging lesser amount, undercutting and other related issues will crop up.

So in the interest of the profession, it is not only the areas for practice must be improved, but that of employment also must be taken care.

CS Members across India are completely shocked and upset over the new Act; Members are now calm since it is election time in India and it may be difficult to make any changes now; however if the necessary changes are not done in the next few weeks or a month, the emotions and anguish of CS members will certainly be made explicit to the all concerned..