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Company Secretaries cajole MCA: New Companies Act sections ‘fatal’ to profession’s existence & compliance

CS: Cutting 'em loose
CS: Cutting 'em loose

Institute of Company Secretaries of India (ICSI) president R Sridharan has written to the Ministry of Corporate Affairs (MCA) against the newly notified Companies Act sections, some of which are potentially “fatal to the profession of Company Secretaries” in India.

The new sections, he said, have doubled public companies’ paid up share capital requirement for appointing a Company Secretary (CS) from Rs 5 crore to Rs 10 crore, have exempted private companies from appointing a CS, have exempted nearly 99 per cent of 13 lakh Indian companies from secretarial audits and have done away with the requirement of pre-certification of various e-forms under the Act, which was work done by the CS.

Vaish Associates principal associate and ICSI Northern India regional council (NIRC-ICSI) vice chairman NPS Chawla told Legally India in an email that the members and students of the institute are agitating against the new rules notified by the ministry on 1 April not only because they were “drastically” different from the draft rules issued by the MCA for public comment, but also because they were against the spirit of the Companies Act 2013 and the lack of public comment on them was against the principle of natural justice.

He said: “Past is the best indicator of the future; in the recent past, all the big scams have happened in private limited companies. Despite knowing all this and even the fact that 93% of the total companies in India are private limited companies, the MCA has discharged private companies (although there is hardly any distinction between a private limited company and a public limited company under the Companies Act, 2013) from appointing the law keeper and compliance officer in the face of a company secretary.”

“Under the draft rules, the [threshold for appointing a CS] was Rs 5 crores of paid up share capital, i.e. the same limit as provided under the Companies Act, 1956, however, under the final Rules notified by the MCA, the said limit has been doubled, without appreciating and understanding that the said threshold limit has always been increased with the increasing economy of the country and now when the economy of the country is stricken, increasing the threshold would be fatal to the profession of company secretaries,” he remarked.

He said that doing away with the requirement of pre-certification was “against the mantra of MCA of self-governance”.

No more CS openings

The new rules exempt public companies below a paid up share capital of Rs 10 crore, and all private companies from the requirement of appointing a CS.

“As a consequence, about 7,000 companies would be required to have a Company Secretary. This gives a message that compliance with law, secretarial standards and governance norms, etc., which are responsibilities of a company secretary under the Companies Act 2013, are not important for all, but 7000 companies,” stated the ICSI’s representation to the MCA.

Section 138 – Secretarial Audit

The new section makes secretarial audit applicable on only those private companies whose preceding financial year’s turnover is at least Rs 200 crore, or whose outstanding loans exceed Rs 200 crore at any point during preceding financial year.

ICSI points out that under 1 per cent of the 13 lakh public and private companies in India would get covered for secretarial audit under the new section, while 1700 of the biggest Indian private companies are exempt under this section.

“The exclusion of private companies, irrespective of their size, from secretarial audit gives a message that the matters covered under such audit such as compliance with applicable laws is not important,” stated the representation.

Pre-certification

Under the new rules, e-forms will be directly scrutinised by MCA officials instead of pre-certification by a CS or a Chartered Accountant (CA) or a Cost and Work Accountant (CWA).

The representation explained that pre-certification was introduced to avoid registration delays and eventually evolved to check correctness of documents supplied and cure defects by professionals – the CS, CA and CWA.

“Thus the professionals act as extended arm of the MCA. The pre-certification, which applies to all companies has helped improve compliance and governance,” the representation stated.

It pointed out that overburdening MCA officials with direct scrutiny would cause delays in information being made available to stakeholders.

The ICSI sent three representations to MCA secretary Naved Masood on 2 April, addressing each of the three issues separately.

Photo by Oskari Kettunen

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