Revision of Secretarial Standards

Transcription

1 Revision of Secretarial Standards What are Secretarial Standards? Secretarial Standards means the Secretarial Standards as 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. Where the Law is not clear or needs explicit spirit of the law, Secretarial Standards, provide clarity on them. Secretarial Standards only provide clarity on the respective subjects but it doesn t mean that the Secretarial Standards are alternative to the original Laws. Introduction Companies have to follow various legal requirements as applicable to them, including The Companies Act THE INSTITUTE OF COMPANY SECRETARIES OF INDIA has constituted the Secretarial Standards Board (S.S.B.) for formulating the Secretarial Standards. Earlier in the companies Act 1956 the Secretarial Standards were re commendatory in nature but after notification of the Companies Act 2013 Secretarial Standards are mandatory in nature. The S.S.B. with its council members determined the subjects / topics in which Secretarial Standards are to be developed. Recognition The standards gained final recognition with the introduction of Companies Act, 2013 (Section 118(10)). And since then they have become of the mandatory nature. As per Sub Section (1) of Section 204 of Companies Act 2013 every listed company and other class of companies as may be prescribed shall annex the secretarial audit report with its Board reports made in terms of sub section (3) of Section 134 of Companies Act And such secretarial audit report as to be issued by company secretaries in practice under Section 204 of Companies act 2013 he / she has to ensure that company has complied with the applicable secretarial standards. In Short - Secretarial Standards are issued by ICSI to facilitate the corporate world and respective professionals, by providing clear interpretation and proper

2 explanation where Law is ambiguous. According to the President of the NCLT, the disputed regarding procedural matters have shown a drastic fall after the introduction of the standards. Need for Revision Long back when the Accounting Standards were introduced for the sake for harmony and uniformity in the procedure of preparation of financial statements and other accounting treatments, the practicing professionals as well as the businessman found it some complications which needed to be tackled. But later after true revisions made it smooth for everyone to adopt them and apply them. In the same manner the Secretarial Standards were introduced in order to bring uniformity and regularity in the common and repeated practices taking place in daily routines of the company. They were first issued in 2015 when CS Atul Mehta was the President of ICSI. But the members, practicing professionals, stakeholders, businessman found issues in adoption of these standards. The technical issues, non corelate able requirements made it a need of time to make a proper revision in the standards with the help of the informed issues, suggestions, etc. This was the reason, the guidance notes issued by ICSI promptly brought t notice that these standards do not over ride the original law and will not prevail in case of any controversy in the Act and the standards. Thus the need for revision was considered by the Institute of Company Secretaries of India.

3 10 Major changes that the revision has brought : Secretarial Standard 1 : Meetings of the board I. Scope : 1. Section 8 companies need to comply with the applicable provisions of the Act relating to Board Meetings. As a result they need not follow the SS 1. II. Definition : 1. Committee means a committee of Directors mandatorily required to be constituted by the Board under the Act. This new definition requires the committees to follow the SS 1 only when they are constituted by the Board of directors. As a result, other committees not constituted by the Board are kept out from the view of the standard and hence provides relaxation. 2. Secretarial Auditor Secretarial Auditor means a Company Secretary in Practice or a firm of Company Secretary(ies) in Practice appointed in pursuance of the Act to conduct the secretarial audit of the company. The new definition has covered the Firms which is a great clarification for the sake of Secretarial Audit!

4 III. Convening a meeting : 1. Para of SS 1 provides that a Meeting may be convened at any time and place, on any day. This amendment can be stated as in conformity with the provisions of the Act. It can be learned that a meeting can be now held on a national holiday too. However, an adjourned meeting still can also be held on a national holiday now as the restricting para is not present in the new SS Para 2.1 of the SS 1 provides that The company shall hold at least four Meetings of its Board in each Calendar Year with a maximum interval of one hundred and twenty days between any two consecutive Meetings. The company shall hold first Meeting of its Board within thirty days of the date of incorporation. It shall be sufficient if subsequent Meetings are held with a maximum interval of one hundred and twenty days between any two consecutive Meetings. This amendment too can be stated as in conformity with the provisions of the Act. It can be learnt that the new revised SS 1 has removed the requirement of holding one meeting in every calendar quarter. So now there can be possibility of not having meeting in a quarter. As it clarified earlier, it still states that if the company is incorporated in between the year then a meeting to be held within 30 days of incorporation and thereafter, next meetings within interval of 120 days. IV. Notice : 1. Para 1.3 of SS 1 provides Notice of the Meeting shall clearly mention a venue, whether registered office or otherwise, to be the venue of the Meeting and all the recordings of the proceedings of the Meeting, if conducted through Electronic Mode, shall be deemed to be made at such place.

5 Mere change in the language is seen with respect to the requirement of the Act. 2. Para of SS 1 provides Notice in writing of every Meeting shall be given to every Director by hand or by speed post or by registered post or by facsimile or by or by any other electronic means. This amendment is in accordance with Section 173 of the Act. It makes an interpretation that Courier mode is not allowed. However, additional two days to be added while sending through post. 3. In the 1 st sub Para of the Para (1.3.1) of SS 1 it is stated that Where a Director specifies a particular means of delivery of Notice, the Notice shall be given to him by such means. However, in case of a Meeting conducted at a shorter Notice, the company may choose an expedient mode of sending Notice. This change has provided an express relaxation in case of shorter notice. The company may decide an expedient mode of sending the notice. However, it cannot be sent through courier as this mode is not allowed as previously mentioned. V. Agenda / Agenda Notes : 1. The 1 st Sub Para under Para of the SS 1 provides that Agenda and Notes on Agenda shall be sent to all Directors by hand or by speed post or by registered post or by or by any other electronic means. This change is similar in line with the removal of courier mode as provided in Notice. 2. Sub Para 3 of Para of SS 1 states Where a Director specifies a particular means of delivery of Agenda, Agenda Notes then such Agenda, Agenda Notes shall be given to him by such means. However, in case of a Meeting conducted at a shorter Notice, the company may choose an expedient mode of sending Agenda, Agenda Notes. This revision makes a relaxation in case of shorter notice. The company may decide an expedient mode of sending Agenda, Agenda Notes.

6 VI. Preservation of proof of sending Notice / Agenda / Agenda Notes / Minutes and their delivery : 1. Sub Para 3 of Para of SS 1 provides Proof of sending Notice / Agenda / Agenda Notes / Minutes and its delivery shall be maintained by the company for such period as decided by the Board, which shall not be less than 3years from the date of the Meeting. Earlier, SS1 was not clear on this issue. Now with this clarity, the Board can fix the period of preservation for a period not lesser than 3 years. VII. Quorum : 1. Para 3.2 of the SS 1 provides that Director shall not be reckoned for Quorum in respect of an item in which he is interested. However, in case of a private company, a Director shall be entitled to participate in respect of such item after disclosure of his interest. Leave of absence shall be granted to a Director only when a request for such leave has been received by the Company Secretary or by the Chairman. The Old SS 1 required that a Director shall not be reckoned for Quorum in respect of an item in which he is interested and he shall not be present, whether physically or through Electronic Mode, during discussions and voting on such item. VIII. Interested Director for the purpose of Quorum: 1. For this purpose, a Director shall be treated as interested in a contract or arrangement entered into or proposed to be entered into by the company: (New Insertion) If the item of business is related party transaction, then he shall not be present at the Meeting, whether physically or through Electronic Mode, during discussions and voting of such item. Outcome: If Company entered into contract or arrangement with Director or his relative shall not treat as interested Directors. In case of related party transaction he shall not participate.

7 IX. Attendance Register: 1. According to Para of SS 1 The attendance register shall be deemed to have been signed by the Directors participating through Electronic Mode, if their attendance is recorded in attendance registered and authenticated by the Company Secretary or where there is no Company Secretary, by the Chairman or by any other Director present at the Meeting, if so authorized by Chairman and the fact of such participation is also recorded in the Minutes. The words by the Chairman or the Company Secretary in the Attendance Register and the Minutes of the Meeting were substituted by the above text given modification to the language of the previous SS Authentication of Register: Entries in the attendance register shall be authenticated by the Company Secretary or where there is no Company Secretary by the Chairman by appending his signature to each page. This above text is not present in the revised SS 1 (omitted). Hence, this requirement need not be complied now. 3. Custody: Para of SS 1 says that Where there is no Company Secretary, the attendance register shall be in the custody of any other person authenticated by the Board of this purpose. The old SS required that in case where there is no Company Secretary, a Director as authorized by the board shall keep the custody of the registers. But now the words director has been substituted by any other person. X. Inspection of Attendance Register: 1. According to Para of SS 1 The attendance register is open for inspection by the Directors. Even after a person cease to be a Director, he shall be entitled to inspect the attendance register of the Meeting held during the period of his Directorship. In the old SS 1, the inspection was possible only by directors but now the new SS 1 allows a person to inspect even though he / she is not a director any more.

8 Conclusion: After elaborate deliberations, the Institute Of Company Secretaries (ICSI) has amend the Secretarial Standard 1. Amendments are made for better compliance of the law. Compliance with the strict rules that would help strengthen corporate governance practices and help curb corporate misdoings would be ensured by company secretaries. Article by : Ruturaj Arvind Jadhav, Executive Progamme, Reg. no. : /08/2017 ID : raj.cacscma@gmail.com Contact no. :

9 A STEP TOWARDS REVEALING THE REAL OWNERSHIP For greater financial transparency and to target the benami entities the government has decided to make it mandatory for unlisted corporate to dematerialize the shares starting it with the Public Companies as dematerializing shares of all the Companies won t be an easy step In this drive the Ministry of Corporate Affairs came out with a notification dated: 13 th June 2018 in which it recommended for the new rules in this area called as the Companies (Significant Beneficial Owners) Rules, The MCA in these rules provides for significant beneficial ownership aimed at tracking the real beneficiaries of shares as often benami holdings are found in shell companies. The definition of significant Beneficial Ownership says: Significant Beneficial Ownership means an individual referred in sub-section (1) of section 90 (holding ultimate beneficial interest of not less than ten per cent) read with the sub section(10) of section 89, but whose name is not entered in the registrar of the a company as the holder of such shares,and the term significant beneficial ownership shall be construed accordingly; The law provides for mandatory disclosure within a stipulated period and once the rules are notified there will be a rush of filings as shares in most companies are not widely held. A failure to disclose beneficial ownership can result in a fine of up to Rs 50,000 with a daily penalty of Rs 1,000, if the failure to comply with the rules continues. The Companies Act also allows the Centre to investigate cases of beneficial ownership.

10 Disclosure of beneficial ownership in a company Simply understood, beneficial owners are those persons who ultimately gain from the ownership of securities, even if they are legally held in someone else s name. Every significant beneficial owner has to file a declaration in Form no. BEN-1 to the company in which he holds the significant ownership on the date of commencement of these rules within 90 days from such commencement and within 30 days in case of any change in his significant beneficial ownership. Every individual who after the commencement of these rules acquires significant beneficial ownership then he needs to file Form. No. BEN-1 to the company within 30 days from the date of such acquisition. And within 30 days from the date of receiving the declaration by the company, it needs to file a return with the registrar in Form no. BEN-2 along with the fees as prescribed in Companies( Registration offices and fees) Rules, All companies in India will need to maintain a register of beneficial owners in Form no. BEN-3. Dematerializing shares a tracking test for tax authorities The demat shares are easily tracked by tax authorities and so they can now track shareholders as well as the real beneficiaries of shares.

11 An investor seeking to dematerialize shares needs to open a demat account with the Depository Participant (DP). A DP is the market intermediary through which investors can avail depository services, such as banks, brokers, custodians, and financial institutions. The legal loop has given a space for many investors in unlisted public companies to retain their shares in physical form, evading tax and financial scrutiny. Further, any move by the government mandating the conversion of shares will be an ambitious task, impacting over 55 million shareholders. Shweta Dhadwal Reg no: /09/2013 Professional passed student

12 WHISTLE BLOWING PROVISIONS IN THE CORPORATE SECTOR The term whistle-blowing originates from the practice of British policemen who blew their whistles whenever they observed commission of a crime. Whistle blowing means calling the attention of the top management to some wrongdoing occurring within an organization. A whistleblower may be an employee, former employee or member of an organisation, a government agency, who have willingness to take corrective action on the misconduct. Whistle Blower The Directors/employees of the Company making the disclosure under this policy. The Whistle Blower s role is that of a reporting party. Whistleblowers are not investigators or finders of the facts; neither can they determine the appropriate corrective or remedial action that may be warranted. SARBANES-OXLEY ACT, 2002(SOX) An Act enacted by U.S. congress in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. It is a set of standards that all U.S public companies and public accounting firms must comply and adhere with good quality reporting. APPLICABILITY OF SARBANES-OXLEY ACT, 2002(SOX) Whether SOX is applicable in India? Yes, all companies, including Indian, which are listed on US stock exchanges, are required to comply with the requirements of the Act.

13 PROVISIONS OF SOX FOR WHISTLE-BLOWERS: i. Make it illegal to "discharge, demote, suspend, threaten, harass or in any manner discriminate against" whistleblowers ii. Establish criminal penalties of up to 10 years for executives who retaliate against whistleblowers iii. Require board audit committees to establish procedures for hearing whistleblower complaints iv. Allow the secretary of labour to order a company to rehire a terminated employee with no court hearing. v. Give a whistleblower the right to a jury trial, bypassing months or years of administrative hearings. The Companies Act, 2013 has mandated certain companies to establish Vigil/Whistle-blowing mechanism to report any unethical behavior or other concerns to the management. Section 177(9) of the Companies Act, 2013 and Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 requires every listed company, companies which accept deposits from the public and companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees to establish a vigil mechanism for Directors and Employees to report their genuine concerns about on unethical behavior / misconduct / actual or suspended frauds / violation of code conduct. In view of this, the Company has establish a secured system to enable our Director & Employees to report their genuine concerns, generally impacting / affecting business of our Company, including but not limited to improper or unethical behavior / misconduct / actual or suspended frauds / violation of code of conduct. Any Director or employee can directly his/her concern or complaint to id as mentioned in the Whistle Blower & Vigil Mechanism policy. The Company will take appropriate action for its resolution. Anonymous communications will not normally be entertained. All the Directors and Employees are assured that this mechanism provides adequate safeguard against victimization of the concerned Director / Employee. In case of

14 repeated frivolous complaints being filed by a Director or an employee suitable action will be taken against the concerned Director or Employee APPLICABILITY WHISTLE BLOWER POLICY Listed Companies and Companies which accept deposit from public or have borrowed money from banks and PFI s in excess of Rs. 50 Crore. OBJECTIVE The Vigil (Whistle Blower) Mechanism is to ensure highest ethical, moral and business standards in the course of functioning and to build a lasting and strong culture of Corporate Governance within the Company. In terms of Policy, an internal mechanism is established for Directors and employees to report to the management, concerns about unethical behavior, actual or suspected fraud or violation of Company s code of conduct. The policy is intended to encourage all Directors and employees of the Company to report suspected or actual occurrence of illegal, unethical or inappropriate actions, behaviors or practices by Directors/employees without fear of retribution. The Directors/ employees can voice their concerns on irregularities, malpractices and other misdemeanors through this Policy. It also provides necessary safeguards and protection to the Directors/employees who disclose the instances of unethical practices/ behavior observed in the Company. The mechanism also provides for direct access to the Chairman of the Audit Committee in exceptional cases.

15 COVERAGE All Directors/ employees of the Company are covered under this policy. The policy covers malpractices and events which have taken place/ suspected to have taken place in the Company involving: Corruption Frauds Misuse/ abuse of official position, Manipulation of data/ documents, Any other act which affects the interest of the Company adversely and has the potential to cause financial or reputational loss to the Company. Conclusion Some of the companies already have a Whistle-Blower policy as a good corporate governance practice and now most of the companies start to frame this policy to comply with section 177 of the Companies Act 2013 & Corresponding Rules. AKHIL GULATI Registration No /11/2016 Executive Doing Student