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Secretarial Standards – Need & Expectations

Secretarial Standards – Need & Expectations. By: CS ALKA KAPOOR DIRECTOR (PROFESSIONAL DEVELOPMENT). Company Law must be forward looking, market centric and encourage informed decision making by the shareholders.

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Secretarial Standards – Need & Expectations

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  1. Secretarial Standards – Need & Expectations By: CS ALKA KAPOOR DIRECTOR (PROFESSIONAL DEVELOPMENT)

  2. Company Law must be forward looking, market centric and encourage informed decision making by the shareholders. • Company Law must afford greater autonomy of operations and opportunity of self regulation with higher transparency in corporate actions through better disclosures. • The Companies Bill, 2012 is a modern, futuristic and forward looking legislation which provides paradigm shift in approach and focuses primarily on good governance practices through disclosure based regime.

  3. The basic purpose of any Standard is to: • integrate, harmonise and standardise the diverse practices prevalent; • Adopt global best practices and ensure uniformity of practices • bring better disclosures and transparency and accountability in corporate action; • lead to ease in doing business; • better understanding of corporate processes by all stakeholders including foreign investors. • Uniformity is important because different practices may lead to deceptive conclusion.

  4. Companies Bill, 2012 is big landmark in translating this approach into reality. • Secretarial Standards have been given a place of pride in the Bill. • Although many forward looking companies have been voluntarily adopting SSs, the Standards now have a statutory recognition.

  5. The Institute of Company Secretaries of India is the only professional body in the world to issue Secretarial Standards.

  6. Secretarial Standards issued by ICSI • Secretarial Standards are developed: • in a transparent manner • after extensive research • after taking views of corporates, regulators and the public at large • Secretarial Standards issued by the ICSI: • SS-1 Board Meetings • SS-2 General Meetings • SS-3 Dividend • SS-4 Register & Records • SS-5 Minutes • SS-6 Transmission of shares and debentures • SS-7 Resolution by Circulation • SS-8 Common Seal • SS-9 Forfeiture of Shares • SS-10 Board’s Report So far 10 Secretarial Standards have been issued

  7. Establishment of Secretarial Standards Board (SSB)- a Visionary step • SSB constituted in the year 2001 • Comprises of experienced members of the profession, representatives of regulatory authorities such as MCA, SEBI and Sister Professional Institutes like ICAI and ICAI-CMA. • The main functions of SSB are: • Formulating Secretarial Standards; • Clarifying issues arising out of the Secretarial Standards; • Issuing Guidance Notes; and • Reviewing and updating the Secretarial Standards/Guidance Notes at periodic intervals

  8. Formulation of Secretarial Standards-Procedure • Identify and prioritise the broad areas on the basis of their criticality and importance to the profession. • Examine various divergent practices in vogue and identify the best practices which should be adopted. • Formulate the preliminary draft and circulate to various government bodies, regulators, professional bodies, chambers of commerce, stock exchanges and to the Regional Councils/Chapters of ICSI for ascertaining their views. Contd…

  9. Formulation of Secretarial Standards-Procedure • Exposure draft prepared after considering suggestions on Preliminary draft and hosted on ICSI website and published in Chartered Secretary for public comments. • After considering the comments received, the draft is finalized by SSB and submitted to the Council of the Institute for approval. • The Council of the Institute considers the final draft, finalise the same in consultation with SSB and issues the Secretarial Standard.

  10. Companies Bill, 2012 and Secretarial Standards Clause 118(10) of Companies Bill, 2012 reads • Every company shall observe secretarial standards with respect to Board and general meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980, and approved as such by the Central Government.

  11. Clause 205 – Functions of company secretary shall include: (a) to report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company; (b) to ensure that the company complies with the applicable Secretarial Standards; (c) To discharge such other duties as may be prescribed. For the purpose of this section, this 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.

  12. Role of a Company Secretary in Practice Annual Return (Clause 92) A PCS Certifying the Annual Return shall to certify compliances of the provisions of the Act which also include compliance of Secretarial Standards. Secretarial Audit A PCS conducting the Secretarial Audit shall ensure that Secretarial Standards are implemented in the company and, in the event of any deviation from the Standards, to make appropriate qualifications or observations or other remarks in his Audit Report.

  13. SS:1-Board Meetings • A Board Meeting should be convened by giving at least 15 days notice. The agenda should be sent at least 7 days before the date of the meeting. • To avoid any item of significance being considered and approved without the prior knowledge of Directors, the Standard provides that prior Notice for such item is essential. • The quorum should be present at every stage of the Meeting. Any business transacted by a number lesser than the quorum is void.

  14. Leave of absence to Directors should not be granted as a ritual. It should be granted only when specifically sought by a Director. • Quarterly or half-yearly financial results should be approved at a meeting of the Board or its Committee and should not be approved by means of a Resolution passed by circulation. • The limited review report, in case of material variance, should be discussed and approved at a Meeting of the Board and not by Resolution passed by circulation. • Within fifteen days from the date of the meeting of the Board, the draft Minutes thereof should be circulated to all the Directors for their comments.

  15. Apart from the Resolution or decision, the Minutes should mention the brief background of the proposal and the rationale for passing the Resolution or taking the decision. • As decisions taken by the Board are collective decisions, the names of the Directors who dissented or abstained from the decision should be recorded. • The Minutes of all meetings should be preserved permanently.

  16. SS:2-General Meetings • Notice of the General Meetings • Notice of every General Meeting should be given to every member at the address provided by him whether in India or outside India. • Notice should also be given to the Directors and other specified recipients such as banks and financial institutions and other interested parties. • In case of listed companies with more than 5,000 Members, an abridged version of the Notice should be published in a newspaper having wide circulation within such States of India where more than 1,000 Members reside.

  17. SS:2-General Meetings • All Directors of the company should attend all meetings of shareholders and be available to reply to shareholders’ queries. If any Director is unable to attend the Meeting for reasons beyond his control, the Chairman should explain such absence at the Meeting. • Framing of Resolutions and explanatory statement in simple language in the Notice is emphasized for the benefit of members. • The attendance of practising company secretary who has given the compliance certificate has been made mandatory at every Annual General Meeting.

  18. The Standard also makes it obligatory for the auditors of the company to attend the Annual General Meeting if there are any reservations, qualifications or adverse remarks in the Auditor’s Report. • Onerous responsibility has been placed on the Chairman of the meeting who is expected to be fair and impartial in the conduct of his duties. He is enjoined upon to provide a fair opportunity to Members who are entitled to vote to raise questions and/or offer comments and ensure that these are answered.

  19. In case of listed companies with over 5,000 Members, the result of the poll should be published in a leading newspaper circulating in the neighbourhood of the registered office of the company. • Resolutions specified in the Notice for items of business which are likely to affect the market price of the securities of the company should not be withdrawn. • No gifts, gift coupons or cash in lieu of gifts should be distributed before, at or in connection with the General Meetings. • Annual Report of companies should disclose the particulars of all general meetings held during the last three years. • Best practices for entering, recording and signing as well as preservation of the Minutes have been laid down.

  20. SS-1 and SS-2 will have to be realigned with the New Act. • SSB has already met to align these standards with the New Law.

  21. Secretarial Standards - expectations from the profession • Opportunity coupled with responsibility • Complying with processes which are transparent, just and fair • Quality check in true letter and spirit • Have courage to stand up and give qualifications or observations or other remarks for any non-compliance • A CS in employment to report to Board about compliance with provisions of Companies Act, Rules made thereunder and other laws applicable to company. • Advise to company to bridge the gap, i.e., solution to the problem • Enhance visibility of the profession

  22. Secretarial Standards -expectations from the Corporates • Will lead to credibility and respect for companies in the eyes of stakeholders • Better disclosures • Transparent processes • Uniform secretarial practices instilling good corporate culture through adoption of best practices and standards within the organisation • Build investor confidence

  23. It is the beginning of a new era where non-financial standards have been given importance and statutory recognition besides financial standards. • The enhanced role envisaged for Company Secretaries under the Bill to shoulder the onerous responsibilities cast upon them by the regulator and in turn they would be acting as extended arms of the Ministry.

  24. Conclusion • A synergy between hardware (systems and structures) and software (values) in organisational culture of companies is possible if the top management, Board of Directors and executives follow “walk the talk” in value based governance. • Complying with good governance practices should not be regarded as a regulatory requirement but rather as an opportunity and value proposition for organisations.

  25. “Have the courage to say no. Have the courage to face the truth. Do the right thing because it is right. These are the magic keys to living your life with integrity” W.Clement Stones

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