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New jobs on secretaries' laps

With the recent amendment to company law, fresh opportunities open up for the secretarial profession, says K. Srinivasan

THE Companies (Amendment) Act, 2000, which came into effect from December 13, 2000, has ushered in a new era of corporate governance, investor protection and shareholder democracy, in line with the globalisation process and the resultant need of the corp orate sector. The amendment to Section 383A -- provisions relating to Secretarial Compliance Certificate (SCC) -- has come as a shot in the arm to practising company secretaries (PCSs). This, of course, is one more milestone in the progress of the profes sion of company secretaries.

SCC: Section 383A of the Companies Act, 1956 makes it obligatory on the part of companies, whether public or private, having a paid-up share capital of Rs 50 lakh or more to appoint a whole-time company secretary. By virtue of the insertion of a proviso to sub-section (1) of Section 383A of the Act, companies having a paid-up capital of Rs 10 lakh or more but less than Rs 50 lakh, shall file with the Registrar of Companies (RoC), SCC duly certified by a company secretary in whole-time practice and such certificate shall have to be attached with the board's report.

On January 31, 2001, the Department of Company Affairs (DCA) notified the Companies (Compliance Certificate) Rules, 2001, under which the form of the certificate is prescribed, which requires a PCS to comment on as much as 33 points.

Appointment of PCSs: Normally, the appointment of a whole-time company secretary is made by the board of directors and such appointment is required to be intimated to the RoC in Form 32 under Section 303(2) of the Act. However, in the case of PCSs, for t he purpose of certification, there is no prescribed method of appointment. As SCC forms part of the statutory records, as also is the board's report, the appointment of PCSs would require the board's prior approval. It is hoped that, in future, the appoi ntment of PCSs would be treated on a par with statuary auditors, which, under the current legislation, requires shareholders' approval at an annual general meeting (AGM).

Effective date of applicability: The proviso relating to the SCC was added to Section 383A of the Act effective from December 13, 2000 (being the date of Notification in the Official Gazette) and the Companies (Compliance Certificate) Rules, 2001 was not ified on January 31, 2001. It is generally felt that issue of SCC would arise when the financial year of a company ends on or after December 13, 2000, and the board's report is not finalised before January 31, 2001.

Period of coverage: A close reading of the form notified under Rule 3 of the Companies (Compliance Certificate) Rule shows that the certificate is to be made with reference to a particular financial year. For example, for the financial year ended Decembe r 31, 2000, the board's report, if finalised and dated after January 31, 2001, attachment of SCC to the board's report would be mandatory.

This being the first year of implementation, difficulties may arise with regard to the compliance aspect of the Companies Act in respect of previous years prior to the financial year during which the Rules become applicable for the first time. In such a situation, companies may seek professional assistance and services of PCSs to set right the record to facilitate due compliance of the Act in this regard.

Reckoning of paid-up capital: For determining whether or not the provisions of Section 383A of the Act with regard to SCC apply with reference to a particular financial year, the paid-up capital of the company at anytime during the said financial year sh ould have been between Rs 10 lakh and Rs 49,99,999. It is possible that a company's paid-up capital during a financial year may increase beyond Rs 50 lakh from, say, Rs 10 lakh. Such a company may have to comply with filing of SCC unless, upon crossing t he Rs 50-lakh limit, the said company appoints a whole-time company secretary.

In some rare cases, the paid-up capital of a company may decrease owing to a reduction of capital or redemption of preference share capital. If the paid-up capital falls below the threshold limit of Rs 10 lakh, the company would still be required to comp ly with Section 383A of the Act because of the fact that during the financial year the paid-up share capital was between Rs 10 lakh and Rs 49,99,999 before decreasing.

Form of the compliance certificate: As stated earlier, the form prescribed under the Rules contains 33 points to be commented upon. A PCS is expected to comment upon each of these points, with qualifications wherever necessary. Like a statutory auditor, a PCS is entitled to registers, books, records and papers which are required to be maintained under the Act. Further, the PCS can also rely on the information and explanations furnished to him by the company's officers and agents. It is interesting to no te that proviso to Section 383A (1) implies strict compliance of all the provisions of the Act.

The form of the compliance certificate is common to both public and private companies and contains queries relating to both transactional and structural information of the company with reference to the Act. The PCS needs to make a detailed examination of all the books, records, registers, returns, documents and other papers before issuing SCC. However, based on the exercise, he may qualify, express reservation or make adverse remarks at relevant places.

Merits of SCC: The merit of this exercise is that it results in a win-win situation for all. Company managements get professional support on all issues. Apart from the Companies Act, PCSs are skilled in other important areas such as finance, the capital market, legal matters, and so on. From the standpoint of the Government, companies having a paid-up capital of between Rs 10 lakh and Rs 50 lakh constitute a major chunk of those that have been incorporated. Therefore, issue of SCCs by PCSs would lighten the burden of detailed scrutiny on the part of the Government.

For PCSs, it is a great opportunity to be associated with corporates who are on the growth path. SCC is seen as a first step towards the introduction of secretarial audit, which will become a reality in the near future. At the same time, PCSs have the on erous responsibility of living up to the Government's expectation to deliver utmost professional service.