Role of a Company Secretary as a Key Managerial Person in a Company

This article studies the meaning and role played by a Company Secretary in a Company. This article discusses the functions of a Company Secretary as provided under the Company law in India.
Estimated Reading Time: 12 minutes

Introduction

Section 2(24) of the Companies Act, 2013 defines “company secretary” or “secretary” means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act. According to clause (c) of Sub-section (1) of Section 2 of the Company Secretaries Act, 1980, a company secretary means a person who is a member of the Institute of Company Secretaries of India. 

Therefore, ‘Company Secretary’ means a person who is a member of the Institute of Company Secretaries of India (ICSI) and who is appointed by a company to perform the functions of a company secretary. The functions of company secretary have been detailed in section 205 of the Act.

Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides for mandatory appointment of whole-time company secretary in companies having a paid-up share capital of five crore rupees or more.[1]

Procedure for Appointment of a Company Secretary 

Since company secretary is one among the key managerial person, the procedure of appointment of company secretary would be similar to appointment of all other key managerial person. 

As per Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every company having a paid-up share capital of Rupees five crore or more is required to have a whole-time company secretary. 

Only an individual, who is a Company Secretary within the meaning of clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 or who possesses the prescribed qualifications, can be appointed as secretary of the company. The Companies (Appointment and Qualification of Secretary Rules), 1988 contain the prescribed qualifications.

Appointing a whole-time company secretary

The following procedural steps should be taken for appointing a whole-time company secretary: 

  1. Advertise the post, collect applications, hold interview, short list the individuals for the position and finalize the terms of appointment. 
  2. Convene a Board meeting after giving notice to all the directors of the company as per section 173 of the Act. At the board meeting, place the proposal of appointing Company Secretary with the details of the person finalized and pass a resolution appointing the company secretary and approving the terms and conditions of his appointment. 
  3. File return of appointment of company secretary with the Registrar in Form DIR.12 within thirty days from the date of appointment (date of joining office) and Form MGT.14 is also required to be filed along with such fee as specified in Companies (Registration of Offices and Fees) Rules, 2014. The particulars of Company Secretary, Income-tax PAN, Membership details (will be validated from ICSI records), residential details, date of appointment, e-mail ID of the person for communication purpose are required to be filled in the Form. 
  4. A Company Secretary shall not hold office in more than one company except in its subsidiary company at the same time. 
  5. Make entries in the Register of directors and key managerial personnel under Section 170 of the Act. 
  6. Inform the Stock Exchange(s) where the company is listed. 
  7. Since key managerial personnel are included in ‘related party’ as defined in section 2(76) of the Act, please verify whether the company secretary so appointed involved in any related party transactions within the provisions of Section 188 of the Act. If yes, then comply with the requirements in this regard.[2]

Role & Responsibilities of Company Secretary

A company secretary is an officer of the company responsible for compliance by the company with the provisions of the Companies Act, 2013 and various other corporate, taxation, industrial and economic laws applicable to companies in general. 

Under the Companies Act, the role of a secretary is three-fold, viz., as a statutory officer, as a coordinator and as an administrative officer if so authorized. Similarly, the responsibility of company secretaries extends not only to a company, but also to its shareholders, depositors, creditors, employees, consumers, society, and government. 

The role of a company secretary may conveniently be studied from three different angles: 

  • As a statutory officer, 
  • As a coordinator, 
  • As an administrative officer. 

(a) Statutory Officer: The company secretary is an officer responsible for compliance with numerous legal requirements under different Acts including the Companies Act, 2013 as applicable to companies. The responsibilities of company secretary have also increased as he has been included in the definition of Key Managerial Personnel as defined in section 2(51) of the Act, who are also liable to punishment by way of imprisonment, fine or otherwise for violation of the provisions of the Companies Act which hold the “officers in default” under Section 2(60). 

Company Secretary is one of the key managerial personnel of a company. All companies (including Private Companies) are required to appoint Company Secretary in whole time employment whose paid up Share Capital is five crore rupees of more. However, Company Secretary is not ‘managerial personnel’ for purpose of restriction on remuneration under section 197 of Companies Act, 2013. His salary is not considered for purpose of computation of ‘managerial remuneration’ under section 197 of the Companies Act, 2013, unless he is also a director of the company. 

The various provisions and rules framed under the Companies Act make it obligatory for the secretary to sign the annual return filed with the Registrar [Section 92], to sign financial statements [Section 134(1)] duty to report fraud [Section 143(12)] and to make declaration under Section 7(1) of the Act before incorporation of a company confirming that all the requirements of Act and the Rules there under have been complied with in respect of registration of a company and the Registrar may accept such a declaration as sufficient evidence of such compliance.[3]

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Under Regulation 18(1)(e) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Company Secretary shall act as the secretary to the Audit Committee in case of a listed company. 

Under the Indian Stamp Act, it is the duty of a secretary to see that the documents such as letter of allotment, share certificate, debentures, and mortgages are issued duly stamped. He is the principal officer under Section 2(35) of the Income Tax Act, 1961. 

The most important task of the company pertaining to statutory and legal obligations comes upon the secretary. Under the Companies Act, he has either to comply with the various provisions of the Act or is liable to be fined or imprisoned for non-compliance of his obligations. 

Thus, the responsibility of a secretary as a statutory officer has been greatly expanded by enactment of various economic statutes, like Competition Act, Foreign Exchange Management Act, SEBI Act, and Security Contracts (Regulation) Act, 1956 and Depositories Act. Accordingly, the numerous provisions which a Company is obliged to comply with, makes the secretary’s job onerous and difficult. The duties imposed upon a secretary by various statutes clearly indicate the important place he occupies in the corporate administrative hierarchy.[4]

(b) Coordinator: On dealing with the Board functions, Peter Ferdinand Drucker says — “But there are real functions which only a Board of directors can discharge”.  

The Board cannot function without proper coordination amongst various departments of the company and communication of their proposals and project which deserve consideration of the board. [5]

In India, most companies have an increasing dependence on the financial institutions for assistance. Every big sized project involves assistance from the financial institutions. These institutions expect the Board of directors to oversee the overall management and performance of the assisted companies and for this purpose, would insist on all basic policy issues to be discussed at the Board meetings and decisions reached. For this purpose, it would be necessary for the company’s management to place all the salient features and information before the Board in order that they can arrive at a proper decision. 

This is evidenced by the various conditions imposed in the loan agreements entered into between the financial institutions and the assisted companies. Company managements look to the company secretary for implementation of the conditions in the loan agreements. 

The financial institutions stipulate that in the case of companies assisted by them financially, compliance certificate as per their format duly certified by the company secretary should be furnished periodically at the Board meetings. 

Furnishing of the certificate requires skill of coordination between the company secretary and the functional heads and the factory manager.

(c) Administrator: The Company Secretary as a co-coordinator has an important role to play in administration of the company’s business and affairs. It is for the secretary to ensure effective execution and implementation of the management policies laid out by the Board. The position that the company secretary occupies in the administrative set-up of the company makes his function as one of co-coordinator and link between the top management and other levels. He is not only the communicating channel between the Board and the executives but he also co-ordinates the actions of other executives and the Board.

The ambit of his role as a co-coordinator also extends beyond the Company and he is the link between the Company and its shareholders, the society, and the Government. Thus, the role of a company secretary as a co-coordinator has two aspects, namely internal and external. The internal role of a co-coordinator extends to the Board including the Chairman and Managing Director, various line and staff personnel, the trade unions, and the auditors of the company. His role as an external coordinator extends to the relationship of the company with shareholders, Regulators, Government and Society.

Guidance and Assistance to Board

Rule 10 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, provide that a company secretary shall provide to the directors of the company, collectively and individually, such guidance as they may require with regard to their duties, responsibilities, and process. 

Whilst the Directors discuss and decide policy matters as a body, the Secretary is responsible for transmitting the policies and decisions of the Board, to all levels in the company and outsiders. His duties in relation to the Board include amongst others

  • Facilitating the convening of meetings, Board, General and committee meetings, drafting out the minutes and reports. 
  • Keeping the Board informed as an advisor on matters regarding legal, financial, and other laws and problems as far as they relate to the company. This will include advising the Board of the various obligations imposed on the directors by various statutes, including changes in laws which will have a bearing on the activities of the company.
  • He must ensure that all decisions taken by the Board are in consonance with legal requirements, and the powers they exercise do not require approval of the shareholders, Central Government, or any other authority. 
  • He should ensure secrecy regarding matters discussed at such meetings.

According to Section 205 (1)(b) the company secretary shall ensure the compliance with 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.[6]

Whilst the Board decides on policy matters, the day-to-day administration of companies is vested in the managing director, if there is one. In other cases, where the company is a board managed company, i.e., where none of the directors is a managing director or a whole-time director, the Secretary has to seek guidance and instructions from the Chairman on all important matters. He must, however, ensure that a Chairman who is not a managing director does not exercise substantial powers of management as he will be deemed to be a managing director within the meaning of the Act and, therefore, his appointment and remuneration will require the approval of the shareholders and the Central Government, if necessary.

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Where, however, the company has a managing director, he must seek his guidance and instructions regarding implementation of the policies laid down by the Board and also on matters arising out of the implementation of the decisions. He is also required to keep the chairman and managing director apprised of changes in policies of the Government, obligations under various statutes and to give balanced advice on matters which have legal ramifications. 

As per Rule 10, he has to assist and advise the Board in ensuring good corporate governance and in complying with Corporate Governance requirements and best practices.

Duties of CS in Board Meetings

There are various duties of a company secretary involving convening of a board meeting they are-

Before the meeting

  1. According to section 173(3), The Secretary, or any other person so authorized shall call give not less than seven days’ notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.
  2. Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director, if any, shall be present at the meeting.
  3. Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director, if any, shall be present at the meeting.
  4. According to Regulation 67 of Table – F of Schedule – I of the Act, a director may, or the manager or secretary on the requisition of a director shall, any time summon a meeting of the Board. 
  5. In case of first board meeting, the notice must also mention that it is the first Board meeting. 
  6. It is not obligatory to give agenda in the notice, but it is a good secretarial practice to enclose the agenda to the notice of the meeting.
  7. Contact and request all the directors to attend the meeting and arrange the facilities required by them in this regard, like conveyance, stay arrangements, location of venue etc.
  8. At least half an hour before the meeting, the persons responsible for the conducting the meeting should place the folders containing Agenda, notes to Agenda, draft minutes to Agenda, statement of expenses incurred/to be incurred, Business Plan etc. for ready reference of all directors to enable them to deliberate and discuss on each item of the agenda in detail.
  9. Before holding the meeting, welcome the directors and obtain their signatures on the Attendance Register.

At the meeting

  1. If quorum, as required under Section 174, is present, declare the meeting in order and inform the names of the directors who sought leave of absence from attending the meeting. The Quorum of a company shall be one third of the total strength of the Board or two directors whichever is higher. The participation of directors by video conferencing or by other means shall also be complied for the purpose of quorum.
  2. In case of section 8 companies, the quorum of co. shall be either eight members or 25% of its total strength whichever less is, provided that the quorum shall not be less than two members.
  3. The directors who are present at the meeting may elect one of them as the Chairman of the meeting and request him to take the Chair. 
  4. Help the Chairman to conduct the meeting as per the agenda. 
  5. If any director wants to place any other item for the discussion at the meeting, then such item may be taken up with the permission of the Chairman. 
  6. Every director shall disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals, by giving notice in writing in from MBP-1 1
  7. Decide the date, time, and place of the next Board meeting,

After the meeting

  1. After the meeting is over, prepare draft minutes of the meeting; get it reviewed by the chairman of the meeting and/or the Managing Director of the company. 
  2. Send copy of draft minutes of the meeting to each of the directors of the company for information and comments. 
  3. Contact and collect draft minutes from each of the directors with their comments. After that, in consultation with the Chairman/Managing Director finalize the minutes and enter them into the minutes book.
  4. Such final minutes may be signed and dated by the Chairman of the meeting or by the Chairman of the succeeding meeting. All pages of the minutes are to be initialed and the last page of the minutes.
  5. Minutes are to be signed and dated by the Chairman. 
  6. Ensure that the minutes are entered within 30 days of the conclusion of meeting.[7]

Conclusion

The Company secretary has a key managerial function in a company. A CS is an asset of management as well as administrative departments of a company. It is clear that a board meeting cannot be held without company secretary. There are certain roles and responsibilities involved.


[1][1] COMPANY SECRETARY ACT, 1980.

[2] SECTION 203, RULE 8A OF COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014 

[3] Company Secretary Act,1980

[4] Security Contracts (Regulation) Act, 1956

[5] The Practice of Management, Peter F. Drucker, (Classic Drucker Collection Edition.)

[6] HINDUSTAN BUSINESSLINES, ARTICLE 28585

[7] WWW.ICSI.EDU/PORTALS

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