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.
