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Total Number of Subscribers: 451 |
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Date: 12th July 2008 |
Compiled by Mr. M. Sathya Kumar |
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The
importance of appointing a secretary The regulators, the Securities and Exchange
Board of India (SEBI) and the Ministry of Corporate Affairs (MCA) do have
regulations for the compulsory appointment of managerial personnel in
companies. SEBI has directed stock exchanges to include clause 49 in the
listing agreement of listed companies. One of the very important conditions
of good corporate governance is the mandatory provision of appointment of
independent directors. The MCA, before the introduction of such
provision by SEBI in the Companies Act, 1956, introduced the concept of
mandatory appointment of managing director/whole-time director/manager and
secretary in whole-time employment. Mandatory
appointment SEBI, in its own wisdom thought it fit, in
the overall interest of investor protection, that the composition of board of
directors of a listed company shall contain certain number of independent
directors who, apart from receiving director’s
remuneration, do not have any other material pecuniary relationship or
transactions with the company, its promoters, its management or its
subsidiaries, which in the judgment of the board of the company concerned may
affect the independence of judgment of the director. It has accordingly,
prescribed that: In case a company has a
non-executive chairman, at least one-third of the board should comprise
independent directors; In case a company has an
executive chairman, at least one-half of the board should comprise
independent directors. The MCA, on its part, on the recommendations
of the Sachar Committee “that large size companies
with diversified nature and complexity of operations cannot be successfully
managed without somebody being specially charged with substantial powers of
management”, made it compulsory in the year
1988
that public companies and private companies which are subsidiaries of public
companies, having a paid-up capital of such sum as may be prescribed, must
appoint a managing or whole-time director or manager. The compulsory appointment of a secretary
was inserted by the Companies (Amendment) Act, 1974 (w.e.f. February 1, 1975)
“considering various laws which the management of a
company are required to comply with…” The
criteria Independent directors: The appointment of
independent directors in a company is dependant on the fact whether it has an
executive or a non-executive chairman and relates to the strength of the
composition of the board; and It is for all listed companies which have a
paid-up capital of not less than Rs 3 crore for which corporate governance is
applicable. Managing/whole-time director or
manager: The appointment of such managerial personnel is dependant upon
the size and paid-up capital of the company; It applies for all public companies and
private companies which are subsidiaries of public companies, and having a
prescribed paid-up capital which is at present Rs 5 crore. Secretaries: The appointment of
secretary is for every type of company and solely on the paid-up capital of
the company which, at present, is Rs 2 crore. Managerial
personnel appointment Independent directors: The board has to
identify a person who could fit in as an independent director, with the
requisite knowledge of the company; Such a person shall also be complying with
the important condition of “independent director” under clause 49 of the listing agreement. Managing/whole-time director or
manager: The directors have to elect one among themselves to act as
managing/whole-time director; If the appointment is of a manager, such
person need not be a member of the board. If the appointment of a managing/whole-time
director is of a professional candidate, identifying such a person may take
some time and for the compliance of the provisions of the Act, one among
themselves can act till such time. There is no exemption provided and a private
limited company or a joint-venture company or even a sick company having
prescribed paid-up capital has to employ a secretary on a whole-time basis. English Companies
Act The Indian Companies Act is broadly on the
lines of English Companies Act. Initially, at the time of introduction of the
provisions relating to mandatory appointment of secretaries, it was stated in
the “Object of Section” as follows: The UK Companies Act
contains a provision for the appointment of a secretary for every company.
However, such a compulsory provision in the case of small-sized companies may
involve a disproportionately heavy burden on them. It is, therefore, proposed
that every company having a paid-up capital of Rs 25 lakh (now Rs 2 crore) or
more shall have a secretary. The said English Act (Companies Act, 2006)
now reads as under: Section 270: Private company not required to
have secretary. Section 271: Public company required to have
secretary. Breathing time for
directors The recent amendment in clause 49 of the
listing agreement, providing a time limit of 180 days for filling of the
vacancy of an independent director, is basically breathing time given to the
board. The board will have ample time to identify a person who has the
requisite qualifications and experience which would be of use to the company
and which, in the opinion of the company, would enable him to contribute
effectively to the company in his capacity as an independent director. The Act does not provide such a rider to the
directors in the case of appointment of a managing/whole-time director or
manager and a secretary when a vacancy occurs. In case a company plans to
increase its paid-up capital beyond the required level of such an
appointment, it can very well defer it for some time, whereas the Companies
(Appointment and Qualifications of Secretary) Rules 1988 (the Rules) provide
at least 12 months for appointment of a secretary in case of increase in
paid-up capital. It is, therefore, important and necessary to consider and
provide for a grace period for appointment of a managerial person or a
secretary in the event of a vacancy arising in respect thereof in the Act for
efficient and smooth functioning of a company without any threat of
prosecution of officers in default. There is one another provision in the Act
for smaller companies to comply with the law. A company not required to
employ a whole-time secretary and having a paid-up share capital of Rs 10
lakh or more shall file with the Registrar of Companies (RoC) a certificate
from a secretary in whole-time practice in such form and within such time and
subject to such conditions as may be prescribed. Such a certificate shall
confirm the compliance of all the provisions of the Act and a copy of such
certificate shall be attached with the board’s
report, which is sent to shareholders. Suggestions There should not be any compromise in the
appointment of a secretary in a widely-held listed company and this is
important not only for compliance management but also to protect the
interests of investors. When a vacancy arises for appointment of a secretary,
the company should be given a time limit to fill the vacancy at least as
available in the Rules. The MCA is fine tuning the Companies Bill and it is
appropriate to consider this for suitable amendment, in the overall interest
of corporate entities, investors at large, professionals and, of course, for
the regulator itself. (The
author is a Delhi-based Company Secretary.) Source : The Business Line |
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