“Experts” under CA 2013 Company Secretaries :

With the commencement of the Companies Act 2013 (“Act”) and DLF matters have raised many questions on the definition and liabilities of “Experts”. While dealing with the legal provisions, I see transparency and accountability going hand-in-hand. While a new era of possibilities has begun for Company Secretaries in practice[1] and employment[2] from increasing their professional potential, with Indian businesses at inflexion point, the speed of growth may give way to quality of inputs. In first blog of the series on “Experts”, I propose to share my thoughts on what it entails to be a Company Secretary today.

Company Secretaries are now considered as “experts”[3] and also fall under the ambit of “Key Managerial Personnel”[4]

An “expert” includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force.

This certificate is as per Rule 11(2) of the Companies (Management and Administration) Rules 2014, which states that the annual return filed by a listed company or a company having paid-up share capital of 10 crore rupees or more or turnover of 50 crore rupees or more, shall be certified by a Company Secretary in practice and the certificate shall be in Form No. MGT.8.

This certification is exhaustive in nature as it includes:

  • Maintenance of statutory registers and records
  • Timely filing of forms and returns with statutory authorities
  • Timely convening of the Board, General and other Committee meetings
  • Related party transactions
  • Acceptance of deposits
  • Borrowings from members and outsiders
  • Loans and investments made by the company
  • Loans and advances to directors and others
  • Share Capital including restructuring
  • Payment of dividend and transfer of unclaimed dividend
  • Proper constitution of Board of Directors and filling of vacancies

If a Company Secretary in practice certifies an annual return fraudulently or incorrectly, he will be punishable with fine which shall not be less than Rs.50,000 but which may extend to Rs. 5 lakh as per Section 92(6) of the Act.

 

Another avenue of certification for Practicing Company Secretaries is Secretarial Audit which is applicable to

  • Every Listed Company AND
  • Every public Company having paid of share capital of Rs. 50 crore or more
  • Every public Company having a turnover of Rs. 250 crore or more

The scope for Secretarial Audit is not limited to the Companies Act 2013, it extends to compliance certification for The Listing Agreement, Secretarial Standards, SEBI regulations and all other laws as may be specifically applicable to the Company.

In case of contravention, the Company, the Company Secretary in practice and every officer of the Company in default shall be punishable with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lakhs.

Being considered an “expert” comes with its own set of risks.

Class Action Suits[5] can be initiated by members and depositors, if they are of the opinion that management or conduct of the affairs of the Company are being conducted in a manner prejudicial to their interest, they are entitled to file an application before the Tribunal and can claim damages or compensation or demand any other suitable action from any expert or advisor or consultant for providing incorrect or misleading information or any fraudulent conduct.

There has always been a tendency of Companies to conveniently shift the blame to the “Experts”. Let us take the example of the DLF Case[6] in which the management was quick to respond by blaming expert advice.

Mr. K.P Singh, DLF Chairman submitted that “given the complexity and specialized nature of the process of IPO of DLF and his advanced age of 82 years, he heavily relied on the advice of various experts involved in the process such as Merchant Bankers and acted bona fide on such expert advice.”

Mr. Rajiv Singh, DLF Director submitted that “while approving the Financial Statements contained in the Offer Document, he was largely guided by expert advice required, and the contents of the Offer Document had been certified to be true, correct and in due compliance with all disclosure requirements by relevant expert advice.

Mr. T.C Goyal, DLF Director submitted that “he acted in good faith on the basis of expert advice of Merchant Bankers and legal advisors and no mala fide intent can be imputed on him.”

Mr. Ramesh Sanka, DLF Director submitted that “the statements of the DLF limited were duly reviewed and recommended by the audit committee of DLF prior to being tabled before the Board of Directors after having been audited by its Statutory Auditors. DLF had, for the purposes of the IPO, appointed eminent Merchant Bankers, lawyers and other advisors to ensure that detailed due diligence is undertaken with regard to all aspects of the company for the purposes of ensuring due disclosure of information.”

The risk and liability exposure for Company Secretaries has increased manifold and it is imperative for transparency and disclosure levels to be stepped up accordingly.

Also, the certifications provided by the PCS in Form MGT-8 and Form MR-3 will be available as public domain information after filing of the same with the MCA. Any discrepancies noticed by competitors can adversely affect the reputation of the PCS in his fraternity and the corporate world at large.

[1] Section 2(25) of Companies Act 2013

[2] Section 2(24) of Companies Act 2013

[3] Section 2(38) of Companies Act 2013

[4] Section 2(51) of Companies Act 2013

[5] Section 245(1)(g) of Companies Act 2013

[6] SEBI Order No WTM/RKA/IVD-7/117 – 124 /2014 dated 10th Oct 2014 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1413191997529.pdf

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3 thoughts on ““Experts” under CA 2013 Company Secretaries :

  1. It was a nice read, especially the excerpts from the DLF Case. It once again reinforces the responsibility which has increased for a Company Secretary in Practice due to the provisions of the new Companies Act. Moreover, it also specifies the cautious approach which a Company Secretary as an “Expert” should be applying while carrying out activities like Secretarial Audit and Annual Return Certification.

  2. Experts, KMP’s, Secretarial Audits, Annual Return Certifications…
    A new era has begun for Company Secretaries, but responsibility goes hand in hand with accountability.
    As Warren Buffet rightly said –“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

  3. Internal conflict situation …a company official would not do things without instructions…negligence at this level is not expected and would not happen…definitely the whole ethics ecosystem needs to be re-configured …no one wants to do a job and be on the other side of law

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