COMPANY ADMINISTRATION

Key Managerial Personnel

Companies Act, 2013 (Act) has introduced many new concepts and Key Managerial Personnel is one of them. While the Companies Act, 1956 recognised only Managing Director, Whole Time Director and Manager as the Managerial Personnel, the Companies Act, 2013 has brought in the concept of Key Managerial Personnel which not only covers the traditional roles of managing director and whole time director but also includes some functional figure heads like Chief Financial Officer and Chief Executive Officer etc. These inclusions are in line with the global trends. “Company Secretary” has also been brought within the ambit of Key Managerial Personnel giving them the long deserved recognition of a Key Managerial Personnel of the Company. Another noteworthy feature of this concept is that it combines the important management roles as a team or a cluster rather than as independent individuals performing their duties in isolation to others.

The definition of the term Key Managerial Personnel is contained in Section 2(51) of the Companies Act, 2013. The said Section states as under:

“Key managerial personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed;

A company is an artificial person created by law and as such it is not possible for it to deal with other parties. It must act only through some human agency. The shareholders, who are the owners of the company, are scattered over a very wide area and hence, it is not possible for them to take active part in the day-to-day management of the company.

The owners or the shareholders of the company elect from amongst themselves some persons good in management as their representatives to manage to day-to-day affairs of the company. The persons or representatives elected by the shareholders to manage or direct the day-to-day affairs of the company are individually known as "directors", and are collectively called the "Board of Directors" or the "Board".

The Board of Directors entrust the day-to-day management of the company to a chief executive, who may be a managing director or manager, and delegate to him the necessary powers. The managing director or manager is the chief executive of the company. He exercises the powers given to him under the articles and carries out the duties entrusted to him by the Board of Directors.

It is true that the managing director or manager looks after the day-to-day management of the company. But he cannot attend to the work of management single handed. So he takes the assistance of several executives or professional managers. He has a secretary to help him in the day-to-day management of the company. He has several department heads, such as Production Manager, Purchase Manager, Sales Manager, Financial Manager, and Personnel Manager, etc. to look after the affairs of their respective departments. He uses the services of an auditor to report on the financial affairs of the company. He may also use the services of solicitors on legal matters.

DIRECTORS:

Definition:

Section 2(13) of the companies Act, defines a director as “Any person occupying the position of director, by whatever name called", as per the above definition, if one performs the functions of a director, he would be considered as a director from the point of law. It is immaterial by what name his is called. Thus, a director may be defined as a person having control over the direction, conduct, management and superintendence of the affairs of the company. The directors of a company who are collectively know as the board of directors or simply a board, frame the general policy of the company, direct its affairs, appoint the officers of the company and ensure that they carry out their duties properly. As per Section 253 of the Act, a director of a company can only be a person and not an association or body corporate.

APPOINTMENT QF DIRECTOR:

The directors of the company may be appointed in the following ways:

1)      By the promoters of the company

2)      By the subscribers to the memorandum of association of the company

3)      By the shareholders in a general meeting.

4)      By the board of directors

5)      By the Central Government

6)      By the Principle of proportional representation

7)      By third parties

1)      By the promoters of the Company: -

At the time of company formation, the promoters generally name the first directors of company. The promoters select prominent persons to act as the first directors, and mention their names in the articles of the company.

2)      By the Subscribers to the Memorandum: -

Sometimes the articles of the company confer a right on the subscribers to the memorandum, to appoint the directors of the company. The subscribers to the memorandum shall be deemed to be the first directors of the company until the directors are appointed at the next general meeting.

3)      By the Shareholder in a General Meeting: -

The first directors are appointed by the promoters or by the subscribers to the memorandum. The subsequent directors are elected by the shareholders at the general meeting.

4)      By the Board of Directors: -

The board of directors may appoint directors in the following ways:

a)      As additional directors (Sec. 260): The board of directors may appoint additional directors within the maximum strength fixed for the board by the articles. The board can make such an appointment only if the articles provide for that. The additional directors will hold office till the holding of the next annual general meeting of the company.

b)      In a casual Vacancy (Sec. 262): -In case, the office of the director appointed by the shareholders has fallen vacant before his term of office expires, the vacancy may be filled up by the board of directors, provided the articles of the company permit such a procedure. A casual vacancy may arise due to reasons such as death, resignation, disqualification, or failure of an elected director to accept the office or due to any other reason.

c)      As An Alternate Directors (Sec. 313): -The board of directors can appoint the alternative director. This alternative director has to act for the original director during his absence for a period of more than three months. The alternate director can continue as director only for the period for which the original was eligible. Further, on the return of the original director, the alternate director must vacate the office of directorship.

5)      By the Central Government (Sec. 408)

The Central Government may appoint the Board of directors when the Company Law Board decides that it is necessary to safeguard the interests of the company or its share holders or the public if: -

a)      not less than 100 members of the company apply to the Company Law Board to make such an appointment, or

b)      members holding not less than one-tenth of the total voting power make an application to the Company Law Board for making such an appointment, or

c)      on its own initiative.

They are appointed for a maximum period of three years. They are not required to hold qualification shares and are not liable to retire by rotation, but they may be removed by the Central Government at any time and other persons may be appointed by it in their place.

6)      By Third Parties: -

Sometimes, the articles give a right to financial corporations, debenture holders and banking companies which have lent money to the company to nominate directors on the board of the company with a view to ensuring that the funds advanced by them are used by the company for the purpose for which they were borrowed. The number of directors so nominated should not exceed one-third of the total strength of the board and they are not to retire by rotation. .

7)      By Proportional Representation:-

Normally directors are appointed on the basis of election in the Annual general meeting. But section 265 of the Act allows a public company or a private company which is the subsidiary of a public company to provide in its articles for the appointment of not less than two-thirds of the total number of directors by the principle of proportional representation. If the company decides to appoint directors under this method, the directors must be appointed for a period of three years at a time.

POWERS OF DIRECTORS,

The powers of the board are subject to the provisions of the Companies Act and the memorandum and articles of association of the company. It is only the board which can exercise powers conferred on it but not as a director of a company, in his individual capacity.

The board of director has the power to control the work of officers of the company such as the managing director, manager, secretary etc., and the shareholders cannot interfere in the management of the company. The directors have the powers to manage the affairs of the company and they also have a right to recommend the payment of dividend.

The board must not commit any act which is against the provisions of the companies act, memorandum and articles of association or powers given to the board by the shareholders.

Powers, which can be exercised by the Board:

The directors have specific powers which can be exercised by them only by a resolution at a board meeting. They are: -

1.      The powers to make calls, to issue debentures, to forfeit shares, to borrow other wise than on debentures, to invest funds of the company, to make loans, etc.

2.      The power to appoint a secretary I a manager etc

3.      The power to fill up a causal vacancy in the office of directors subject to regulations in the articles

4.      The power to fill up a causal vacancy in the office of an auditor

5.      The power to appoint the managing director of the company if he is already the managing director of another company

6.      The power to appoint alternate directors if so authorized by the articles

7.      The power to enter into a contract on behalf of the company with other parties

8.      The power to make a contribution to the National Defence fund without any limit.

DUTIES OF DIRECTORS: -

The duties of directors may be classified in to two broad categories. They are statutory duties

v  Genera! Duties

v  Statutory Duties:

Statutory duties of directors refer to all those duties which the directors are required to perform under the Companies Act. Some of the statutory duties of the directors of a company are as follows: -

1.      To determine the amount of minimum subscription

2.      To see that all money received from applications for shares is deposited in a scheduled bank until it is returned to the applicants under Section 69 or until the Certificate to commence business is obtained

3.      To prepare a statutory report and file a copy of it with the register

4.      To forward a copy of the statutory report to every member of the company at least 21 days before the date on which the statutory meeting is held

5.      To call an extraordinary general meeting of the company on the requisition of the specified number of members

6.      To approve the balance sheet and profit and loss account before they are submitted to the auditors for their report.

7.      To prepare and place at the annual general meeting an annual report of the of the company along with the balance sheet and profit and loss account

8.      To pay dividends only out of divisible profit of the company

9.      To exercise only such powers for which they are empowered by the company, by the memorandum and articles of association.

10.  To manage the affairs of the company efficiently

11.  To purchase and pay for qualification shares within the specified time

12.  To see that the board meetings are held at least once in every three months and four times in a calendar year.

13.      To disclose to .the company their interest, if any, in any contract entered into by the company.

General Duties:-

The general duties of the directors refer to their duties under the general law. The general duties of the director of a company are:-

a)      They must manage the affairs of the company efficiently.

b)      They must act in good faith and in the interest of the company,

c)      They must discharge their duties with reasonable care, skill and diligence.

d)     They must use the company's property for the benefit of the company and not for their personal benefit.

e)      They must not be negligent in the discharge of their duties.

f)       They must attend all board meetings.

LIABILITIES OF DIRECTORS:

                                                       

The liabilities of the directors of a company may be considered under the followings heads:

1.      Liability to outsiders

2.      Liability to the company

3.      Liability to the shareholders

4.      Criminal Liability

1)      Liability to Outsiders:

The directors may incur personal liability to third parties in consequence of contracts made on company's behalf: -

a)      If they enter Into a contract which is ultra vires the company

b)      If they enter into a contract which is although within the powers of the company, is outside the scope of their own authority as defined in the articles

c)      If they fail to sign a negotiable instrument without mentioning the company's name

d)     If they act in their own name

e)      If they have issued a prospectus which does not contain the particulars required by the Act

f)       If they have made any mis-statement n the prospectus

g)      If they are guilty of committing a fraud

h)      If they have made irregular allotment in contravention of the provision of the Act

i)        If their liability has been made unlimited in pursuance, of Section 322 and 323

j)        If the court orders that the directors are personally liable for all the or any of the debts or liabilities of the company for fraudulent trading on the part of the company

2)      Liability to Company:

The directors are liable to the company in the following circumstances.

a)      If they are negligent in the performance of their duties

b)      If they commit an act which is ultra vires their powers or why they pay dividend out of the capital

c)      If they commit any illegal act

d)   If they commit any breach of trust or misfeasance

3)      Liability to Shareholders:

The position of directors in respect of the property of the company is that of a trustee. If they commit any breach of trust and if as result of that, the company suffers loss, they have to make good that loss. Further, if the directors are negligent and fail to use reasonable care and skill and because of this, the shareholders suffer a loss, they have a right to claim damages from the directors.

4)      Criminal Liability:

Directors may also incur criminal liability under the companies Act. For example, directors may be awarded two years imprisonment and a fine of Rs.5, 000/- for the filing of prospectus containing, false statement. Similarly, criminal proceeding against directors may be instituted for fraudulently obtaining credit for the company, for acting as a director after removal by court, for failure to supply information to auditor of the company, for improper issue of shares, for failure to lay the balance sheet before: the annual general meeting, for concealing the name of creditors and so on.

MANAGING DIRECTOR:

The Directors of the company do not attend the office of the company every day and hence they appoint a person amongst the directors for the purpose of carrying out their policy decision taken at the board meeting. This person is called a managing director or whole time director as he is entrusted with substantial powers of management of the company.

The companies Act Defines a managing director Sec.267 as "a director who by virtue of an agreement with the company or of a resolution passed by the company in the general meeting or by the board of directors, or by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes director occupying the position of Managing Director by whatever name called".

Appointment of Managing Director: -

A managing director may be appointed: -

a)      By an agreement with the company, or

b)      By a resolution of company in a general meeting or

c)      By the board of directors, or

d)     Under a memorandum, or

e)      Under the articles of the company

Restrictions on Managing Director's Appointment and Re-appointment:

1.      The approval of the Central Government is required for the appointment or re- appointment of a managing director

2.      The sanction of the Central Government is required for any change in the managing director's agreement in the provisions of the memorandum or articles relating to his appointment or re-appointment.

3.      A person cannot be appointed as a managing director for a term exceeding five years at a time

4.      A person cannot be appointed as a managing director of more than two public companies at a time

5.      The rule regarding the retirement of directors by rotation is not applicable to the managing directors. Therefore, he may be called a non-retiring director so long as he acting as a managing director

6.      No person can be appointed as a managing director who is an undischarged insolvent or who suspends or has at any time suspended payment to his creditors, or has at any time been convicted by a court of an offence involving moral turpitude.

7.      The managing director works in two capacities, one as a director and another as a manager of the company. The duties assigned to him should be such as to involve the exercise of substantial powers of management.

8.      The managing director enters into an agreement with the company. The agreement provides his terms and conditions of service, powers, duties, etc.

9.      As a managing director is also one of the directors of the company other provisions of the Act relating to directors will also be applicable to the managing director.

10.      If a company has a managing director, it cannot have a manager.

11.      Appointment should be as per the conditions laid down in schedule XIII which has been introduced by the Amendment Act of 1988.

Distinction between a Director and Managing Director:

The main points of distinction between a director and managing director are as follows:

1.      The directors take responsibility for framing the policy of the company whereas the managing director takes responsibility for implementing it.

2.      The directors do not take part in the day-to-day affairs of management of the company, whereas the managing director actually takes part in the daily management of the company.

3.      The directors are appointed by the shareholders of the company at the general meeting, whereas the managing director’s is appointed by the directors at the board meeting.

4.      The maximum number of companies for which a person can act as director at a time is 15, whereas the maximum number in the case of a managing director is only two.

5.      For all companies, public and private, the appointment of directors is compulsory, whereas the appointment of a managing director is not compulsory.

6.      The directors are appointed for a period not exceeding three years at a time while the managing director is appointed for a period not exceeding five years at a time

7.      The directors are subject to retirement by rotation whereas the managing director is exempted from this provision.

8.      The directors are considered as agents of the shareholders of the company, whereas, the managing director is considered as an agent of the board of directors

9.      The directors do not hold any office of profit but only receive honorarium for attending meeting, but the managing director holds a regular office of profit and receives a regular salary.

10.  Directors do not enter into any agreement with the company regarding their powers, duties etc., whereas the managing director enters into an agreement with the company which provides for the terms and conditions of service, his powers, duties etc.

11.      The directors cannot exercise their powers individually but only collectively i.e., through the board meeting. But the managing director when entrusted with special powers of management by the board can act individual.

Distinction between a whole-time Director and Managing Director:

According to the explanation given in the Amendment Act 1974, Whole-time director includes "a director in the whole time employment of the company". For example, if a director is appointed as "controller of finance accounts' of the company, he becomes a whole- time director. Thus, the Act itself makes a distinction between a managing director and a whole- time director. They differ from each other in the following respects:

1.      A managing director is entrusted with substantial powers of management whereas a whole-time director is just an employee of the company and does not enjoy substantial powers of management.

2.      The appointment of a managing director does not require the consent of the shareholders whereas the appointment of a whole time director requires the sanction of shareholders by means of a special resolution.

3.      A company cannot appoint a managing director and manager simultaneously, but it can appoint a whole time director along with a managing director or a manager.

4.      A managing director can act as such in two-companies, at the same time, but a whole- time director cannot act as a whole-time director in more than one company

5.      A managing director can be appointed for a maximum period of five years at a time, whereas there is no such restriction in the case of whole-time director.

Chief Financial Officer:

Section 2(18)/(19) of the Companies Act, 2013 defined “Chief Executive Officer”/ “Chief Financial Officer” as an officer of a company, who has been designated as such by it;

Role of CFO:

The Companies Act, 2013 has prescribed the role of CFO which would entail lot of responsibilities on the CFO of a company under various provisions:

• CFO is responsible and liable for penalty and/ or prosecution for non-compliance with various provisions such as maintenance of books of accounts, preparation & filing of annual accounts, disclosure of financial information in offer document, risk management, internal control etc.
• CFO is mandatorily required to sign audited financial statements of the company along with those authorised by the board.
• CFO is also responsible for providing various inputs for meeting the enhanced board report requirements.                                                   

Resident Director

Section 149(3) of the Companies Act, 2013 (Act) requires every company to have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year. Government has received requests from stakeholders for clarification with regard to applicability of these provisions in the current calendar/financial year.

This provision will hit select companies who have entirely non-resident Board of Directors all of whom are stationed abroad. The provision regarding requiring at least one Director to be resident in India is salutary but time limit for compliance should have been given for this sub-section just like sub-section (2) gives one year for compliance of sub-section (1) and sub-section (5) similarly gives one year for compliance of sub-section (4).

Independent Director

An independent director means a director other than a managing director or a whole-time director or a nominee director who does not have any material or pecuniary relationship with the company/ directors. Section 149(6) of the Act prescribes the criteria for independent directors which are as follows:

(a) Who in the opinion of the Board, is a person of integrity and possesses relevant industrial expertise and experience;

(b) Such individual shall not be a promoter or related to promoter of the company or its holding, subsidiary or associate company;

(c) Such individuals must not have any material or pecuniary relationship during the two immediately preceding financial years or during the current financial year with the company or its promoters/directors/holding/subsidiary/ associate company;

(d) The relatives of such person should not have had any pecuniary relationship with the company or its subsidiaries, amounting to 2% or more of its gross turnover or total income or Rs. 50 lacs or such higher amount as may be prescribed, whichever is less, during the two immediately preceding financial years or in the current financial year;

(e) He must not either directly or any of his relatives

(i) hold or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed.

 (ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of-

(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or

 (B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. Or more of the gross turnover of such firm;

(iii) holds together with his relatives two per cent or more of the total voting power of the company; or (iv) is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2% or more of the total voting power of the company, then also he is not eligible for office of independent director; or

(f) who possesses such other qualifications as prescribed in Rule 5 as an independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business.

Appointment of an Independent Director- Section 149(10)

Subject to the provisions of Section 152, an independent director can be appointed for a term of up to five consecutive years on the Board. However, in case of his reappointment for further five year then special resolution passed in general meeting and disclosure of such appointment is made in the Board’s report shall be required. {Section 149 (10)}

Further independent director can be considered for re-appointment after expiration of three years of ceasing to become an independent director but he must not be appointed/associated with the company directly or indirectly in any other capacity during the said period of three years. Any tenure of an independent director on the date of commencement of this Act is not considered for the above term. {Section 149 (11)}

The provisions of retirement of directors by rotation are not applicable on Independent director. {Section 149 (13)}

Further, in case of independent directors, the explanatory statement relating to their appointment should contain a declaration from the Board that in their opinion, the independent directors satisfy the conditions provided in the Act for such appointment. {Proviso to Section 152 (5)}

Audit Committee

Section 177 of the Companies Act, 2013 and Rule 6 and 7 of Companies (Meetings of Board and its Powers) Rules, 2014 deals with the Audit Committee.

Functions of Audit Committee:

Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,

(i) the recommendation for appointment, remuneration and terms of appointment of auditors of the company;

(ii) review and monitor the auditor’s independence and performance, and effectiveness of audit process;

(iii) examination of the financial statement and the auditors’ report thereon;

(iv) approval or any subsequent modification of transactions of the company with related parties;

(v) scrutiny of inter-corporate loans and investments;

(vi) valuation of undertakings or assets of the company, wherever it is necessary;

(vii) evaluation of internal financial controls and risk management systems;

(viii) monitoring the end use of funds raised through public offers and related matters.

Powers of Audit Committee:

The Audit committee shall have the authority –

• To call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board
• To discuss any related issues with the internal and statutory auditors and the management of the company.
• To investigate into any matter in relation to the items or referred to it by the Board
• To obtain professional advice from external sources
• To have full access to information contained in the records of the company.

CSR Committee:

With effect from April 1, 2014, every company, private limited or public limited, which either has a net worth of Rs 500 crore or a turnover of Rs 1,000 crore or net profit of Rs 5 crore, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities. The CSR activities should not be undertaken in the normal course of business and must be with respect to any of the activities mentioned in Schedule VII of the 2013 Act. Contribution to any political party is not considered to be a CSR activity and only activities in India would be considered for computing CSR expenditure.

“CSR Committee” means the Corporate Social Responsibility Committee of the Board referred to in section 135 of the Act.

Rule 5: (1) The companies mentioned in the rule 3 shall constitute CSR Committee as under:

Committee as under:—

(i)                 an unlisted public company or a private company covered under sub-section (1) of section 135 which is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director;

(ii)                a private company having only two directors on its Board shall constitute its CSR Committee with two such directors;

(iii)              with respect to a foreign company covered under these rules, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company.

(2) The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

Composition of CSR committee:

As per Section 135(1), three or more Directors including at least one Independent Director shall form CSR Committee.

Role of CSR committee:

As per Section 135(3), following are the roles and responsibilities of CSR Committee:

• Formulate a CSR Policy indicating the activities as per Schedule VII to the Act;
• Recommend the policy to Board of the Company;
• Recommend the amount of expenditure on the activities; and
• Monitor CSR Policy by way of instituting a transparent monitoring mechanism for implementation of CSR projects or programmes or activities undertaken by the company as provided in Rule 5(2). 

Grievance Redressal Committee:

The Company has in place the Grievance Redressal Committee to meet the compliance requirements of Reserve Bank of India. The GRC’s primary goal is to collect, gather and identify the grievances of all the clients and the staff and other associates, general public in relation to the services, products of the company and to address such Grievances in a timely manner by resolving satisfactory.

The Committee also addresses such other issues and grievances that are escalated to the SRO & the Reserve Bank of India either directly or through the Company and provide the responses in a satisfactory manner and work-on to resolve such matters satisfactory.

The Committee comprises of the members as determined by the Board.

The Company Secretary of the Company acts as a Secretary to this Committee as well.

The Committee shall meet as and when necessary to review and monitor the risk associated with business of the Company. The quorum shall be at least two members.

1. The Committee collects the data of the Grievance(s) recorded and identified on a regular frequency and evaluate such data based on the reason for such grievance, complaint, query (or) any other demand / request / issue raised with the Company.

2. The Committee evaluates and reviews the process mechanism for the Grievance Redressal and resolution on a frequent basis and considers the modifications on a timely basis as required.

3. The Committee appoints the Grievance Redressal Compliance officer on behalf of the Company in order to oversee the Process of Grievance Redressal Mechanism.

COMPANY SECRETARY

A Company Secretary means “a person who is a member of the Institute of Company Secretaries of India”. [Sec. 2 (i) (c) of the Company Secretaries Act, 1980],

According to Section 2(45) of the Companies Act, 1956, “Secretary means any individual possess­ing the prescribed qualifications, appointed to per­form the duties which may be performed by a sec­retary under this Act and any other ministerial or administrative duties”.

QUALIFICATIONS OF THE SECRETARY

In the case of companies with a paid-up share capital of less than Rs. 2 crores any individual possessing any go the following qualifications may be appointed as 'its whole-time secretary to perform of duties of secretary.

    (I)    Membership of the Institute of Company secretary of India (ICST).

  (II)    Pass in the intermediate examination conducted by the Institute of Company Secretary in India (ICSI).

 (III)    Post-Graduate degree in commerce or corporate secretary ship awarded by any university in India.

(IV)    Degree in Law awarded by any university.

 (V)    Membership of the Institute of Cost and. Works Accountants of India.

(VI)    Membership of the Institute of Chartered Accountants of India.

(VII)    Post-graduate in Company Law and Secretarial Practice granted by the University of Udaipur

(VIII)    Membership of the Association of Secretaries and Manager, Calcutta. 

    (IX)       Diploma in Corporate Laws and Management granted by the India Law Institute, New Delhi.

(X)       Post-graduate degree or diploma in Management Sciences granted by any University.

(XI)     Post-graduate degree or diploma granted by Indian Institutes of Management, Bangalore, Calcutta, Lucknow, Ahmedabad or Calicut.

The Company (Secretary qualification) Rules stated above, do not apply to a limited company which is formed for the promotion of commerce, arts and science, religion, charity etc,. and which makes priority payment of dividends to its members (i.e. a company to which a license is granted under Section 25 of the Companies Act).

For companies with paid up share capital of less than Rs. 2 crores (sub-rule 3)

A company having a paid-up share capital of less than rupees two crores may appoint any individual as its whole-time secretary to perform the duties of a secretary under the Companies Act, 1956, and any other ministerial or administrative duties, if he possesses one or more of the following qualifications [specified in sub-rule (4) of Rule 2 of Companies (Appointment and Qualifications of Secretary) Rules, 1988]:

(i)                 Membership of the Institute of Company Secretaries of India constituted under the Company Secretaries Act, 1980;

(ii)               Pass in the Intermediate examination conducted either by the Institute of Company Secretaries of India constituted under the Company Secretaries Act, 1980, or by the earlier Institute of Company Secretaries of India incorporated on 4th October, 1968, under the Companies Act, 1956, and licensed under Section 25 of that Act;

(iii)             post-graduate degree in commerce or corporate secretary ship granted by any university in India;

(iv)             degree in law granted by the any university;

(v)               membership of the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act,1949;

(vi)             membership of the Institute of Cost and Works Accountants of India constituted under the Cost and Works Accountants Act, 1949;

(vii)           post-graduate degree or diploma in management sciences, granted by any university, or the Institutes of Management, Ahmedabad, Calcutta, Bangalore or Lucknow;

(viii)         post-graduate diploma in company secretarship granted by the Institute of Commercial Practice under the Delhi Administration or Diploma in Corporate Laws and Management granted by the Indian Law Institute, New Delhi;

(ix)             post-graduate diploma in company law and secretarial practice granted by the University of Udaipur; or

(x)               Membership of the Association of Secretaries and Managers, Calcutta, registered under the West Bengal Registration of Societies Act, 1961.

PROCEDURE FOR APPOINTMENT OF A COMPANY SECRETARY

Only an individual, who is a Company Secretary within the meaning of the Company Secretaries Act, 1980 or who possesses the prescribed qualifications, can be appointed as secretary of the company.

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

1. Advertise the post, collect applications, hold interview, short list the individuals for the position, finalise the terms of appointment.

2. Convene a Board meeting and place the proposal of appointing Company Secretary with the details of the person finalized and pass a resolution. (For specimen of Board resolution appointing company secretary, please see

Annexure I).

3. File e-form 32 within thirty days from the date of appointment (date of joining office) with the Registrar of Companies together with required filing fees.

The particulars of 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. Obtain the details of the offices held by such individuals as director or otherwise in other companies.

LEGAL POSITION OF THE SECRETARY

The Companies Act has recognized the secretary as the principal officer of the company and he is responsible for the secretarial and other purely ministerial and administrative work of the company. He has to file various returns and statements with the Registrar of Companies as per the requirements of the Companies Act. In case he fails to fulfil these statutory obligations, he will be held liable for such defaults. 

In the eyes of law, the secretary is a mere servant of the company. He has to act in accordance with the order or directions of the board of directors. Without authority, he cannot enter into any contract with the third parties and cannot make any representation on behalf of the company. He is appointed by the board and derives his authority from the board. He is under the control of the board of directors and he has to carry out the orders of the board and cannot exercise independent discretion in the work for which he is responsible. Thus, the secretary is a mere servant and subordinate officer of the company without any managerial function.

ACTUAL POSITION OR STATUS OF A COMPANY SECRETARY

 The actual position of a company secretary is not merely that of a servant or an agent, but something more than that. In actual practice, a company secretary occupies a position of importance in the administrative set-up of the company. He is not a mere tool in tl1e hands of the board of directors or the mouth piece of the directors carrying out the orders of the directors. In the company set up, both the board of directors and the: secretary play .a complementary role to each other. The board of directors is responsible for the overall management of the company's business. It plans, decides and formulates the policies of the company. But the responsibility of the actual execution of the policies lies with the company secretary .It is the secretary who carries out the orders of the board of directors. That is why, it has been rightly remarked that while the directors are the brain of the company, the secretary is its eyes, ears and hands of the company.

The company secretary is in close touch with the work of the board and has access to the confidential matters of the company. He exercises his discretion in most matters relating to the routine affairs of the company. Similarly, in matters relating to staff, shareholders and. outsiders, generally, the secretary is allowed .to exercise his discretionary power. This power of discretion is given to the board because the directors may not be in a position to devote their time for taking decisions relating to matters which are of a routine nature. He is often consulted by the chairman and the board before taking any decision on policy matters or on any other important matter since he, has an intimate knowledge of the company and is in constant touch with the staff, the shareholders and the public. He is in a better position to advise the board on various matters relating to the functioning of the company. Further, as he possess a thorough knowledge of the various legislative enactments relating to companies, he is consulted by the board on various legal matters.

The company secretary acts in different capacities and discharges many duties and responsibilities. They are:

1. He acts as the agent of the board of directors and carries out the instructions of the board of directors.
2. He acts as the registrar of the company and attends to the secretarial functions, such as the filing of various returns and statements with the registrar of companies, registration of transfers and transmission of shares and the work of correspondence.
3. He serves as the business executive of the company and carries out the routine office work and also the managerial duties entrusted to him by the board.
4. He acts as an adviser and advises the directors and the chairman on important matters affecting the business of the company.
5. He acts as a liaison officer between the board of directors on the one side and the staff, shareholders and the general public on the other side.
6. He acts as a confidential officer and ensures that the confidential matters of the company are not leaked out.
7. He is also required to act as a public relations officer of the company and improve the image of the company in the minds of the public.

RIGHTS OF COMPANY SECRETARY

The rights of a company secretary mostly flow out of his service agreement with the company. These may be summarized as follows:

1. Right to supervise the secretarial department. Being head of the secretarial department, he has the right to control and supervise the activities of the department under his control
2. Right to sign documents. As a principal officer within the meaning of the Companies Act, he has to sign documents requiring authentication of the company
3. Right to claim remuneration. The secretary is a servant (employee) of the company and has a right to claim his salary during its lifetime. Before his services are terminated, he can demand a reasonable notice and claim damages for his wrongful dismissal. In the event of the winding up of the company he can claim his outstanding salary as a preferential creditor

But the secretary has no right to:

1. Make allotment, or register transfer, of shares of the company unless he is specifically authorised by the directors in that behalf and the Articles of the company allow the directors to delegate this power to the secretary.
2. Make any representation on behalf of the company or to enter into any contracts without express authority and consent of the directors;
3. Borrow in the name of the company

DUTIES AND FUNCTIONS OF COMPANY SECRETARY

The duties of .a secretary vary from company to company, depending upon the nature on the business, size of the company and the powers enjoyed by and responsibilities entrusted with the secretary.

The duties of a company secretary may be classified under the following broad heads:

1.         Statutory duties

2.         General Duties

a.         Duties in relation to directors

b.         Duties in relation to shareholders

c.         Duties towards organisation and office

d.         Duties in relation to the public

1.         STATUTORY DUTIES

The statutory duties of a company secretary are those prescribed by the Companies Act or by any other legislation such as the Income Tax Act, Sales tax Act, Stamp Act, Employee state.

Insurance Act, Industrial Disputes Acts, Contract Act, Monopolies and Restrictive Trade Practices Act, etc.,

The most important part of his statutory duties relates to the various provisions of the Companies Act are:

1.      Maintenance of books and registers of the company

2.      Filing of the necessary returns with the Registrar of Companies

3.      Supervising the issue, allotment, transfer and forfeiture of share and debentures.

4.      Attending to meetings and recording their proceedings.

5.      Safe Custody and proper use of the common seal of the company.

Ø  The Income-tax Act requires him to take steps for the deduction of income tax from dividends, interest and salary and its payment to the tax authorities.

Ø  Under the Stamp Act, he has to see that stamps of the requisite amount are affixed to documents, shares etc.,

Ø  Under the Sales-tax Act, he has to arrange for timely submission of returns and payment of tax. In addition, he has to comply with the provisions of any other .Act, which is applicable to that particular company. For instance, a manufacturing company has to comply with the provisions of the Factories Act, the Industrial Disputes Act, Minimum Wages Act and other industrial laws. The secretary has to see that these provisions are complied with.

Ø  A company secretary is not only a servant of the company but also a servant of the law.

2. GENERAL DUTIES

• Duties in Relation to Directors:

The Secretary has to look after the correspondence with the director, convene board meetings under the direction, of the managing director, prepare minutes and execute the orders and instruction of the board. He has to advise the directors during the deliberations at the meeting regarding the provisions of various Acts. He acts as a guide to the board of directors.

The secretary is the confidential clerk of the board. While the directors lay down the broad policies of the company at board meetings, the secretary interprets these policies. He communicates board decisions to the staff and shareholders and because of this, he is called the mouthpiece of the board of directors. Further, the secretary has to keep the board posted with all developments relating to the activities of the company. As the secretary is the agent of the board of directors, he must carry out their instructions. In addition he keeps the common seal of the company and uses it as directed by the board.

• Duties in Relation to Shareholders.

The secretary is also medium of communication between the company and shareholders. -As the shareholders are the owners of the company, the secretary has to safeguard their interest and should attend to their enquiries regarding payment of dividend, issues of share, etc., In dealing with shareholders the secretary has to be very tactful and, at the same time, be courteous, friendly and helpful. He has to ensure that no confidential information of the company is made available to a section of the members, which may affect the interest of the company as a whole. . Further, he has to organize and supervise correspondence with shareholders with regard to the following:

ü  Application and allotment of shares.

ü  Calls of shares.

ü  Forfeiture of shares.

ü  Transfer and transmission of shares.

ü  Distribution of dividend

ü  Notice and circulars to .members

ü  Meetings of shareholders

ü  Inquiries and complaints from shareholders.

• Miscellaneous or other Duties:

The other duties of a company secretary are:

 1.      He should not act without authority

 2.      He should discharge his duties honestly

 3.      He should Exercise reasonable care & diligence

 4.      He should Act in & emergency very cautiously in the interest of the company

 5.  He should not leak out the secrets or confidential matters of the company either to the shareholders or to the Public.

 6.      He should represent the company on social functions.

• Duties towards Organization and Office.

The secretary is generally recognized as the head of the office of the company and has control over departments such as shares, record and filing, accounts and statistics. He has to ensure that the office works with maximum efficiency. He has to supervise various activities of the office and also coordinate the activities of the different departments. In order to get the best out of the staff, he has the overall duty to select, organize and guide personnel. This requires that he should devote particular attention to the terms and conditions of their service and also maintain personal contact with individual members of the staff.

• Duties in Relation to the Public.

The secretary being in possession of all-important information about the various aspects of the company has to function as a medium of communication between the directors and the general public consisting of debenture holders, bankers, solicitors, creditors and the 'prospective investors. He has to be in touch with them and provide information that may be asked for. At the same time, he should take care to see that no confidential information is divulged to the public. Further, he should function as liaison officer between the shareholders and the directors, the company and the outsiders and should discharge his duties in the best interest of the company.

LIABILITIES OF THE SECRETARY

The liabilities of the company secretary may be divided into two categories:

a)      Statutory liabilities

b)      Contractual liabilities 

a. Statutory Liabilities

As the principal executive officer of the company, the secretary has certain statutory obligations under the .Companies Act, Income tax Act and the Stamp Act, Sales .tax Act etc. If the secretary fails to carry out the statutory obligations or duties imposed on him by the various acts, certain liabilities are imposed on him by the Companies Act and other acts. Such liabilities are called the Statutory liabilities. In short, statutory liabilities refer to all those liabilities imposed on the secretary by the Companies Act and other acts for his failure to discharge his statutory duties.

The various statutory liabilities imposed on the company secretary are:

1.      If he fails to hold a statutory meeting.

2.      If he does not circulate the statutory report.

3.      If he fails to hold the Annual General Meeting.

4.      If he fails to submit to the Registrar of Companies copies of annual accounts and other statements.

5.      If he fails to give notice of Board Meeting.

6.      If he fails to record the minutes of Board and General Meeting.

7.      If he does not maintain minute books at the registered office.

8.      If he refuses to allow inspection of minutes by the members.

9.      If he refuses to furnish copies of Minutes to members.

10.      If he fails in making ready share certificates and debenture certificates within the stipulated period.

11.      If he fails to maintain a register of directors, shareholders and debenture holders.

12.      If he fails to comply with the provisions of the Act regarding the appointment of auditors and the auditor's report.

13. If he fails to rectify the mistake within a period of two months, in case the company has been  

registered by a name which is identical with or too closely resembles the name of an existing company.

14.If he fails in filing With the Registrar of the Companies relevant documents as required by the Act.

     15.  If he fails in registering the resolutions etc, as required.

     16.  If he fails to have the name of the company engraved on the seals, etc.

     17.  If he fails to make entries in the member's register on the issue of share warrants.

     18.  If he fails to comply with the provisions of this Act particularly regarding the appointment of 

          auditor, audit reports, etc.

     19.  Under the Income Tax Act, 1961 the company secretary is responsible for collection and

          payment of income tax.

    20.  Under the Indian Stamp Act, the company secretary is responsible for verifying the correctness  of documents needing stamps, etc.

b. Contractual Liabilities

Apart from the statutory liabilities, the company secretary has certain liabilities to the company arising out of his contract of service with the company. These liabilities are known as contractual liabilities.

1.      He must carry out the orders given to him by the directors.

2.      He must carry out the obligations of his service agreement with the company.

3.      He should not disclose any confidential information of the company.

4.      He should not do anything beyond his authority. If he acts beyond his authority, he will be held personally liable for any damage or loss suffered by the company or any third party as a result of his action.

5.      He is expected to perform his duties .with reasonable care and skill.

6.      He is liable for damages caused to the company by his wilful misconduct and neglect of duties.

7.      He is liable for any fraud on the part of any of his assistants if it is proved that he is a paI1y to such fraud.

For companies with paid up share capital of Rs. 5 crores or more

Section 383A of the Companies Act, 1956 lays down that every company having a paid-up share capital of not less than rupees 5 crores or more must have a whole-time secretary and such secretary must be a member of the Institute of Company Secretaries of India. [Sub-rule (1) & (2) of Rule 2 of Companies (Appointment and Qualifications of Secretary) Rules, 1988].

Regulation 82 in Table A of Schedule I to the Companies Act and according to this regulation, subject to the provisions of the Act,—

"A secretary may be appointed by the Board for such term, at such remuneration and upon such conditions as it may think fit; and any secretary so appointed may be removed by the Board."

The above regulation gives absolute discretion to the Board of directors of a company to appoint a company secretary, fix the period of his tenure as such, fix his remuneration, revise his remuneration and vary the terms of appointment of company secretary. The Board of directors of a company may appoint a company secretary by a passing a resolution either at a duly convened and held meeting or by means of resolution passed by circulation.

For companies with paid up share capital of two crores rupees or more but less than five crores

A company having a paid up share capital of two crore rupees or more but less than five crore rupees may appoint any individual who possesses the qualification of membership of the Institute of Company Secretaries of India constituted under the Company Secretaries Act, 1980 (56 of 1980), as a whole-time secretary to perform the duties of a secretary under the Companies Act, 1956 [sub-rule (3A)].

Share capital of less than rupees two crores [sub-rule (3)] OR in companies having paid up share capital of rupees two crores or more but less than five crores [sub rule (3A)], a whole-time company secretary, possessing the qualification of membership of the Institute of Company Secretaries of India, such a company is not required to obtain a certificate from a secretary in whole-time practice under rule 3 of the Companies (Compliance Certificate) Rules, 2001.

REMOVAL OR DISMISSAL OF A COMPANY SECRETARY

As has been discussed above in the light of the provisions in the regulations in Table A of Schedule I to the Companies Act 1956 the Board of directors of a company has absolute discretion to remove a company secretary or to terminate his services at any time for any reason or without any reason.

Procedure for Removal/Resignation of a Company Secretary

1. A Company Secretary can be removed in accordance with the terms of appointment and the Board can record the same.

2. Convene a Board meeting, place the matter of removal/resignation of the Company Secretary and pass a resolution to the effect.

3. File e-form 32 within thirty days with the Registrar of Companies together with requisite filing fees. Evidence of Cessation (for ex. Resignation Letter) is an optional attachment.

4. Inform the stock exchange where the company is listed.

5. Make entries in the Register maintained for recording the particulars of Company Secretaries.

6. Issue a general public notice, if it is so warranted, according to size and nature of the company.