Secretary’s responsibility statement must for all cos

N Ramamoorthy

Wisdom has dawned! There is a sudden upsurge to introduce measures and mechanism to enforce and ensure through regulatory norms the compliance of provisions of company law and adherence to various accounting standards. Let us examine a few such important measures so as to decipher whether the means meet the ends.

Company law provisions
Section 383A of the Companies Act, 1956 (the Act) carries a mandate that “every company having such paid-up share capital as may be prescribed shall have a whole time secretary”. Presently a sum of Rupees fifty lakhs of paid-up capital is prescribed. The secretary is an “officer” within the meaning of section 2(30) of the Act and he further falls in the net of section 5 of the Act. He must possess the requisite qualification as prescribed in the Companies (Appointment and Qualifications of Secretary) Rules. He is therefore expected to guide the board of directors in taking decisions within the framework of the company law and allied economic legislations.
Pursuant to the proviso to sub-section (1) of the said section 383A of the Act companies having a paid-up capital of rupees ten lakhs and more, but not exceeding rupees fifty lakhs are under a compulsion to file with the registrar and also attach to the directors’ report a certificate from a secretary in whole-time practice (CSP) as to whether the company has complied with all the provisions of the Act.

The rules framed thereunder prescribe a wide range of areas to be examined by the CSP. CSP is also expected to certify whether various returns required to be filed with ROC are so filed within the prescribed time and infact CSP is expected to be a conscience keeper of the company.

Look at the paradox. The companies which are not mandated to appoint a whole-time secretary are under a tighter surveillance than the larger and mega companies inasmuch as they are not required to have a secretarial audit by an independent company secretary. It has been reported in the press that some MNC’s are not filing their balance sheet and annual returns as required under the Act and the department of company affairs (DCA) are tightening the noose around the neck of these companies by insisting complete compliance before considering their applications for payment of remuneration to their expats.

It is a pity that the DCA has to resort to this back door method to enforce compliance rather than establish a vibrant mechanism to oversee full and complete compliance by these companies as well.

Directors’ responsibility statement
A new sub-section (2AA) has been added to Section 217 of the Act which mandates that a Board Report shall include a Directors’ Responsibility Statement to the effect that the directors have adhered to applicable accounting standard, and they have selected such accounting policies and applied consistently, they have taken proper and sufficient care for the maintenance of adequate accounting records and that the accounts have been prepared on a going concern basis. Such additional disclosures are in addition to those disclosed in the accounts and the Auditors’ Report.

Sebi’s fiat
Under clause 49 of the listing agreement all the listed companies are required to adhere to the code of good corporate governance and include in the Directors’ Report a statement showing the required particulars. The areas covered under the Corporate governance Statement are orchestrated to protect the interests of the shareholders and enhancement of the value of the shares. Company’s statutory auditors are required to certify that the statement satisfies the requirements.

Sebi also mandates that when ever company declare bonus shares a certificate from a company secretary in practice should be submitted to Sebi confirming compliance of guidelines.

Similarly whenever a company issues further shares, rights or otherwise, a merchant banker is appointed by the company as the manager to the issue and the manager so appointed is required to submit, inter-alia, a due diligence certificate indicating compliance of all requirements.

It is gratifying to note that the annual reports of some reputed companies believing in good corporate governance have already started including a secretary’s responsibility statement certifying that all regulatory norms have been met with.