The Company Secretary

Company secretary in practice: section 2(25)

"Company secretary in practice" means a company secretary who is deemed to be in practice under sub-section (2) of section 2 of the Company Secretaries Act, 1980.

The distinction matters throughout the Act, because several functions must be performed by a company secretary in practice and not by the company's own secretary. The secretarial audit report under section 204 is the clearest example: it must be given by a company secretary in practice, for the obvious reason that a company's own officer cannot audit his own compliance.

The functions: section 205(1)

The functions of the company secretary shall include:

• (a) to report to the Board about compliance with the provisions of this Act, the rules made thereunder and other laws applicable to the company;
• (b) to ensure that the company complies with the applicable secretarial standards;
• (c) to discharge such other duties as may be prescribed.

Note the word "include". The list is not exhaustive; it is a statutory floor beneath whatever the company's own terms of appointment provide.

Note the width of clause (a). He reports not only on the Companies Act and its rules, but on other laws applicable to the company. A secretary of a manufacturing company therefore has the environmental and labour legislation within his reporting duty.

And note that clause (b) is stated as a duty to "ensure", not to advise. It is the strongest verb in the sub-section.

The Explanation defines secretarial standards as standards issued by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980, and approved by the Central Government.

Two requirements again. Issued by the Institute, and approved by the Central Government. A standard the Institute has issued but the Government has not approved is not a secretarial standard for the purposes of this section.

And the standards are not merely professional guidance. Section 118(10) requires every company to observe secretarial standards with respect to general and Board meetings specified by the Institute and approved by the Central Government, which makes their observance a statutory obligation of the company, not only of its secretary.

What the section does not disturb: section 205(2)

The provisions contained in section 204 and section 205 shall not affect the duties and functions of the Board of Directors, chairperson of the company, managing director or whole-time director under this Act, or any other law for the time being in force.

This is the saving that keeps responsibility where it belongs. Neither the secretary's compliance function nor the secretarial audit relieves the Board, the chairperson, the managing director or a whole-time director of anything. A director cannot answer a charge of default by saying the company had a secretary.

Where else the secretary appears in this book

As key managerial personnel: section 2(51)(ii). He is within the class, with everything that follows from it.

As an officer in default: section 2(60). The definition of officer who is in default includes key managerial personnel, so the secretary is exposed to the penalties the Act imposes on officers in default.

In the appointment rules: section 203. A prescribed company must have a whole-time company secretary; the appointment must be by Board resolution stating the terms and remuneration; he may not hold office in more than one company except a subsidiary; and a vacancy must be filled by the Board at a meeting within six months.

In the disclosure of interest: section 189(2). Every key managerial personnel must, within thirty days of appointment or relinquishment of office, disclose to the company the particulars specified in section 184(1).

Before the Audit Committee: section 177(7). Key managerial personnel have a right to be heard when the Committee considers the auditor's report, but no right to vote.

As a related party: section 2(76)(ii). A key managerial personnel or his relative is a related party of the company.

And outside the protection of section 149(12), which narrows liability only for an independent director and a non-executive director not being a promoter or key managerial personnel.

A worked example

Panvel Ceramics Limited falls within the prescribed class under section 203 and must have a whole-time company secretary.

Who may be appointed. Only a member of the Institute of Company Secretaries of India who is appointed by the company to perform the functions of a company secretary under the Act: section 2(24). The company's experienced administration manager, who is not a member of the Institute, cannot be appointed however the office is described.

How. By a resolution of the Board containing the terms and conditions including the remuneration: section 203(2). He may not simultaneously hold the office in another company unless it is a subsidiary of Panvel Ceramics: section 203(3).

What he must do. He must report to the Board on compliance with the Companies Act, its rules and other laws applicable to the company, which for this company includes its environmental and factory legislation; ensure compliance with the applicable secretarial standards issued by the Institute and approved by the Central Government; and discharge such other duties as may be prescribed: section 205(1).

A failure of notice. The company calls an annual general meeting on fourteen clear days' notice instead of twenty-one. That breaches the Act and the secretarial standard on general meetings, and the observance of secretarial standards is also required of the company by section 118(10). The secretary's duty was to ensure compliance and, having failed, to report the position to the Board, because the report is what puts the Board in a position to call the meeting afresh.

Who is answerable. The secretary is key managerial personnel and therefore within officer who is in default under section 2(60), so penalties for the default may reach him. But section 205(2) preserves the duties of the Board, the chairperson, the managing director and any whole-time director, so they cannot answer the charge by pointing at him.

A vacancy. He resigns on 10 June. The Board must fill the vacancy at a Board meeting within six months, that is by 9 December: section 203(4). Failing that the company is liable to a penalty of five lakh rupees and every director and key managerial personnel in default to fifty thousand rupees, with one thousand rupees a day for a continuing default up to five lakh rupees: section 203(5).

The secretarial audit. Being within the class prescribed under section 204, the company must also annex to its Board's report a secretarial audit report given by a company secretary in practice: section 2(25). Its own secretary cannot give that report, and the point is dealt with in [Secretarial Audit].

On appointment. Within thirty days of his appointment the new secretary must disclose to the company the particulars specified in section 184(1) about his concern or interest in other bodies corporate and firms, because he is key managerial personnel: section 189(2).

Distinctions that carry marks

What this does NOT mean

It does not mean anyone the company calls "secretary" is a company secretary. He must be a member of the Institute and be appointed to perform the functions of a company secretary under the Act.

It does not mean the list in section 205(1) is exhaustive. The sub-section says the functions shall include those three.

It does not mean the secretary reports only on the Companies Act. Clause (a) extends to other laws applicable to the company.

It does not mean a standard issued by the Institute is automatically a secretarial standard. It must also be approved by the Central Government.

It does not mean the secretary's compliance function relieves the directors. Section 205(2) expressly preserves the duties of the Board, chairperson, managing director and whole-time director.

It does not mean the company's own secretary may conduct its secretarial audit. Section 204 requires a company secretary in practice.

Quick revision

• 2(24): a company secretary is a company secretary as defined in the Company Secretaries Act, 1980, appointed by a company to perform the functions of a company secretary under this Act. Both the qualification and the appointment are required.
• 2(25): a company secretary in practice is one deemed to be in practice under section 2(2) of that Act; he is who gives the secretarial audit report under section 204.
• 205(1): the functions include (a) reporting to the Board on compliance with this Act, the rules and other laws applicable to the company; (b) ensuring compliance with the applicable secretarial standards; and (c) such other prescribed duties.
• Explanation: secretarial standards are those issued by the Institute of Company Secretaries of India and approved by the Central Government; section 118(10) obliges the company to observe them for general and Board meetings.
• 205(2): sections 204 and 205 do not affect the duties and functions of the Board, the chairperson, the managing director or a whole-time director under this Act or any other law.
• Elsewhere: he is key managerial personnel under 2(51)(ii); an officer in default under 2(60); appointed and restricted under 203; must disclose his interests within thirty days under 189(2); may be heard but not vote before the Audit Committee under 177(7); is a related party under 2(76)(ii); and is outside the narrowed liability of 149(12).

Test yourself

1. Who can be appointed a company secretary? A person who is a company secretary as defined in clause (c) of section 2(1) of the Company Secretaries Act, 1980, that is a member of the Institute, and who is appointed by the company to perform the functions of a company secretary under the Companies Act: section 2(24). Both requirements must be satisfied.

2. State the functions of a company secretary. To report to the Board about compliance with the Companies Act, the rules made under it and other laws applicable to the company; to ensure that the company complies with the applicable secretarial standards; and to discharge such other duties as may be prescribed: section 205(1). The list is inclusive, not exhaustive.

3. What are secretarial standards? Standards issued by the Institute of Company Secretaries of India, constituted under section 3 of the Company Secretaries Act, 1980, and approved by the Central Government: Explanation to section 205. By section 118(10) every company must observe those relating to general and Board meetings.

4. Does the appointment of a company secretary relieve the directors of their duties? No. Section 205(2) provides that sections 204 and 205 shall not affect the duties and functions of the Board of Directors, the chairperson, the managing director or a whole-time director under this Act or any other law in force.

5. Distinguish a company secretary from a company secretary in practice. A company secretary is appointed by, and is an officer of, the company, and is one of its key managerial personnel. A company secretary in practice is one deemed to be in practice under section 2(2) of the Company Secretaries Act, 1980, is independent of the company, and is the person who may give the secretarial audit report under section 204.

6. Where does the Act treat the company secretary as an officer in default? Section 2(60) defines officer who is in default to include key managerial personnel, and section 2(51)(ii) makes the company secretary key managerial personnel, so penalties imposed on officers in default may reach him.