Changes in rules relating to the appointment of Company Secretary and applicability of Secretarial Audit

A.        Background:

In exercise of the powers conferred in the Section 203 of the Companies Act,2013 read with section 469 of the said Act, Ministry of Corporate Affairs vide its notification dated 3^rd January 2020 [“Notification”] has amended the Rule 8A and Rule 9 Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014. The amended rules are to be called as Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020 and the said rules will be effective from the 01^st day of April 2020.

B.        Link of the notification from Ministry of Corporate Affairs:

http://www.mca.gov.in/Ministry/pdf/AmdtRules_0601s2020.pdf

C.        Applicability for the appointment of Company Secretary [Rule 8A]:

I:           Pre-amendment:

In pursuant to Rule 8 and Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014 the Whole-time Company Secretary was to be mandatorily appointed in the following Companies:

• Listed Company
• Public Companies having Paid-up Share capital of Rs. 10.00 crores
• Companies not covered under Rule 8 and having paid-up Share capital of Rs. 5.00 crores

II:          Post-amendment:

In pursuant to the notification by the Ministry of Corporate Affairs dated 3^rd January 2020 the Rule 8A has been amended. In furtherance to the notification and in pursuant to Rule 8 of  Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014 and Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020 the Whole-time Company Secretary has to be mandatorily appointed in the following Companies:

• Listed Company
• Public Companies having Paid-up Share capital of Rs. 10.00 crores
• Private Companies having paid-up Share capital of Rs. 10.00 crores

The above-mentioned amendment relating to the appointment of Whole-time Company Secretary is applicable in respect of the financial years commencing on or after 01^st April 2020.

D.        Applicability of Secretarial Audit:

I:           Pre Amendment:

In pursuant to Section 204 of the Companies Act 2013, every listed company and companies belonging to such other class as mentioned in Rule 9 Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014 shall annex a Secretarial Audit Report, given by a Practicing Company Secretary, with its Board’s Report.

Therefore, in pursuant to Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014 the following companies should annex the secretarial audit report to their Board’s Report:

• Listed Company
• Public Companies having Paid-up Share capital of Rs. 50.00 crores
• Public Companies having a turnover of Rs. 250.00 crores

II:         Post Amendment:

In pursuant to the notification by the Ministry of Corporate Affairs dated 3^rd January 2020 the Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014 has been amended. In furtherance to the notification and in pursuant to Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014 the following companies should annex the Secretarial Audit Report to their Board’s Report:

• Listed Company
• Public Companies having Paid-up Share capital of Rs. 50.00 crores
• Public Companies having a turnover of Rs. 250.00 crores
• A company having outstanding loans or borrowings from banks or public financial institutions of Rs. 100.00 crores

For the Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014, it is clarified that the paid-up share capital, turnover, or outstanding loans or borrowings as the case may be, will be taken into account based on the last date of latest audited financial statement.

The above-mentioned amendment relating to the Secretarial Audit is applicable in respect of the financial years commencing on or after 01^st April 2020

E.        Implications of the said amendment in Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014

• Enhancing the visibility and brand building of the profession of Company Secretaries of India by ruling out the concept of “Name lending”.
• Increasing the scope of work for Practicing Company Secretary.
• Promotion of self-independent Profession as applications for the Certificate of Practice will gradually increase.
• A newly qualified Company Secretary will face difficulties getting a job and Company Secretary already employed will find difficult to switch their jobs.
• Recognition of the “Profession of Company Secretary” has been affected, as now only big Companies will be appointing Whole-time Company Secretary.

F:         Subsequent events after the amendment in Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2014

• Institute of Company Secretary has made the representation to the Ministry of Corporate Affairs vide letter dated 10^th January 2020, wherein providing two suggestions for the appointment of the Company Secretary which are mentioned herein below:

Suggestion 1:

Every company which has a paid-up share capital of more than five crore rupees and up to ten crore rupees and

1. a) turnover of hundred crore rupees or more; or
2. b) outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more;

shall have a Whole-Time Company Secretary.

Suggestion 2:

Every company which has:

1. a) a paid-up share capital of ten crore rupees or more; or
2. b) turnover of one hundred crore rupees or more; or
3. c) outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more;

shall have a Whole-Time Company Secretary.

• ICSI Auditing Standards [CSAS-1 to CSAS-4] have to be mandatorily followed by the Practicing Company Secretaries for undertaking the audit assignment.

Conclusion:

On one hand, the amendment has reduced the employment opportunities for the Company Secretaries in the Private Companies and on the other hand it has increased the scope of work for a Practicing Company Secretary.

Disclaimer: The entire contents of this document have been developed based on relevant provisions and are purely the views of the authors. Though the author has made utmost efforts to provide authentic information, however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and consequences of anything done or omitted to be done by any such person in reliance upon the contents of this document.