CORPORATE GOVERNANCE UNDER THE COMPANIES ACT, 1956 AS NOTIFIED IN JULY, 2002.

 

The companies Act, 1956 in India, is always a step ahead of other corporate and economic legislations towards ensuring the good corporate governance in the liberalized global economy.

 

Section 383 A was added by the Companies (Amendment) Act, 1974 with effect from 1/2/1975, providing for the appointment of qualified individual as company secretary and it has been rightly observed that ‘in view of the complexities  of modern business, and the various Laws with which the managements of company  are required to comply with, reliance upon qualified secretaries is now a common feature of medium sized and big sized companies.’

 

By the Amendment Act 1988 (w.e.f. 15-7-1988), the secretary is brought within the meaning “officer in default” under section 5 of the Act. With liberalized global economy of self-control, further changes were made towards these objectives of ensuring good corporate governance by the Companies (Amendment) Act, 2000 that the provisions are further liberalized  that minimum paid up capital requirement for compulsory appointment of company secretary is made flexible to enable revision from to time.  Accordingly, Rs. 25 lakhs was  increased to Rs. 50 lakhs. To ensure compliance by companies below the capital limit requiring compulsory appointment of secretary, a proviso was added in the section that such companies which do not require to employ whole time secretary and whose paid up share capital is Rs. 10 Lakhs or more  should obtain a compliance certificate from a practicing secretary to be annexed to directors’ report and also to be filed to the Register of companies.  Towards further liberalisation, the limit of Rest. 50 lakes now, increased to Rs. 2 cores vide Notification No.419(E)   to be effective from 11/6/2002.

 

Thus, as per the Law at present,

i) All companies with paid up capital of Rs. 10 lakes or above but less than Rs. 2 crores need not employ a whole time company secretary and it would be sufficient to  get a compliance certificate from a practicing company secretary once in a year, annex to the Directors’ Report and file with the Registrar of Companies.

ii)All companies with paid up less than Rs 10 lakhs are neither  required to appoint whole time secretary nor get a compliance certificate from practicing secretary.

iii)All companies with paid up capital to Rs. 2 crores and above should employ a whole time company secretary and need not file a compliance certificate either from the employed  company secretary or from a practicing company secretary..

         

Further, with this liberalized provisions of increasing the  limits to Rs. 2 Crores , there may not be any valid reason to continue the proviso to section 383(1A) providing  a defence for the non appointment of company secretary.

 

To make the provision further effective ensuring the good corporate governance, it is suggested that:

(i)                  To delete proviso to section 383(1A) providing defence for not appointing company secretary and amend section 383(1A) more stringent with severe punishment similar to section 58AA(9) as violating this section is the root cause for committing offences under  various others sections of the Act

(ii)                To amend provision to section 383 A (1) omitting word ‘and having a paid up share capital of ten lakh or more’ to ensure the compliance of companies Act provisions which are applicable to small companies as well.

(iii)               To provide for compliance report by the secretary in whole time employment of such companies with paid up share capital of Rest 2 cores also or alternatively, such certificate from Secretary in practice may be prescribed as one cannot conduct audit and certify his own work.

(iv)              To make section 224 to 233A pertaining to Auditors  applies to the company secretaries appointed as per proviso to section 383A(1) of Act by suitable amendment to the section 383A(1).

 

 Thus, Companies Act, 1956 as an important piece of corporate Legislation is always  a step ahead of other Economic and Corporate Legislations towards ensuring the good corporate governance in this liberalized global economy.