Court :
Chennai Bench of NCLT
Brief :
The Companies Act, 2013 itself defined the duties and responsibilities of a CS. For listed and some specified companies it is mandatory to appoint a CS. A CS works as a link between outside various types of government agencies, judicial, quasi-judicial bodies, local bodies, enforcement agenesis etc. and the company /shareholders. A CS is an employee of the Company and he/she is not CS of shareholders of the Company. A CS may be penalised as an "Officer in default" is he/she is not carrying his duties and responsibilities according to the norms.
Citation :
MAYANK AGARWAL VS. TECHNOLOGY FRONTIERS (INDIA) PVT. LTD. REPRESENTED BY SRIRAM SRIVATSAN, PCS
MAYANK AGARWAL VS. TECHNOLOGY FRONTIERS (INDIA) PVT. LTD. REPRESENTED BY SRIRAM SRIVATSAN, PCS
Application No.: IA/2/2021 IN CP/75/CHE/2021
DATED: 01/07/2022
A Company Secretary is the secretary of the Company and not of the shareholders of the Company.
As you are aware a Company Secretary carries huge responsibility on his/her shoulders for ensuring good corporate governance and compliance of all applicable provisions of Acts, on the Company. A CS is the principal officer and backbone of an organisation. The Companies Act, 2013 itself defined the duties and responsibilities of a CS. For listed and some specified companies it is mandatory to appoint a CS. A CS works as a link between outside various types of government agencies, judicial, quasi-judicial bodies, local bodies, enforcement agenesis etc. and the company /shareholders. A CS is an employee of the Company and he/she is not CS of shareholders of the Company. A CS may be penalised as an "Officer in default" is he/she is not carrying his duties and responsibilities according to the norms.
A CS generally provides guidelines to the Board of Directors as well as whole departments of the company in case of need. He is the consensus keeper of the company. His responsibility is to guide the Board to act according to the prudent corporate practices and business ethics. There may be some cases, where a tussle emerges between the Directors and the CS as in the below mentioned case.
A CS has power to approach before Judicial, Quasi Judicial and other authorities in case Board of Directors are not following Prudent Corporate Governance Practices and Ethical Business Practices. The power comes from his appointment and provisions of Section 205 of the Companies Act, 2013.
The National Company Law Tribunal (NCLT), Chennai Bench, dealt with a similar matter where Company Secretary approached it as his last resort for ensuring the due compliance. The order was pronounced by the NCLT Chennai Bench on 01st July 2022 in the matter of Mayank Agarwal vs. M/s. Technology Frontiers (India) Private Limited
1. The matter is pertaining to compliance with the Significant Beneficial Ownership provisions, initially Mr. Sriram Srivatsan (Company Secretary) issued a notice to the company whose holding in their company falls under the threshold of Significant Beneficial Ownership provisions and asked them to disclose their ultimate beneficial owner.
2. As per the Significant Beneficial Ownership provisions, upon issuance of the notice, the company is required to disclose its ultimate beneficial owner.
3. In the instant case, the Company Secretary went to NCLT as the company was not complying with the regulatory requirements.
4. The nominee director (Mr. Mayank Agarwal) of the respondent company refuted the stance by filing an Interlocutory Application, by arguing that the Company Secretary does not have a locus stand to file the petition as the board has not authorized him to file the same and the Companies Act, 2013 does not empower him to supersede the Board of Directors
5. Mr. Mayank Agarwal (Applicant) is a nominee director appointed by M/s Crest Investment Holdings Pvt. Ltd. on the Board of Directors of the M/s. Technology Frontiers (India) Private Limited and Mr. Sriram Srivatsan is a Company Secretary (Respondent) of M/s. Technology Frontiers (India) Private Limited.
6. Mr. Mayank Agarwal (Applicant), filed an Interlocutory Application before NCLT Chennai Bench and following were the prayers as main relief:
a) To declare that the Company Petition is not maintainable and dismiss the company petition at the outset;
b) Direct Mr. Sriram Srivatsan, Company Secretary to solely bear all cost associated with the present petition.
7. The main petition was filed by Mr. Sriram Srivatsan, Company Secretary for ensuring compliance of mandatory requirements mentioned under the provisions of the Companies Act, 2013.
"(1) Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five percent or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control (herein referred to as "significant beneficial owner"), shall make a declaration to the company in form BEN-1, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof, as may be prescribed.
Provided that the Central Government may prescribe a class or classes of persons who shall not be required to make declaration under this sub-section." "…………..
(4) Every company shall file a return of significant beneficial owners of the company in Form BEN-2 and changes therein with the Registrar containing names, addresses and other details as may be prescribed within such time, in such form and manner as may be prescribed.
(4A) every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require him to comply with the provisions of this section.
(5) A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe—
(a) to be a significant beneficial owner of the company;
(b) to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or
(c) to have been a significant beneficial owner of the company at any time during the three years immediately preceding the date on which the notice is issued, and who is not registered as a significant beneficial owner with the company as required under this section.
(6) The information required by the notice shall be given by the concerned person within a period not exceeding 30 days of the date of the notice.
(7) The company shall,—
(a) Where that person fails to give the company the information required by the notice within the time specified therein; or
(b) Where the information given is not satisfactory, apply to the Tribunal within a period of 15 days of the expiry of the period specified in the notice, for an order directing that the shares in question be subject to restrictions with regard totransfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed."
8. In this case, Company Secretary Mr. Sriram Srivatsan had sent the notice to the Applicant’s company on 03rd May, 2021 along with the form to disclose their Ultimate Beneficial Ownership of the shares held. The applicant filed this application to adjudicate the maintainability of the main petition filed by the Company Secretary.
i) The Company {M/s. Technology Frontiers (India) Private Limited} alone is empowered to apply to NCLT under section 90(7) of the Companies Act, 2013 and the company acts through its board of directors and Company Secretary has not taken any approval from the board of directors to file the present petition and there is no Board Resolution nor has any delegated authority to present the present petition.
ii) That any suit or any other legal proceedings can be instituted by a director or officer of the company such as Company Secretary only on the strength of valid Board Resolution duly passed authorizing them to do so and in absence of such board resolution if any suit or legal proceedings is instituted then there has to be a board resolution ratifying the defect, failing which the suit or legal proceedings cannot be maintained.
iii) That the Company Secretary has no locus standi to file a petition under section 90 and is not empowered by section 205 or any other provisions of the Companies Act, 2013 to bypass or supersede the Board of Directors of a company and substitute the authority and powers of the Board of Directors in Company Secretary’s own wisdom.
iv) Certain aspects on professional misconduct on part of Company Secretary was also alleged by the applicant.
i) It was submitted that he has the locus standi on account of board resolution duly passed by the board of directors at the time of his appointment which states that he is appointed as the Compliance Officer of the company and he is required to perform the duties as required under the Companies Act, 2013 and any duties assigned by the board of directors from time to time.
ii) The respondent also quoted Order 29, Rule 1 of the Civil Procedure Code, 1908 which states that in suits by or against a corporation, any pledging may be signed and verified on behalf of the Corporation by the security of by any director or other principal officer of the corporation who is able to dispose to the facts of the case.
iii) That the Company Secretary being an officer as per the above quoted rule have the authority to enter into pleadings on behalf of the Company in absence of a formal authorization from the Board of the company more significantly to ensure compliance by or on behalf of the Company in which he has been appointed in that capacity.
iv) The respondent also refer the provisions of the Companies Act and the rule wherein he submits that by virtue of Section 205 of the Companies Act, 2013 he is authorized to represent and it is his duty to do so. Section 205 states the Functions of Company Secretary which include that it is his duty to report the board about compliance with the provisions of this Act, rules made there under and other laws applicable to the company and to ensure that the company complies with the applicable secretarial standards.
v) The respondent also states that Rule 10 (4) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 states that Company Secretary can represent before various regulators and other authorities under the Act in connection with discharge of various duties under the Act.
A Company Secretary is the secretary of the Company and not of the shareholders of the Company.He is appointed under the Companies Act pursuant to a Board Resolution in respect of which the appointment is given effect by filing the prescribed form with the Registrar of Companies, so as to ensure statutory compliances failing which he is the only Officer who receives the Show cause notice from the Registrar of Companies so also the Company.
He would be required to face the penal consequences in the event of failure of compliances. He is answerable to the violations of the compliance requirement. Needless to mention that he is the Watchdog of protecting the Principles of Corporate Governance as well as the collective interest of all the stakeholders so also the Company; of course he is not a blood hound.
The era in which the Company Secretary occupied the position of a glorified clerk in Companies has expired consequent upon evolution of corporate governance and the various compliance requirement in a complex regime so as to protect the interest of the company as well as its various stakeholders.
There is no idealistic overstatement in holding that Company Secretary is required to act not only with adequate diligence but with proper and necessary diligence while discharging his duties by sounding the knell in order to alert all concerned including the Board of Directors on occasions where he apprehends deviations from sound corporate principles and prudent governance practice in the best interest of the company and its stakeholders; he has to ensure the mandatory compliances by moving the Competent Authority, if not such compliances were failed at the behest of the Board or in the event of a lapse from the Board of Directors.
Further in this context, the Directors Responsibility Statement required to form a part of Board's Report pursuant to Subsection 5 of Section 134 of the Companies Act is also of paramount importance. Therefore, clause (f) of Sub-section 5 of Section 134 read with sub-section 5 makes it a mandatory prescription to devise and put in place proper system to ensure the compliance with all applicable laws and that suchsystems are adequate and operating effectively, the violation of which will drag the Company and every Officer in default to penal consequences including penalty up to Rs.24 lakh for the company and imprisonment to the Officer in default for a term up to three years or with a fine up to Rs.5 Lakh or with both.
Accordingly, we hold that the Company Secretary in the instant situation has acted diligently and promptly to ensure compliance of the mandatory provisions by moving this Tribunal. It is important to distinguish that in the present case the Main Application CP/75/CHE/2021 has been filed by the Company Secretary in employment and from the above it clearly envisages the role of a Company Secretary to be a key managerial personnel who shall also be responsible for all the action against the company if there company is an artificial Board of directors and is any default on its side; further the person and functions on the basis of the key managerial personnel. The law has categorically given clear framework in so far as ensuring the compliances and following good corporate governance practice is concerned to the Company Secretary by virtue of the Section 205 of the Companies Act, 2013.
To answer the question put forward whether the Company Secretary has the locus standi to file such application we answer the same in Affirmative by virtue of the above position of law, it is fairly clear that the company can be represented by the Company Secretary since;
i) he is a key managerial person under section 2(51) of Companies Act, 2013,
ii) officer in default as per sec.2(60) as per companies act 2013 and
iii) as per the power given under sec. 205(1)(c) read with Rule 10 clause 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 it is abundantly clear that the Company Secretary can represent before various regulators and other authorities under the Act in connection with discharge of various duties under the Act.
The NCLT being a quasi-judicial authority the Company Secretary can very well do the same.
The prayer in clause I(a) above is answered in negative.
Hence, IA.No.2/2021 stands dismissed.
List the main petition in on 25.08.2022 for final hearing.
Since a CS is the Key Managerial Personnel u/s. 2(51) of the Companies Act, 2013 of a company. His is appointed by Board of Directors by passing requisite resolution and same is required to be filed with ROC within a specified period. Provisions of Section 205 empowers a CS to ensure that business of the company follows Good Corporate Governance Procedures and Ethical Business Practices. A CS may be penalised as an Officer in Default in case of any violation in compliance of applicable provisions. A CS has power to enforce its Board of Directors to follow or compliance of applicable laws on the company. In the above case CS of the Company has gone against the company and filed a petition before NCLT to ensure compliance of provisions of Section 90 ( declaration of beneficial interest) by directors of the Company.
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