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Revised Secretarial Standard 1(SS1) - An Analysis

Ramaswami Kalidas 
on 04 September 2017

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Overview

The revised version of SS-1 has been rolled out by the Institute of Company Secretaries of India (ICSI) after the same has been approved by the Central Govt. Since the issue of the earlier version which was mandatory effective from July,1,2015, much water had flowed under the bridge in that the Companies Act,2013 (herein after 'The Act') has been tinkered with much too often for anybody’s comfort ,thus making it imperative that the Standard be realigned with the changes in the legislation. Viewed against this perspective, the roll out of the new version is appropriate and it is our fervent hope that this version too is not rendered obsolete over a period of time through further changes in the Law .

In this exposition, we shall capture the quintessence of the changes made, examine whether these are aligned with the law and articulate on the appropriateness of the change.

Non-applicability of Standard to One person Companies (OPCs) and Section 8 Companies

By express assertion in the introductory paragraphs , the revised SS-1 has been made inapplicable to OPCs and not for profit companies under Section 8.There is nothing new about this change in that even the earlier version was made exempt for OPCs. Subsequently through Notification1;f.No.1/2/2014-CL.1 dated 5.6.2015 , Section 118 under the aegis of which the secretarial standards have been made mandatory has been made exempt in entirety to a Section 8 Company. The above insert in the revised version is only a reiteration of the earlier position. Having said this the Standard makes it clear that Section 8 Companies will have to comply with the applicable provisions of the Act relating to Board meetings.

Change in Definition- Committee

There has been a subtle change in the definition of the term "Committee". As per the earlier version, the term 'Committee' was defined to mean a Committee of Directors constituted by the Board. The revised version defines the term to mean a Committee of Directors mandatorily required to be constituted by the Board under the Act.

As readers are aware, there are only four Board Committees which are to be set up mandatorily under the Act, namely the Audit Committee, the Nomination and Remuneration Committee, the Stakeholder Relationship Committee and the CSR Committee (Restricted in application to those companies which are impacted by the provisions of Section 135 in the Act).

The fallout of the above change is that the Standard will now apply only in respect of meetings of the above named Committees. Readers are aware that where a listed company which figures in the top 100 listed companies determined on the basis of market capitalization is concerned, pursuant to the requirements of Regulation 21 of the SEBI(Listing Obligations and Disclosure Requirements)(LODR)Regulations, 2015, it has to set up a Risk Management Committee(RMC) and this is a mandatory requirement as per the Regulations. The Standard would not apply in so far as the conduct of the Meeting of the RMC is concerned as it is not a mandatory requirement under the Act.

In the same vein, even a Meeting of Independent Directors should logically construed as a Meeting of a Committee of Directors, albeit, of independent directors .

The purpose of a Standard is to usher in the culture of best governance practices of the highest quality in a Corporation and its application ought not to be restricted in scope narrowly to only those Committees which are mandated under law.

In our view, the status quo ante should be restored in the matter of application of the Standard to Board Committees whether set up voluntarily or otherwise to uphold the principles of good governance.

Change in definition- 'Secretarial Auditor'

The definition of the term is being modified to include a firm of Company Secretaries in practice which was omitted in the earlier version. The change is only clarificatory.

Notice to state day of the Meeting (Para 1.2)

The earlier version spoke of the need to mention the time, place and mode of holding the Meeting in the Notice.. One is now called upon to mention the day of the Meeting in the new version. This is only a cosmetic change as any responsible Company Secretary while issuing the Notice for the Meeting would invariably mention the day of the Meeting for the convenience of the directors.

Meetings can be held on any day including a National holiday (Para 1.2.2)

The previous standard expressly disallowed the holding of a meeting on a National Holiday. This restriction was not in congruence with the law as Section 173 does not impose any express restriction on holding a meeting of the Board on a national holiday. The change is therefore in sync with the Act. Even otherwise, as emergencies do not arrive in the context of a company with any advance warning always, the Board ought to be provided the flexibility to hold a meeting on a national holiday also to tide over an emergency. The dynamics and complexities of modern business may compel Company Boards to hold Meetings on National holidays and the Law should not be allowed come in the way.

The previous version also did not allow a meeting which was adjourned for want of quorum to be held on a national holiday. This restriction has also been deleted.

The change has therefore been prompted by the fact that the previous version imposed a restriction which was not contemplated by the Act .It is therefore a case of 'righting' a 'wrong'!.

Chairman cannot allow participation of Directors on restricted items through video conferencing (Para 1.2.3)

Readers are aware that pursuant to Rule 4 of the Companies (Meetings of Board and its powers)Rules, 2014, directors are not to deal with certain restricted items such as adoption of audited financial statements for the financial year through video conferencing or other audio visual means. They have to be physically present at the Meeting to participate on such matters. Ironically in spite of the above, the previous version of the Standard allowed the chairman to exercise his discretion and allow the participation of the directors through video conferencing including on the restricted items. This was not consistent with the Rules and the revised version mercifully takes away the authority of the Chairman for such matters. This change is in sync with the legal provisions on the subject.

Notice cannot be dispatched to a Director through Courier (Para 1.3.1)

One of the most intriguing features of the revised version is that it does not permit the dispatch of the notices for a meeting to a director through a courier service. Similar is the embargo where it comes to dispatch of Agenda papers for Meetings as provided in Para 1.3.7.Interestingly for dispatching the documents to be sent to Directors for seeking their approval for passing resolutions by circulation, use of a courier is permitted as per Para 6.2.2.

In our view , the embargo on use of a courier for dispatch of a Notice and Agenda is not in consonance with the Act. Section 20(1) of the Act recognizes the use of a courier service for serving documents, inter alia, on any officer of the company. The term 'officer' has been inclusively defined in Section 2(59)to cover a Director of the company. Considering the above legal position, it would be in order for a company to serve documents on a director through a courier service. The inconsistency in the Standard becomes conspicuous when one considers that para 6.2.2 permits the use of a courier. This is intriguing to say the least. What is sauce for the gander has to be sauce for the geese as well!

The above embargo on use of a courier can lead to unnecessary practical difficulties. Suppose a company has an overseas Director who insists on receiving notices and Agenda through hard copy alone. To the best of our knowledge, the facility of 'Registered post' or 'Speed post' are internal to the Country and the use of a courier is by far the most efficacious mode for dispatch of documents overseas.

The Standard, it is submitted is not consistent with the Act on this point. The previous version was right where is comes permitting the use of a courier service. Obviously this is an instance of 'wronging' a 'right' and the Status quo ante needs to be restored on this score.

Board to decide on period for preservation of proof of dispatch of Notices, Agenda for meetings(Para1.3.1 and 1.3.7)

The previous version also stipulated that the company should retain proof of dispatch of Notices and Agenda for meetings but it was silent on the period for such preservation.

The new version makes it incumbent on the Board to decide on the period for preservation which shall not be less than three years. It follows from the above that the matter has to be referred to the Board which will decide on the period.

In our view, matters such as preservation of records comes within the house keeping requirements of the company secretary and the valuable time and attention of the Board should not be engaged for articulating on such simple procedures.

Director to give sufficient prior intimation for attending meeting through electronic mode(Para 1.3.4)

Any director intending to participate through electronic means is expected to provide sufficient prior intimation to the chairman or the Company Secretary to enable them to make appropriate arrangements.

The director may also intimate his intention of participating through electronic mode at the beginning of the calendar year which will be valid for such year. This provision is in line with Notification dated July,5,2017 through which the Companies(Meetings of Board and its powers)Second Amendment Rules,2017 have been issued.

Company to decide on mode of sending Notice, Agenda to original director if there is an Alternate Director(Para 1.3.7)

This para, inter alia, directs that where an Alternate Director has been appointed the notice, Agenda should be sent to both the original director and to the Alternate. It is not clear in such a case as to why the mode of sending the notice and Agenda to the original director shall be decided by the company.

Any item not in the Agenda to be taken up with permission of Chairman and with consent of majority of Directors (Para 1.3.10)

The earlier version provided that with the permission of the chairman any item not forming part of the Agenda could be taken up subject to the majority of directors of which there should be at least one independent director .The requirement that the majority shall include one independent director where there is one is being done away with in the revised version. This will help companies which do not have the requirement to appoint Independent Directors ,to overcome the predicament in such situations.

No need to hold a meeting in a calendar quarter(Para 2.1)

The earlier version provided that a Meeting shall be held in each calendar quarter subject to the condition that the gap between two meetings does not exceed one hundred and twenty days.

It is pertinent to note that Section 173(1) does not stipulate that a meeting should be held in every calendar quarter. It simply provides that a company should hold a minimum of four meetings in a year subject to the gap between two meetings not exceeding one hundred twenty days. The earlier version was therefore not consistent with the Act and the revised version aligns the standard with the Act.

Therefore a company need not hold a meeting in every calendar quarter as long as it is ensured that at least four meetings are held in a year and the gap between two meetings does not exceed 120 days.

Attendance Register for meetings of Board and Committees (Para 4.1)

The previous version provided for the maintenance of a separate Attendance Register for meetings of the Board and Committees.

The removal of the word 'separate' in the revised version makes it clear that it would be in order for the company to maintain a single Register with appropriate bifurcations for meetings of the Board and its Committees.

Where Registers are maintained in loose leaf form the additional requirement is to have them bound once in three years. The earlier version left it to the discretion of the company to decide on the period for such binding.

Right of person who has ceased to be a Director to inspect the Attendance Register of Meetings (Para 4.1.5)

Revised para 4.1.5 provides the person who has ceased to be a director the right to inspect the Attendance Register of meetings held during the period of his directorship. This insert is obviously intended to protect the interest of the director who has ceased to be one.

Leave of Absence can be communicated to Company Secretary/ Chairman(Para 4.2)

In the previous version leave of absence to a director could be granted only when a request to this effect was received by the Company Secretary or the Chairman. The use of the expression 'received' made it clear that it was expected that a written request was put in by the Director seeking leave.

It is pertinent to note that the Act does not have any express stipulation to the effect that the request for leave of absence should be in writing.

As the revised version provides that the request for leave needs to be communicated only , even a verbal request for leave would suffice.

Chairman to ensure presence of quorum throughout the meeting and to announce summary of the decision taken thereon (Para 5.1.2)

The addition of a revised sub-para in the revised version under the above para makes it necessary for the chairman to ensure that the quorum for the meeting is present throughout the duration of the meeting.

In addition, the Chairman is required to announce the summary of the decisions taken. What is intended by the above insert is not clear ,given the fact that as per normal convention the completion of a discussion at a meeting invariably culminates in the passing of a resolution which is to be drafted appropriately or alternatively if the proposal is not acted upon a suitable narrative is recorded in the minutes to this effect.

One does not therefore understand the logic behind the requirement in the revised version that the chairman should record a summary of the decisions taken.

Resolutions passed by circulation (Para 6.2)

The revised version allows like its predecessor the dispatch of documents for seeking approval of the Board by circulation through courier service. As has been pointed out earlier , use of courier is not permitted for dispatch of notice and Agenda for meeting.

The revised version enjoins upon the Board to decide on the period for which proof of dispatch of documents sent to directors for seeking their approval by circulation shall be retained by the company and this period shall not be less than three years.

Recording of resolutions passed by circulation (Para 6.4)

This para stipulates the manner in which resolutions passed by circulation have to be recorded in the Board Minutes. It provides that resolutions passed by circulation have to be recorded in the Minutes of the 'subsequent' Meeting. The expression 'next' as appearing in the corresponding para of the earlier version has been substituted by 'subsequent'. The expressions 'subsequent' and 'next' should be considered as synonymous with each other considering that conventional wisdom would demand that a resolution passed by circulation is noted at the next meeting of the Board. Therefore , the reason for substituting the latter by the former is difficult to comprehend.

As per the earlier version, it was necessary to record the fact that the interested director did not vote on the resolution. This has been done away with in the revised version.

Appointments made below the level of KMPs need not be noted in Minutes (Para 7.2.1.3)

Appointments of personnel one level below the level of the Key Managerial personnel(KMPs) are not required to be noted any longer in the minutes of the Board meeting, in departure from this requirement as per the earlier version. This is in keeping with the requirements under Section 179 read with Rule 9(2)of the Companies (Meetings of Board and its powers)Rules, 2014 which directs the Board only to take decisions as regards appointments/removal of KMPs.

Need for Company Secretary to initial unsigned documents placed at meetings and referred to in Minutes (Para 7.3.3)

The contents in the corresponding para of the previous version have been paraphrased to stipulate that whenever any decision of the Board is taken based on any unsigned documents including reports or presentations tabled at the Meeting which were not part of the agenda papers and are referred to in the Minutes ,such documents should be identified by the initials of either the company secretary or the chairman. This is a salutary change as the company secretary has to take ownership for documents which are placed at the Meeting and relied upon by the Board.

Directors shall have right to waive receipt of certified copies of signed Minutes (Para 7.6.4)

As per the earlier version it is incumbent upon the company to provide to all the directors , a certified true copy of the signed minutes of a meeting within fifteen days from the date of signature. This requirement shall be modified to the effect that directors shall have the right to waive receipt of the certified copies of the signed minutes and if any director has exercised his right for such waiver, the same should be recorded in the Minutes.

This change will relieve the company secretary from the responsibility of sending the copies of the signed minutes to directors except to those who insist on receiving a copy.

The Board is also called upon to decide on the period for which proof of dispatch of copies of signed Minutes should be retained by the company and such period cannot be less than three years.

In our view, this is a trivial procedure which should have remained within the confines of the house keeping responsibilities of the company secretary as opposed to engaging the attention of the Board.

Disclosure as regards compliance with applicable secretarial standards (Para 9)

A new paragraph has been inserted in terms of which the Board shall include a statement in its Report to the members to confirm that the company is compliant with the applicable Secretarial standards .This would lead to duplication of procedure in respect of those companies which are subject to Secretarial Audit as the Report of the Secretarial auditor has to contain an assertion on the above. However, for those companies which do not fall within the ambit of secretarial audit , the above confirmation would be by way of an additional assurance to its members.

Items which cannot be transacted by resolution passed by circulation (Annexure A of standard)

In the list of specific items which cannot be passed by circulation, two items have been added to the earlier list. These are as follows:

In the case of a public company, the appointment of directors in casual vacancy subject to the provisions in the Articles of the company

It is pertinent to note that under Section 161(4) of the Act , the casual vacancy arising in the office of a director can be filled up by the Board only at a meeting of the Board. One therefore is left wondering as to the wisdom of including the above item in the negative list when there is a specific bar under the law.

Sale of subsidiaries

It is common knowledge that an item as important as the above should not be allowed to be transacted through circulation. The clause is also very vague .It should have been made clear as to whether sale represents sale of controlling interest or vanilla sale of its assets. Listed companies are any way subject to specific compliances in respect of this item under the Listing Regulations and this decision cannot be taken by the Board through circulation..

Conclusion

We have tried to capture in the above exposition the quintessence of the changes in the revised version of SS-1. As may be clear, the exercise is primarily intended to align the standard with the Act. In this area, the revised version has fallen short a notch or two. Further matters such as deciding on the periodicity of record keeping in respect of meetings are not so critical as to warrant articulation by the Board. The professional fraternity is mature enough to be aware that a robust record keeping process is beneficial to all and sundry without any provocation through a statutory compulsion.. Viewed against this perspective, we cannot but help feel that the pitch on pontification on various matters in the Standard could have been mellowed down.


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