Secretarial Standards: Stricter norms for conduct of board and shareholders meet

CS Avinash Godse 
on 08 May 2015


Introduction:

The Institute of Company Secretaries of India (ICSI) has long back introduced some set of rules and norms, which are supplementary to the Companies Act, 1956, called as ‘Secretarial Standards’ and popularly termed as ‘SS’.

ICSI is the pioneer and the only institution in the world so far to have issued secretarial standards for integration, harmonization and standardization of corporate secretarial practices. International Federation of Company Secretaries (IFCS), formed with the efforts of ICSI, decided to form an International Secretarial Standards Board which will formulate international Secretarial Standards to spread good corporate governance discipline across national borders.

In accordance with the requirement of the Section 118(10) of the Companies Act, 2013 (‘the Act’), every Company   required to observe Secretarial Standards with respect to General and Board Meetings specified by the Institute of Company Secretaries of India (‘ICSI’). Insertion of this requirement in the Act is one of the landmark developments for the profession of the Company Secretaries and the ICSI.

The rationale of mandating the compliance of non financial standards would ensure that all companies adopt uniform practice in convening the meetings, agenda items which should be placed before the Board and finalization of minutes etc. Prior to Companies Act, 2013, Standards were recommendatory in nature; however with the advent of Companies Act 2013, Standards have gained legal recognition. Further, the minuscule compliance and good governance would be ensured if companies follow the Secretarial Standards effectively.

Compliance of Secretarial Standards:

As per provisions of Section 205 of the Act, the function of the Company   Secretary includes to ensure that the Company  complies with the applicable Secretarial Standards. It would be the duty of the Company Secretary, to ensure that Secretarial Standards relating to General and Board Meetings or such other Secretarial Standards as may be specified by the ICSI and approved by the Central Government are complied with. Nevertheless, there would be many more Secretarial Standards which would be required to be complied with upon approval of the Central Government in the time to come.

Section 118 states that every Company   shall observe Secretarial Standards. This means that irrespective of the criteria of capital, listing, turnover, profit etc., all companies are required to observe Secretarial Standards. On the other side, requirement of appointment of whole-time Company Secretary lies only with the listed companies and every other Company  whose paid-up capital is Rs.5 Crores or more.  The question that now arose is who would be responsible to observe the Secretarial Standards in the companies those are not required to appoint whole-time Company Secretary.  There may be an argument that if the Company is not required to appoint Company Secretary then the requirement of observing Secretarial Standards would not arise as compliance of Secretarial Standards is the duty of Company Secretary. However, this argument would not sustain as Section 118 requires all the companies to observe Secretarial Standards.

Purpose of Secretarial Standard

a. To harmonize , integrate , standardize diverse Secretarial Practices

b. To promote uniformity and consistency among Secretarial Practice

c. To set a code of conduct

d. To infuse best practices among the professionals

e. To avoid conflict and reduce ambiguity in law

f. Setting benchmarks in Secretarial Practice

SS-1 :- Standard on Meetings of the Board of Directors

The Secretarial Standard 1 seeks to prescribe a set of principles for convening and conduct of Board Meetings. The principles enunciated in this Standard are equally applicable to the meetings of Board Committees. The Directors owe a duty to the shareholders and should exercise care, skill and diligence in the discharge of their functions and in the exercise of the powers vested in them. All the powers vested to the Directors are exercised collectively. Briefly, the Secretarial Standard 1 provides for the following, amongst others:

Sr. No.

Particulars

Details

1.

Effective Date

1st July, 2015.

2.

Applicability

To all Companies Incorporated under the Act except One Person Company. It also applies to various Committee(s) of the Board.  The provision of the Act prevails over Secretarial Standard.

3.

National Holiday

A Meeting may be convened at any time and place, on any day, excluding a National Holiday i.e. 26th January, 15th August, 2nd October and such other day as may be declared as National Holiday by the Central Government.

4.

Authority to Convene a Meeting

By any Director or Company   Secretary or any person authorized by the Board, in consultation with Chairman, Managing Director or Whole Time Director.

5.

Mode of Meeting- Participation through Video Conference

Directors shall not participate through Electronic Mode in the discussion on certain restricted items, unless expressly permitted by the Chairman. Such restricted items of business include approval of the Annual Financial Statement, Board’s Report, Prospectus and matters relating to Amalgamation, Merger, Demerger, Acquisition and Takeover.

Similarly, participation in the discussion through Electronic Mode shall not be allowed in Meetings of the Audit Committee for consideration of Annual Financial Statement including consolidated financial statement, if any, to be approved by the Board, unless expressly permitted by the Chairman. (The Companies Act, 2013 also restricts participation through video-conference for such items.)

6.

Notice

Notice is to be serve by way of any physical or electronic mode at the address (physical address or electronic address) provided by the Director to the Company   or at such address as it appears in DIN.

Notice required to be given at least 7 days before the date of the Meeting. In case of physical mode, 2 more days needs to be added for service of document. Articles may prescribe such longer period for service of Notice.

The Notice shall also contain the contact number or e-mail address (es) of the Chairman or the Company   Secretary or any other person authorised by the Board, to whom the Director shall confirm in this regard. (The Companies Act, 2013 permits such option of confirmation to Chairperson or CS only).

7.

Agenda

Agenda and Notes to Agenda should be provided at least 7 days before the date of the Meeting either in physical mode or electronic mode. In case of physical mode by way of post or courier, 2 more days needs to be added for service of document.

In case of UPSI (unpublished price sensitive information as defined under Insider Trading Regulations, 2015) it may be given at a shorter period of time, with the consent of a majority of Director which should include at least one Independent Director, if any (such consent may be obtained at the beginning of financial year).

8.

Shorter Notice Consent

General Consent for issuing notice on Shorter period should be taken either in first Board Meeting in each financial year or consent should be taken before meeting and recorded in the Minutes.

To transact urgent business, the Notice, Agenda and Notes on Agenda may be given at shorter period of time than stated above, if at least one Independent Director, if any, shall be present at such Meeting. If no Independent Director is present, decisions taken at such a Meeting shall be circulated to all the Directors and shall be final only on ratification thereof by at least one Independent Director, if any. In case the Company   does not have an Independent Director, the decisions shall be final only on ratification thereof by a majority of the Directors of the Company, unless such decisions were approved at the Meeting itself by a majority of Directors of the Company.

9.

Item other than Agenda Item

In order to take the matter for discussion which was not there in Agenda, it may be taken up for consideration with the permission of the Chairman and with the consent of a majority of the Directors present in the Meeting, which shall include at least one Independent Director, if any.

10.

Frequency of Meetings

Meeting should be conducted at least once in every calendar quarter subject to maximum time gap of 120 days between two consecutive meetings.

Exception is available for OPC, Small Company   and Dormant Company which can conduct one meeting of Board of Directors in every calendar half year with not less than 90 days of time gap between two consecutive meetings.

11.

Quorum

It shall be 1/3rd of total strength or 2 Directors, whichever is higher. Any fraction in calculating above 1/3rd strength should be rounded off to next one.

Minimum quorum should be present (i.e. either 1/3rd or 2) for each item to be transacted. Quorum should be present throughout the meeting.

For want of quorum, if the meeting gets adjourned, its stand to be adjourned to the same day, time and place in next week and in case that day is National Holiday, then the next day to such National Holiday is to be considered. The meeting stands cancel in case on adjourned day also the quorum is not present. This is also applicable to Committee Meeting.

12.

Attendance

Every Director, Invitee, Conveyor or any other person attending the meeting should sign the attendance register if he/she presents in person.

In case of electronic presence, Chairman or Company   Secretary shall record his/her presence. Entries made to the attendance register should be authenticated by the Company   Secretary, if any or the Chairman by appending his/her signature.

This register needs to be preserved for a minimum of 8 years. Every Director should attend at least one meeting of the Board during the financial year. In case he/she remains absent in all meeting during the relevant year, the office of said Director shall become vacant.

13.

Circular Resolution

Draft of resolution which needs to be passed by way of circular should be sent to all the Directors either by Physical mode or Electronic mode with relevant supporting documents. The Directors should provide their ascent or dissent within 7 days (maximum limit). In case the Director didn’t respond in any form, it shall be presumed that the Director has abstained from voting.

If 1/3rd of the Directors wish the item to be transacted at a Meeting, the matter should be taken up in the next meeting. If majority of Directors entitled to vote has not approved or not voted in favour of the resolution, the resolution considered as not passed.

14.

Minutes

The Company   should follow uniform maintenance of minutes and any change in such form should be authorized by the Board. The minutes shall be maintained in physical or in electronic form. Timestamp is mandatory for electronic form. “Timestamp” means the current time of an event that is recorded by a Secured Computer System and is used to describe the time that is printed to a file or other location to help keep track of when data is added, removed, sent or received.

The minutes should record the Directors who dissent or abstain from voting on such resolution. The minutes should record the time of commencement and conclusion of the Meeting.

The Board’s decision shall be recorded in the form of resolution if it is statutorily or otherwise required. The Board can record the decision in narrative form in other cases.

The draft minutes should be circulated to all the members of the Board or Committee within 15 days of meeting. The concerned Director should provide their comments within 7 days of such circulation and after expiry of said 7 days, any comments from Directors should be considered at the discretion of the Chairman. The signed minutes should be circulated to the Board or Committee within 7 days of signing the Minutes.

The Statutory Auditor, Cost Auditor, Secretarial Auditor or any other person appointed by the Board for statutory purpose can inspect the Minutes of the Meeting. The minutes of the Meeting should be preserved permanently.

15.

Preservation of Supporting Papers

Office copies of Notices, Agenda, Notes on Agenda and other related papers shall be preserved in good order in physical or in electronic form for as long as they remain current or for eight financial years, whichever is later and may be destroyed thereafter with the approval of the Board.

SS-2 :- Standard on General Meetings

1.

Notice, Postal Ballot etc.

Notice shall also be given to the Secretarial Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other specified persons. (The Companies Act, 2013 does not prescribes so)

Notice shall be sent by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means. (The Companies Act, 2013 prescribes notice in writing and electronic means only)

In all cases relating to the appointment or re-appointment and/or fixation of remuneration of Directors including Managing Director or Executive Director or Whole Time Director or of Manager or variation of the terms of remuneration, details of each such Director or Manager, including age, qualifications, experience, terms and conditions of appointment or re-appointment along with details of remuneration sought to be paid and the remuneration last drawn by such person, if applicable, date of first appointment on the Board, shareholding in the Company, relationship with other Directors, Manager and other Key Managerial Personnel of the Company, the number of Meetings of the Board attended during the year and other Directorships, Membership/ Chairmanship of Committees of other Boards shall be given in the explanatory statement.

Further in case the Company sends the Notice by post or courier, an additional two days shall be provided for the service of Notice. (The Companies Act, 2013 prescribes such addition only in case of ordinary post)

No business shall be transacted at a Meeting if Notice in accordance with this Standard has not been given.

No items of business other than those specified in the Notice and those specifically permitted under the Act shall be taken up at the Meeting.

The Chairman shall explain the objective and implications of the Resolutions before they are put to vote at the Meeting.

2.

Attendance at the Meetings

If any Director is unable to attend the Meeting, the Chairman shall explain such absence at the Meeting.

Directors who attend General Meetings of the Company   and the Company Secretary shall be seated with the Chairman.

Secretarial Auditor shall also required to attend the Meeting.

3.

E-Voting

The Companies which provides e-voting shall also put every Resolution to vote through a ballot process at the Meeting.

The Agency for e-voting shall be appointed by Board only. (The Companies Act does not prescribes so)

4.

Ban on Gifts

No gifts, gift coupons, or cash in lieu of gifts shall be distributed to Members at or in connection with the Meeting.

5.

Preservation of Minutes & Supporting Papers

Minutes Books shall be kept in the custody of the Company   Secretary. A Company   may maintain its Minutes in physical or in electronic form with Timestamp. Timestamp is mandatory for electronic form.

Office copies of Notices, Agenda, Notes on Agenda and other related papers shall be preserved in good order in physical or in electronic form for as long as they remain current or for eight financial years, whichever is later and may be destroyed thereafter with the approval of the Board.

Conclusion

These Secretarial Standards are not an alternative to the applicable laws, rules and regulations but will surely compliment and rather supplement the existing laws, rules and regulations under which our corporate scenario is governed. The sole purpose of these Secretarial Standards is to bring concord between the various areas of practice used by different professionals. One of the important factors also is where the law is not clear Secretarial Standards will help to bring in more clarity besides recommending good governance practices.

Compliance with the strict rules would help strengthen the corporate governance practices and help curb corporate misdoings, would be ensured by the Company Secretaries. These Secretarial Standards would also help boost the investor confidence, particularly the fund’s managers and overseas investors.

As of now we have the Secretarial Standards on the above discussed subjects. One can also think of introducing the same on various other complicated issues such as managerial remuneration, loans and investments, related party transactions etc. These are some areas which surely are debatable. The areas requiring procedural adaptation of uniform practices has been taken care of by the Central Government and ICSI but the areas which are more complex in nature due to the transactions followed by procedures, disclosures and approvals need to be also surely taken care of.


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