Significance vis-a-vis Repercussions of Non-Appointment of Company Secretary

Company secretaries are the natural conscience keepers for the corporate sector since they are specialists in the fields of corporate governance, regulation and processes and are the eyes and ears of the Board on such matters.

The Companies Act has strengthened the role and position of the company secretaries. In particular, it considers a company secretary as key managerial personnel.

As per Section 2(24) of The Companies Act 2013, 'company secretary' or 'secretary' means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980, who is appointed by a company to perform the functions of a company secretary under this Act.

WHO IS REQUIRED TO APPOINT THE COMPANY SECRETARY?

As per Section 203 of the Companies Act, 2013 read with Rule 8 & Rule 8A of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following entities shall have Whole-time Company Secretary as Key Managerial personnel (KMP)

1. Every listed company and
2. Every other Public Company or Private Company having a paid-up share capital of ten crore rupees or more.

FUNCTIONS OF COMPANY SECRETARY

Section 205 of the Companies Act, 2013 states the functions of Company Secretary. The functions of Company Secretary shall include:-

1. To report to the Board about compliance with the provisions of this Act, the rules made thereunder and other laws applicable to the company;
2. To ensure that the company complies with the applicable secretarial standards;
3. To discharge such other duties as may be prescribed.

PENALTY FOR NON-APPOINTMENT OF COMPANY SECRETARY

Section 205(5) of the Companies Act, 2013 states that if any company makes any default in complying with the appointment of a Company Secretary, such company shall be liable

1. To a penalty of five lakh rupees and
2. Every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first day during which such default continues but not exceeding five lakh rupees.

CASE LAWS

M/s First Data (India) Private Limited

M/s First Data (India) Private Limited ("The Company") filed a suo-moto application for adjudication of violation of provisions of Section 203 of Companies Act, 2013. The Company was required to appoint a Company Secretary on 24th October 2014 only. However, the Company failed to appoint the Company Secretary till 4th May 2020. Thereafter, they delayed the appointment.

The adjudicating officer stated that the period of default from 24.10.2014 to 01.11.2018 is compoundable in nature and the period 02.11.2018 to 03.05.2020 shall be taken up for non-compliance of provisions of section 203 of the Companies Act, 2013.

The following penalty was imposed on the Company and every Director and Key Managerial Personnel of the Company

M/s Dorin India Private Limited

M/s Dorin India Private Limited ("The Company"), was incorporated in March 2014. Despite having a substantial paid-up capital, the company appointed a whole-time Company Secretary only on January 4, 2021, which was a significant delay.

The case involves a 794-day delay in compliance with Section 203 of the Companies Act, 2013, from November 2, 2018, to January 4, 2021.

The following penalty was imposed on the Company and every Director and Key Managerial Personnel of the Company

CONCLUSION

Company secretaries are often viewed as traditional gatekeepers within the corporate governance ecosystem. The proper functioning of the corporate sector depends on good corporate governance and good corporate governance depends on company secretaries who, as gatekeepers, must serve the interests of the company and the society with honesty and integrity.