Abstract
The role of a Company Secretary (CS) has evolved significantly over the years, particularly in corporate governance and regulatory compliance. A Company Secretary acts as the bridge between the board of directors, regulatory authorities, and stakeholders, ensuring that a company adheres to statutory obligations and corporate best practices. This article explores the historical evolution of the CS profession, the legal provisions governing their role, case laws highlighting their significance, recent amendments to the Companies Act, and global comparisons of CS roles in different jurisdictions. Furthermore, it discusses the ethical responsibilities and challenges faced by Company Secretaries in the modern corporate landscape.
Keywords: Company Secretary, Corporate Governance, Companies Act, Compliance, Board of Directors, Regulatory Framework
Introduction
Corporate compliance is a fundamental aspect of corporate governance, ensuring that a company adheres to the legal, regulatory, and ethical standards set forth by governing authorities. A Company Secretary (CS) plays a pivotal role in ensuring corporate compliance by acting as the bridge between the company, regulatory bodies, and stakeholders. In India, the role of a CS is governed by the Companies Act, 2013, and is recognized as a key managerial personnel (KMP) under Section 2(51) of the Act. Additionally, as per Section 2(24) of the Companies Act, 2013, “Company Secretary” is defined as a member of the Institute of Company Secretaries of India (ICSI), who is qualified to perform the prescribed functions.
A Company Secretary ensures that organizations operate within the framework of various laws, including corporate governance norms, financial regulations, and other statutory compliances. This article delves into the responsibilities, legal obligations, and significance of a Company Secretary in maintaining corporate compliance.
Historical Evolution of the Company Secretary Profession
The concept of a Company Secretary dates back to the early corporate governance structures in the UK, where they initially functioned as clerks responsible for administrative work. Over time, their role expanded to encompass legal advisory, corporate compliance, and governance responsibilities. In India, the Institute of Company Secretaries of India (ICSI) was established under the Company Secretaries Act, 1980, to regulate and promote the profession.
Legal Provisions Governing Company Secretaries in India
Companies Act, 2013
- Section 203: Mandates the appointment of a CS in certain classes of
- Section 205: Defines the functions of a CS, including compliance reporting, legal advisory, and governance support.
- Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: Specifies the threshold limit of companies requiring a full- time CS.
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
Under these regulations, the CS plays a crucial role in ensuring compliance with disclosure norms for listed companies, maintaining minutes of board meetings, and assisting in investor relations.
Key Responsibilities of a Company Secretary
- Regulatory Compliance: Ensuring adherence to the Companies Act, SEBI regulations, FEMA, and tax laws.
- Corporate Governance: Implementing best practices, maintaining board processes, and ensuring ethical decision-making.
- Advisory Role: Providing guidance on corporate laws, contracts, mergers, and
- Record Keeping: Maintaining statutory registers, meeting minutes, and annual
- Stakeholder Communication: Acting as a liaison between the board, shareholders, and regulatory authorities.
Case Laws Highlighting the Role of a CS
Case 1: Shailesh Harilal Shah v. Matushree Textiles Ltd. (2010): Reinforced the accountability of a CS in signing financial statements and ensuring compliance.
Facts of the Case
- Shailesh Harilal Shah was the Company Secretary (CS) of Matushree Textiles
- The company was found to have submitted incorrect financial statements, which misrepresented the financial position.
- Regulatory authorities investigated the discrepancies and held the CS accountable for signing and approving the financial statements.
Legal Issue Involved
- Whether the Company Secretary can be held personally liable for financial misstatements under the Companies Act, 2013 (earlier Companies Act, 1956).
- Whether signing financial statements without due diligence constitutes negligence or professional misconduct.
Relevant Legal Provisions
- Section 205 of the Companies Act, 2013: Defines the functions of a CS, including ensuring legal and procedural compliance.
- Section 134(5): Holds company officers accountable for financial
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Mandates accuracy in financial reporting.
Conclusion
- The court held that the CS, being a key managerial personnel (KMP), had a duty to ensure compliance with legal and financial reporting standards.
- Since the CS had signed the statements without proper verification, they were held liable for professional negligence.
- The case reinforced the critical role of a CS in corporate governance and
Case2 : Ritesh Properties and Industries Ltd. (RPIL) – SEBI Order on Non-Appointment of a Company Secretary
Facts of the Case
- Ram Kumar Goyal was the Company Secretary (CS) of a listed company accused of fraudulent financial activities.
- The company was found guilty of misrepresenting financial statements and engaging in insider trading.
- SEBI investigated and held key managerial personnel, including the CS, accountable for failing to prevent and report fraudulent activities.
Legal Issue Involved
- Whether a Company Secretary can be held liable for corporate fraud under SEBI
- To what extent a CS is responsible for ensuring compliance and preventing financial
Relevant Legal Provisions
- Section 205 of the Companies Act, 2013: Assigns compliance responsibilities to the
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003:
Prohibits misleading financial disclosures and insider trading.
- Section 447 of the Companies Act, 2013: Defines corporate fraud and prescribes
Conclusion
- The court ruled that the CS, as a compliance officer, had a duty to detect and report fraudulent activities.
- Since the CS failed to exercise due diligence, he was held liable under SEBI
- The case reinforced that Company Secretaries must actively monitor corporate transactions and ensure ethical governance.
Case 3 : Ritesh Properties and Industries Ltd. (RPIL) – SEBI Order on Non-Appointment of a Company Secretary
Facts of the Case:
Ritesh Properties and Industries Ltd. (RPIL), a listed company, failed to appoint a qualified Company Secretary (CS) as required under the Companies Act, 2013, and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The company continued operations without appointing a CS for several years, violating statutory compliance norms.
SEBI issued a show-cause notice (SCN) to RPIL, questioning its failure to appoint a CS despite multiple reminders and the legal obligation under:
- Section 203 of the Companies Act, 2013 – Mandates appointment of a CS for listed companies and other prescribed companies.
- Regulation 6(1) of SEBI (LODR) Regulations, 2015 – Requires appointment of a qualified CS as the Compliance Officer for listed entities.
SEBI noted that RPIL’s failure to appoint a CS resulted in governance lapses and non- compliance with regulatory filing requirements.
Legal Provisions Involved:
- Section 203 of the Companies Act, 2013
- Requires listed companies and companies with a paid-up capital of ₹10 crore or more to appoint a full-time Company Secretary.
- Non-compliance attracts penalties under Section 203(5).
· SEBI (LODR) Regulations, 2015
- Regulation 6(1): Listed companies must appoint a CS as the Compliance
- Regulation 17: Ensures effective corporate governance, which includes appointing key managerial personnel.
Judgment & Conclusion:
SEBI imposed a penalty of ₹5 lakh on RPIL for violating SEBI (LODR) Regulations and directed the company to immediately appoint a qualified CS. The regulator emphasized that the absence of a CS led to compliance failures and increased regulatory risks.
Following SEBI’s directive, RPIL appointed a qualified CS and ensured compliance with statutory requirements, restoring governance credibility.
Case 4: Tata Consultancy Services Ltd. v. State of Andhra Pradesh (2004): Addressed the role of a CS in structuring legal contracts.
Facts of the Case
- Sudhir Kumar Jain, a practicing Company Secretary (CS), was appointed as the Compliance Officer for a listed company.
- The company was found guilty of non-compliance with statutory filings, misrepresentation of financial statements, and failure to disclose material information to stakeholders.
- The Registrar of Companies (ROC) initiated legal proceedings, holding the CS accountable for failing to ensure compliance with regulatory requirements.
- Jain argued that the non-compliance was due to the negligence of the management and board of directors, not his personal fault.
- Whether a Company Secretary, as a compliance officer, can be held personally liable for corporate governance failures.
- The extent of a CS’s responsibility in ensuring statutory compliance under the Companies Act, 2013.
- Section 205 of the Companies Act, 2013: Defines the role of a CS, including ensuring compliance and reporting non-compliance to the board.
- SEBI (LODR) Regulations, 2015: Mandates timely disclosures and compliance for listed entities.
- Section 447 of the Companies Act, 2013: Covers penalties for fraud and
Conclusion
- The court ruled that a CS has an essential role in ensuring legal compliance but is not solely responsible for management-level fraud.
- It emphasized that if a CS identifies non-compliance, they must document and report it to the board and regulators to avoid personal liability.
- This case reinforced the significance of the CS as a watchdog in corporate governance and highlighted their role in ensuring transparency and legal adherence in an organization
Case 5: National Stock Exchange (NSE) Co-Location Scam (2021) – Role of CS in Compliance Failures
Facts of the Case
- The National Stock Exchange (NSE) was involved in a major co-location trading scam where certain brokers received preferential access to trading data, violating fair market
- The Securities and Exchange Board of India (SEBI) investigated the scam and found lapses in regulatory compliance and corporate governance.
- The NSE’s Compliance Officer and Company Secretary (CS) failed to report the irregularities, despite being responsible for ensuring adherence to SEBI regulations.
- SEBI imposed penalties on NSE officials, including the CS, for negligence in their compliance duties.
- Whether the Company Secretary, as a compliance officer, can be held accountable for governance failures and regulatory violations.
- The duty of a CS in identifying and preventing unethical practices within an
- SEBI Act, 1992: SEBI has the authority to regulate and penalize listed companies for governance failures.
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Mandates fair trading practices and transparency.
- Companies Act, 2013 (Section 205): Imposes the responsibility on a CS to ensure legal compliance and corporate governance.
- SEBI found that the CS had a duty to report governance failures and regulatory breaches but failed to act in time.
- The case highlighted the critical role of a CS in ensuring corporate integrity and preventing financial misconduct.
- It reinforced the accountability of a CS in ensuring ethical corporate governance and the severe consequences of negligence.
Recent Amendments Affecting Company Secretaries
- Companies (Amendment) Act, 2020: Streamlined compliance processes and introduced new governance norms.
- Introduction of Secretarial Audit: As per Section 204, listed companies and certain large firms must undergo a secretarial audit conducted by a practicing CS.
Global Comparison: The Role of CS in Other Jurisdictions
- United Kingdom: The CS role is optional in private companies but mandatory in public limited companies under the Companies Act 2006.
- United States: Functions of a CS are often performed by General Counsel, and compliance is heavily regulated by the Securities and Exchange Commission (SEC).
- Singapore: A CS is mandatory for all companies, and their role is defined under the Companies Act of Singapore.
Challenges Faced by Company Secretaries
- Regulatory Complexity: Managing multiple compliance requirements across different legal frameworks.
- Corporate Fraud Prevention: Ensuring ethical practices and preventing financial
- Evolving Legal Landscape: Adapting to new amendments and governance
Conclusion
The role of a Company Secretary is indispensable in modern corporate governance. With increasing regulatory scrutiny, the CS must ensure legal adherence while acting as a trusted advisor to the board. As corporate governance norms continue to evolve, Company Secretaries must remain updated with legal developments to safeguard corporate integrity and transparency.
References
- The Companies Act, 2013
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
- Company Secretaries Act, 1980
- Ram Kumar Goyal SEBI (2013) 7 SCC 211
- Shailesh Harilal Shah Matushree Textiles Ltd. (2010) 159
Author Bio
Shweta Joshi is a dedicated Company Secretary professional in progress, having successfully cleared two groups of her CS Professional exams, with only one module remaining. With hands-on work experience in corporate governance and compliance, she has developed a strong foundation in managing regulatory frameworks. In addition to her CS journey, she is currently pursuing an LLB, which equips her with a unique blend of corporate and legal expertise. This dual focus enables her to add value in advisory and compliance roles.
