In any given week, I interact with more than five to six company secretaries of different companies. In the last few months, I observed that there are many young professionals in their 20’s who are working as the Company Secretary in medium to large companies and have to deal with experienced and senior promoters/ managers.
In a few instances, when we discussed hypothetical issues of blatant violation of mandates, the reaction of these young company secretaries was quite revealing on what they considered themselves to be responsible for. On further discussions, it emerged that these young company secretaries clearly know a violation when they see it but felt that they had discharged their responsibility by pointing out the compliance requirements to their boss.
Typical areas of non-compliance that emerged in these discussions were holding ‘paper’ board meetings/ sub-committee meetings, not documenting the reasons for non-compliance- especially for CSR spends, not conducting board evaluation, not having a meeting of independent directors, among others.
This brings us to the question, who is the KMP accountable to? Can they be absolved of their responsibility by keeping their ‘bosses’ informed of what is required and leave it to their boss’s discretion to ensure compliance?
Section 2(51) of the Companies Act, 2013 lists Company Secretary as a Key Managerial Person. Further, Regulation 2(o) of LODR, 2015 also refers to the same section for defining KMP. Section 2(59) of the Act further defines an ‘officer’ as any person in accordance with whose directions or instructions the Board of Directors or any one or more directors is or are accustomed to act and includes Company Secretaries as officers. Further, section 2(60) that defines an Officer in Default for fixing responsibility lists KMP next only to the whole-time director.
Given the fact that a Company Secretary is a KMP who qualify for their appointment due to their professional qualification that attests their expertise in corporate law and is expected to advise directors and the board of directors on compliance requirements, they have no boss. They are their own boss and fully responsible for the state of compliance in their company, including any penalty for non-compliance. By pointing out the compliance requirement to their administrative boss, they are not absolved of their responsibilities and the penal provisions would not be diluted as they had pointed it out or put it in writing.
Given the stringent penal clauses in the Companies Act, 2013 and the fact that KMP is personally liable for compliance with the provisions of the Act, they cannot get any protection by giving their recommendation. Documenting the compliance requirement in clear terms to the wholetime directors / promoters is the first step in fulfilling their responsibility as compliance officer. If the non-compliance persists, the next step is to table the non-compliance for discussion in the board meeting with a request to take it on records. While both these steps do not absolve the company secretary, it may create an environment that is more conducive for compliance.