SECRETERIAL STANDARDS – AN OVERVIEW
Indian economy is growing at a fast pace. The economic policies of the country are being framed and developed with a view to meet the competitive markets at the international level. With the adoption of liberalisation, privatasitation and globalisation policy the market access is being increased. It is the need of the hour for any developing economy to maintain the status quo and further strive to improve it. In order to increase the share of Indian economy at the international level, it becomes necessary to put efforts from all the sectors. Government alone cannot be made responsible for the same. Even the corporate sector should be made responsible. After liberalisation and globalisation of the economy, gates were opened for private participation in various major sectors. Thus it is necessary to regulate the corporates with utmost due care. At the same time, it is necessary to maintain transparency in the daily practices. Maintenance of transparency in the day to day practices of the companies is necessary to build a strong investor base. This will help any company to enhance the stakeholder’s confidence in the company.
Secretarial Standard – Meaning:
A standard is a published document formulated by consensus and approved by a recognised body. Standards establish specifications and procedures designed to ensure the reliability of services to the stakeholders by establishing consistent protocols that can be universally understood and adopted. Secretarial standards are formulated by the Institute of Chartered Secretaries of India for the first time in the world in the year 2000. These secretarial standards are formulated with a view to improve the corporate governance practices.
The Institute of Company Secretaries of India in its various reports on secretarial standards did not define the term. However we can understand that literally these secretarial standards are means to integrate, harmonise and standardise the various diverse secretarial practices and aid implementation of law in true letter and spirit.
Origin of the Concept:
This concept is completely new and evolved for the first time in India. The concept of secretarial standards was conceived by the Council of the Institute of Company Secretaries somewhere in the year 2000. A major step was taken up by the Institute of Company Secretaries of India by setting up Secretarial Standards Board. The first meeting of the Secretarial Standards Board was held for the first time in July 2000 and again in August 2000. The members of the Secretarial Standards Board in these meetings came to a conclusion that secretarial standards are to be formulated on Board Meetings, Annual General Meetings, and Investments, Director’s Report, loans and guarantees. It was also decided that secretarial standards on minutes, nomination, transfer and transmission of shares, dividend and interest should be brought out. The Secretarial Standards were launched by Hon’ble Justice Shri Vibhu Bakhru, Judge Delhi High Court in the presence of Hon’ble Justice Shri Dilip Raosaheb Deshmukh, Chairman Company Law Board, and MCA representatives at a function organised at New Delhi. The Secretarial Standards have been notified by the ICSI in the Official Gazette and are effective from July 1, 2015. India is the pioneer in having Secretarial Standards as no other country in the world has yet adopted the Secretarial Standards.
Secretarial Standard Board:
The secretarial standards are formulated by the Institute of Company Secretaries of India through a completely transparent, interactive and consultative process. The view of all stake holders is taken into consideration. The views and suggestions of all institutions forming part of the corporate world are taken into consideration. A detailed research is carried out to identify the practices prevalent among corporates both nationally and internationally.
Secretarial Standards are formulated by the Secretarial Standards Board constituted by the Council of ICSI. The SSB comprises of:
- Senior members of profession having expertise.
- The representatives of industries.
- The representatives of Stock exchange.
- The representatives of MCA.
- The representatives of SEBI.
- The representatives of RBI.
- The representatives of professional bodies.
The SSB is headed by a Chairman who is a person of eminence and repute.
Procedure of making Secretarial Standards:
- The SSB in consultation with the Council shall determine the areas in which secretarial standards need to be formulated and priority in regard to selection thereof.
- In preparation of secretarial standards, the SSB may constitute Working Groups to formulate preliminary drafts of proposed Standards.
- The preliminary drafts of Secretarial Standards will be circulated among the members of SSB and suggestions will be called for.
- Meetings will be held by SSB to conduct discussions on preliminary draft of secretarial standards.
- After approval of preliminary draft of secretarial standards by Council, the same will be published in the journal of ICSI and also displayed on the website of ICSI.
- After receiving the comments from various interested parties, modifications will be made to the preliminary draft of secretarial standards.
- The Council will consider the final draft of the secretarial standards and finalise the same in consultation with SSB. The SecreterialStandard on the relevant subject will then be issued under the authority of the Council.
Over the years, SSB has grown in strength and has been given due recognition by various regulators as body of experts. The following standards have been issued by SSB since it was set up.
SS.1: Secretarial Standard on Meetings and Board of Directors
SS.2: Secretarial Standard on General Meetings
SS.3: Secretarial Standard on Dividend
SS.4: Secretarial Standard on Registers and Records
SS.5: Secretarial Standard on Minutes
SS.6: Secretarial Standard on Transmission of Shares and Debentures
SS.7: Secretarial Standard on Resolutions
SS.8: Secretarial Standard on Common Seal
SS.9: Secretarial Standard on Forfeiture of Shares
SS.10: Secretarial Standard on Board’s Report
Legal Framework on Secretarial Standards:
The new Companies Act, 2013 has new provisions which make it mandatory for all the corporates to comply with the secretarial standards. Section 118(10) of Companies Act, 2013 enunciates that “Every company shall observe secretarial standards with respect to general and Board meetings specified by ICSI and approved as such by the Central Government.
Section 205 of Companies Act, 2013 enunciates the functions of company secretary shall include the following:
(I)To report to the Board about compliance with the provisions of this Act.
(ii) To ensure that the company complies with the applicable secretarial standards.
(iii) To discharge such other duties as may be prescribed.
The above provision specifies that once the Secretarial Standards are approved by the Central Government, they would become part of law of the country and hence every company shall ensure that these standards are being complied with.
Impact of Secretarial Standards:
Secretarial Standards are being implemented in India to comply with corporate governance practices. They help to fill the gaps in the existing laws. They provide scope for maintaining transparency in the transactions of the company. They can be used to trace out the frauds which would be done by different authorities of the company. Enormous responsibility is bestowed on the company secretaries (both, in practice and employment). Company Secretary in employment has to ensure the compliance of Secretarial Standards as it is one of the prescribed statutory functions under Sec. 205 of the Companies Act, 2013 (relating to ‘Functions of company secretary’). Company Secretary in practice has to ensure compliance of the Secretarial Standards for its clients. Company Secretary in practice, who has been appointed as Secretarial Auditor, is under an obligation to report in the Secretarial Audit Report about the compliance of Secretarial Standards by the company.
However, the Secretarial Auditor is not under obligation to report such compliance in the Secretarial Audit Report for the year ended March 31, 2015 as Secretarial Standards are effective from July 1, 2015.
The Company Secretaries have to ensure continuous education and develop skills in interpreting and implementing the Companies Act – at the time of consulting and even at the time of conducting secretarial audit. Howe ever it is to be understood that compliance with secretarial standards was regulatory in nature at the time of its initiation but now they have become mandatory compliances. It is noteworthy to observe that the valuation of the companies have boosted up in international market. Till today only a few companies namely, HDFC, Kotak Mahindra, Reliance Industries Ltd, Reliance Metaliks Ltd and Ashol Leyland.
Secretarial Standards which are a repository of knowledge, covers the finer aspects of law and are expected to have a cascading effect on all. It is possible that in the beginning the professionals or corporates may feel the compliance to these secretarial standards to be an additional responsibility and process but in due course of time the significance and advantages of secretarial standards would be experienced, they would not only themselves not only come forward to adopt existing voluntary set up of secretarial standards but also demand from regulators for compliance.
In days to come, secretarial standards would definitely be internationally recognised as indispensable for enhancing the corporate culture and growth of the global economy.