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Revision of Secretarial Standards What are Secretarial Standards? Secretarial Standards means the “Secretarial Standards” as issued by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government. Where the Law is not clear or needs explicit spirit of the law, Secretarial Standards, provide clarity on them. Secretarial Standards only provide clarity on the respective subjects but it doesn’t mean that the Secretarial Standards are alternative to the original Laws. Introduction Companies have to follow various legal requirements as applicable to them, including The Companies Act 2013. THE INSTITUTE OF COMPANY SECRETARIES OF INDIA has constituted the Secretarial Standards Board (S.S.B.) for formulating the Secretarial Standards. Earlier in the companies Act 1956 the Secretarial Standards were “re commendatory” in nature but after notification of the Companies Act 2013 Secretarial Standards are “mandatory” in nature. The S.S.B. with its council members determined the subjects / topics in which Secretarial Standards are to be developed. Recognition The standards gained final recognition with the introduction of Companies Act, 2013 (Section 118(10)). And since then they have become of the “mandatory” nature. As per Sub Section (1) of Section 204 of Companies Act 2013 every listed company and other class of companies as may be prescribed shall “annex the secretarial audit report with its Board reports made in terms of sub section (3) of Section 134 of Companies Act 2013”. And such secretarial audit report as to be issued by company secretaries in practice under Section 204 of Companies act 2013 he / she has to ensure that company has complied with the applicable secretarial standards. In Short - Secretarial Standards are issued by ICSI to facilitate the corporate world and respective professionals, by providing clear interpretation and proper

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Page 1: Revision of Secretarial Standards - ICSI - Home...the guidance notes issued by ICSI promptly brought t notice that these standards do not over ride the original law and will not prevail

Revision of Secretarial Standards What are Secretarial Standards?

Secretarial Standards means the “Secretarial Standards” as issued by the Institute

of Company Secretaries of India constituted under section 3 of the Company

Secretaries Act, 1980 and approved by the Central Government. Where the Law is

not clear or needs explicit spirit of the law, Secretarial Standards, provide clarity

on them. Secretarial Standards only provide clarity on the respective subjects but

it doesn’t mean that the Secretarial Standards are alternative to the original Laws.

Introduction

Companies have to follow various legal requirements as applicable to them,

including The Companies Act 2013. THE INSTITUTE OF COMPANY SECRETARIES

OF INDIA has constituted the Secretarial Standards Board (S.S.B.) for formulating

the Secretarial Standards. Earlier in the companies Act 1956 the Secretarial

Standards were “re commendatory” in nature but after notification of the

Companies Act 2013 Secretarial Standards are “mandatory” in nature. The S.S.B.

with its council members determined the subjects / topics in which Secretarial

Standards are to be developed.

Recognition

The standards gained final recognition with the introduction of Companies Act, 2013

(Section 118(10)). And since then they have become of the “mandatory” nature. As

per Sub Section (1) of Section 204 of Companies Act 2013 every listed company and

other class of companies as may be prescribed shall “annex the secretarial audit report

with its Board reports made in terms of sub section (3) of Section 134 of Companies

Act 2013”. And such secretarial audit report as to be issued by company secretaries in

practice under Section 204 of Companies act 2013 he / she has to ensure that company

has complied with the applicable secretarial standards.

In Short - Secretarial Standards are issued by ICSI to facilitate the corporate world

and respective professionals, by providing clear interpretation and proper

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explanation where Law is ambiguous. According to the President of the NCLT, the

disputed regarding procedural matters have shown a drastic fall after the

introduction of the standards.

Need for Revision

Long back when the Accounting Standards were introduced for the sake for harmony

and uniformity in the procedure of preparation of financial statements and other

accounting treatments, the practicing professionals as well as the businessman found it

some complications which needed to be tackled. But later after true revisions made it

smooth for everyone to adopt them and apply them.

In the same manner the Secretarial Standards were introduced in order to bring

uniformity and regularity in the common and repeated practices taking place in daily

routines of the company. They were first issued in 2015 when CS Atul Mehta was the

President of ICSI. But the members, practicing professionals, stakeholders,

businessman found issues in adoption of these standards. The technical issues, non co-

relate able requirements made it a need of time to make a proper revision in the

standards with the help of the informed issues, suggestions, etc. This was the reason ,

the guidance notes issued by ICSI promptly brought t notice that these standards do

not over ride the original law and will not prevail in case of any controversy in the Act

and the standards.

Thus the need for revision was considered by the Institute of Company Secretaries of

India.

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10 Major changes that the revision has brought :

Secretarial Standard 1 : Meetings of the board

I. Scope :

1. Section 8 companies need to comply with the applicable provisions of the Act relating to Board Meetings.

As a result they need not follow the SS 1.

II. Definition :

1. Committee – means a committee of Directors mandatorily required to be constituted by the Board under the Act.

This new definition requires the committees to follow the SS 1 only when they are

constituted by the Board of directors. As a result, other committees not constituted

by the Board are kept out from the view of the standard and hence provides

relaxation.

2. Secretarial Auditor – “Secretarial Auditor” means a Company Secretary in Practice or a firm of Company Secretary(ies) in Practice appointed in pursuance of the Act to conduct the secretarial audit of the company.

The new definition has covered the Firms which is a great clarification for the sake of

Secretarial Audit !

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III. Convening a meeting :

1. Para 1.2.2 of SS 1 provides that a Meeting may be convened at any time and place, on any day.

This amendment can be stated as in conformity with the provisions of the Act. It can

be learned that a meeting can be now held on a national holiday too. However, an

adjourned meeting still can also be held on a national holiday now as the restricting

para is not present in the new SS 1.

2. Para 2.1 of the SS 1 provides that The company shall hold at least four Meetings

of its Board in each Calendar Year with a maximum interval of one hundred and

twenty days between any two consecutive Meetings. The company shall hold first Meeting of its Board within thirty days of the date of

incorporation. It shall be sufficient if subsequent Meetings are held with a maximum

interval of one hundred and twenty days between any two consecutive Meetings.

This amendment too can be stated as in conformity with the provisions of the Act.

It can be learnt that the new revised SS 1 has removed the requirement of holding one

meeting in every calendar quarter. So now there can be possibility of not having

meeting in a quarter.

As it clarified earlier , it still states that if the company is incorporated in between

the year then a meeting to be held within 30 days of incorporation and thereafter,

next meetings within interval of 120 days.

IV. Notice :

1. Para 1.3 of SS 1 provides Notice of the Meeting shall clearly mention a venue,

whether registered office or otherwise, to be the venue of the Meeting and all the

recordings of the proceedings of the Meeting, if conducted through Electronic

Mode, shall be deemed to be made at such place.

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Mere change in the language is seen with respect to the requirement of the Act.

2. Para 1.3.1 of SS 1 provides Notice in writing of every Meeting shall be given to

every Director by hand or by speed post or by registered post or by facsimile or

by e-mail or by any other electronic means.

This amendment is in accordance with Section 173 of the Act. It makes an

interpretation that Courier mode is not allowed. However, additional two days to be

added while sending through post.

3. In the 1st sub Para of the Para (1.3.1) of SS 1 it is stated that Where a Director

specifies a particular means of delivery of Notice, the Notice shall be given to him

by such means. However, in case of a Meeting conducted at a shorter Notice,

the company may choose an expedient mode of sending Notice.

This change has provided an express relaxation in case of shorter notice. The company

may decide an expedient mode of sending the notice. However, it cannot be sent

through courier as this mode is not allowed as previously mentioned.

V. Agenda / Agenda Notes :

1. The 1st Sub Para under Para 1.3.7 of the SS 1 provides that Agenda and

Notes on Agenda shall be sent to all Directors by hand or by speed post or by

registered post or by e-mail or by any other electronic means.

This change is similar in line with the removal of courier mode as provided in Notice.

2. Sub Para 3 of Para 1.3.7 of SS 1 states Where a Director specifies a particular means of delivery of Agenda, Agenda Notes then such Agenda, Agenda Notes shall be given to him by such means. However, in case of a Meeting conducted at a shorter Notice, the company may choose an expedient mode of sending Agenda, Agenda Notes.

This revision makes a relaxation in case of shorter notice. The company may decide an

expedient mode of sending Agenda, Agenda Notes.

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VI. Preservation of proof of sending Notice / Agenda / Agenda Notes / Minutes and their delivery :

1. Sub Para 3 of Para 1.3.1 of SS 1 provides Proof of sending Notice / Agenda / Agenda Notes / Minutes and its delivery shall be maintained by the company for such period as decided by the Board, which shall not be less than 3years from the date of the Meeting.

Earlier, SS1 was not clear on this issue. Now with this clarity, the Board can fix the

period of preservation for a period not lesser than 3 years.

VII. Quorum :

1. Para 3.2 of the SS 1 provides that Director shall not be reckoned for Quorum in respect of an item in which he is interested. However, in case of a private company, a Director shall be entitled to participate in respect of such item after disclosure of his interest. Leave of absence shall be granted to a Director only when a request for such leave has been received by the Company Secretary or by the Chairman.

The Old SS 1 required that a Director shall not be reckoned for Quorum in respect of

an item in which he is interested and he shall not be present, whether physically or

through Electronic Mode, during discussions and voting on such item.

VIII. Interested Director for the purpose of Quorum:

1. For this purpose, a Director shall be treated as interested in a contract or arrangement entered into or proposed to be entered into by the company: (New Insertion) If the item of business is related party transaction, then he shall not be present at the Meeting, whether physically or through Electronic Mode, during discussions and voting of such item.

Outcome: If Company entered into contract or arrangement with Director or his

relative shall not treat as interested Directors. In case of related party transaction

he shall not participate.

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IX. Attendance Register:

1. According to Para 4.1.3 of SS 1 The attendance register shall be deemed to have been signed by the Directors participating through Electronic Mode, if their attendance is recorded in attendance registered and authenticated by the Company Secretary or where there is no Company Secretary, by the Chairman or by any other Director present at the Meeting, if so authorized by Chairman and the fact of such participation is also recorded in the Minutes.

The words “by the Chairman or the Company Secretary in the Attendance Register and

the Minutes of the Meeting” were substituted by the above text given modification to

the language of the previous SS 1.

2. Authentication of Register: Entries in the attendance register shall be authenticated by the Company Secretary or where there is no Company Secretary by the Chairman by appending his signature to each page.

This above text is not present in the revised SS 1 (omitted) . Hence , this requirement

need not be complied now. 3. Custody: Para 4.1.7 of SS 1 says that Where there is no Company Secretary,

the attendance register shall be in the custody of any other person authenticated by the Board of this purpose.

The old SS required that in case where there is no Company Secretary, a Director as

authorized by the board shall keep the custody of the registers. But now the words

“director” has been substituted by “any other person”.

X. Inspection of Attendance Register:

1. According to Para 7.7.1 of SS 1 The attendance register is open for inspection by the Directors. Even after a person cease to be a Director, he shall be entitled to inspect the attendance register of the Meeting held during the period of his Directorship.

In the old SS 1, the inspection was possible only by directors but now the new SS 1

allows a person to inspect even though he / she is not a director any more .

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Conclusion:

After elaborate deliberations, the Institute Of Company Secretaries (ICSI) has amend the Secretarial Standard – 1. Amendments are made for better compliance of the law.

Compliance with the strict rules — that would help strengthen corporate governance practices and help curb corporate misdoings — would be ensured by company secretaries.

Article by :

Ruturaj Arvind Jadhav ,

Executive Progamme ,

Reg. no. : 440616398/08/2017

Email ID : [email protected]

Contact no. : +919923552675

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A STEP TOWARDS REVEALING THE REAL OWNERSHIP

For greater financial transparency and to target the benami entities the government has decided to make it mandatory for unlisted corporate to dematerialize the shares starting it with the Public Companies as dematerializing shares of all the Companies won‟t be an easy step

In this drive the Ministry of Corporate Affairs came out with a notification dated: 13th

June 2018 in which it recommended for the new rules in this area called as the

Companies (Significant Beneficial Owners) Rules, 2018.

The MCA in these rules provides for significant beneficial ownership aimed at

tracking the real beneficiaries of shares as often benami holdings are found in shell

companies.

The definition of “significant Beneficial Ownership” says:

“Significant Beneficial Ownership” means an individual referred in sub-section (1) of

section 90 (holding ultimate beneficial interest of not less than ten per cent) read

with the sub section(10) of section 89 , but whose name is not entered in the

registrar of the a company as the holder of such shares ,and the term „ significant

beneficial ownership‟ shall be construed accordingly;

The law provides for mandatory disclosure within a stipulated period and once the

rules are notified there will be a rush of filings as shares in most companies are not

widely held. A failure to disclose beneficial ownership can result in a fine of up to Rs

50,000 with a daily penalty of Rs 1,000, if the failure to comply with the rules

continues. The Companies Act also allows the Centre to investigate cases of

beneficial ownership.

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Disclosure of beneficial ownership in a company

Simply understood, beneficial owners are those persons who ultimately gain from

the ownership of securities, even if they are legally held in someone else‟s name.

Every significant beneficial owner has to file a declaration in Form no. BEN-1 to the

company in which he holds the significant ownership on the date of commencement

of these rules within 90 days from such commencement and within 30 days in case

of any change in his significant beneficial ownership.

Every individual who after the commencement of these rules acquires significant

beneficial ownership then he needs to file Form. No. BEN-1 to the company within

30 days from the date of such acquisition.

And within 30 days from the date of receiving the declaration by the company, it

needs to file a return with the registrar in Form no. BEN-2 along with the fees as

prescribed in Companies( Registration offices and fees) Rules, 2014.

All companies in India will need to maintain a “register of beneficial owners” in Form

no. BEN-3.

Dematerializing shares a “tracking test” for tax authorities

The demat shares are easily tracked by tax authorities and so they can now track

shareholders as well as the real beneficiaries of shares.

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An investor seeking to dematerialize shares needs to open a demat account with the

Depository Participant (DP). A DP is the market intermediary through which

investors can avail depository services, such as banks, brokers, custodians, and

financial institutions.

The legal loop has given a space for many investors in unlisted public companies to

retain their shares in physical form, evading tax and financial scrutiny.

Further, any move by the government mandating the conversion of shares will be an

ambitious task, impacting over 55 million shareholders.

Shweta Dhadwal

Reg no: 240158740/09/2013

Professional passed student

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WHISTLE BLOWING PROVISIONS IN THE CORPORATE SECTOR

The term “whistle-blowing”

originates from the practice of

British policemen who blew their

whistles whenever they observed

commission of a crime. Whistle

blowing means calling the attention

of the top management to some

wrongdoing occurring within an

organization. A whistleblower may

be an employee, former employee

or member of an organisation, a

government agency, who have

willingness to take corrective action

on the misconduct.

“Whistle Blower” – The Directors/employees of the Company making the

disclosure under this policy. The Whistle Blower’s role is that of a reporting party.

Whistleblowers are not investigators or finders of the facts; neither can they

determine the appropriate corrective or remedial action that may be warranted.

SARBANES-OXLEY ACT, 2002(SOX)

An Act enacted by U.S. congress in 2002 to protect investors by improving the

accuracy and reliability of corporate disclosures made pursuant to the securities

laws, and for other purposes. It is a set of standards that all U.S public companies

and public accounting firms must comply and adhere with good quality reporting.

APPLICABILITY OF SARBANES-OXLEY ACT, 2002(SOX)

Whether SOX is applicable in India? Yes, all companies, including Indian, which are

listed on US stock exchanges, are required to comply with the requirements of the

Act.

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PROVISIONS OF SOX FOR WHISTLE-BLOWERS:

i. Make it illegal to "discharge, demote, suspend, threaten, harass or in any manner

discriminate against" whistleblowers

ii. Establish criminal penalties of up to 10 years for executives who retaliate against

whistleblowers

iii. Require board audit committees to establish procedures for hearing

whistleblower complaints

iv. Allow the secretary of labour to order a company to rehire a terminated employee

with no court hearing.

v. Give a whistleblower the right to a jury trial, bypassing months or years of

administrative hearings.

The Companies Act, 2013 has mandated certain companies to establish

Vigil/Whistle-blowing mechanism to report any unethical behavior or other concerns

to the management.

Section 177(9) of the Companies Act, 2013 and Rule 7 of the Companies (Meetings

of Board and its Powers) Rules, 2014 requires every listed company, companies

which accept deposits from the public and companies which have borrowed money

from banks and public financial institutions in excess of fifty crore rupees to establish

a vigil mechanism for Directors and Employees to report their genuine concerns

about on unethical behavior / misconduct / actual or suspended frauds / violation of

code conduct.

In view of this, the Company has establish a secured system to enable our Director

& Employees to report their genuine concerns, generally impacting / affecting

business of our Company, including but not limited to improper or unethical behavior

/ misconduct / actual or suspended frauds / violation of code of conduct.

Any Director or employee can directly email his/her concern or complaint to email id

as mentioned in the Whistle Blower & Vigil Mechanism policy. The Company will

take appropriate action for its resolution. Anonymous communications will not

normally be entertained.

All the Directors and Employees are assured that this mechanism provides adequate

safeguard against victimization of the concerned Director / Employee. In case of

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repeated frivolous complaints being filed by a Director or an employee suitable

action will be taken against the concerned Director or Employee

APPLICABILITY WHISTLE BLOWER POLICY

Listed Companies and

Companies which accept deposit from public or have borrowed money from

banks and PFI’s in excess of Rs. 50 Crore.

OBJECTIVE

The Vigil (Whistle Blower) Mechanism is to ensure highest ethical, moral and

business standards in the course of functioning and to build a lasting and

strong culture of Corporate Governance within the Company. In terms of

Policy, an internal mechanism is established for Directors and employees to

report to the management, concerns about unethical behavior, actual or

suspected fraud or violation of Company’s code of conduct. The policy is

intended to encourage all Directors and employees of the Company to report

suspected or actual occurrence of illegal, unethical or inappropriate actions,

behaviors or practices by Directors/employees without fear of retribution. The

Directors/ employees can voice their concerns on irregularities, malpractices

and other misdemeanors through this Policy.

It also provides necessary safeguards and protection to the

Directors/employees who disclose the instances of unethical practices/

behavior observed in the Company. The mechanism also provides for direct

access to the Chairman of the Audit Committee in exceptional cases.

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COVERAGE

All Directors/ employees of the Company are covered under this policy. The policy

covers malpractices and events which have taken place/ suspected to have taken

place in the Company involving:

Corruption

Frauds

Misuse/ abuse of official position,

Manipulation of data/ documents,

Any other act which affects the interest of the Company adversely and has

the potential to cause financial or reputational loss to the Company.

Conclusion

Some of the companies already have a Whistle-Blower policy as a good corporate

governance practice and now most of the companies start to frame this policy to

comply with section 177 of the Companies Act 2013 & Corresponding Rules.

AKHIL GULATI

Registration No. 240507957/11/2016

Executive Doing Student