Legal Framework Governing Company Secretaries – Company Law Important Questions

Legal Framework Governing Company Secretaries – Company Law Important Questions

Question 1.
State the statutory duties of Company Secretary under the Companies Act, 2013. (June 2014) (4 Marks)
Answer
Duties of Company Secretary [Rule 10 of the Companies (Appointment and Remuneration of Managerial Personnel), Rules, 2014:
The duties of Company Secretary shall also discharge, the following duties, namely:

  1. To provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities, and powers;
  2. To facilitate the convening of meetings and attend Board, committee, and general meetings and maintain the minutes of these meetings;
  3. To obtain approvals from the Board, general meeting, the government, and such other authorities as required under the provisions of the Act;
  4. To represent before various regulators, and other authorities under the Act in connection with the discharge of various duties under the Act;
  5. To assist the Board in the conduct of the affairs of the company;
  6. To assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices; and
  7. To discharge such other duties as have been specified under the Act or rules; and such other duties as may be assigned by the Board from time to time.

Question 2.
Rakesh, practicing Company Secretary, has accepted the position of Secretarial Auditor previously held by another Company Secretary in |fcac* tice by communicating through SMS. He also used the designation ‘Company Law Consultant’ in his visiting cards. Examine with reference to the relevant provisions of the Company Secretaries Act, 1980 and/or Companies Act, 2013. Whether these are in order. (December 2018) (5 marks)
Answer:
1. As per clause (8) of Part, I of the First Schedule to the Company Secretaries Act, 1980, a company secretary in practice shall be deemed to be guilty of professional misconduct, if he accepts a position as a company secretary in practice previously held by another company secretary in practice without first communicating with him in writing.

2. As per clause (7) of Part, I of the First Schedule to the Company Secretaries Act, 1980, a company secretary in practice shall be deemed to be guilty of professional misconduct, if he advertises his professional attainments or services, or uses any designation or expressions other than company secretary on professional documents, visiting cards, letterheads or signboards unless it is a degree of a university established by law in India or recognized by the Central Government or a title indicating membership of the ICSI or of any other institution that has been recognized by the Central Government or may be recognized by the Council.

Under the clause, use of any designation or expression other than company secretary for a company secretary in practice, on professional documents, visiting cards; etc amounts to misconduct unless it is a degree of a university or a title indicating membership of any other professional body recognized by Central Government or the Council.

3. In the given case; Rakesh, practicing company secretary has accepted the position of secretarial Auditor previously held by another company secretary in practice by communicating through SMS is tenable subject to condition. Rakesh is able to establish that SMS is delivered to the recipient before he takes up the assignment. Further, the use of the designation ‘Company law consultant’ in his visiting cards attracts misconduct under clause (7) of Part I of the First Schedule to the Company Secretaries Act, 1980.

Question 3.
Shalini, practicing Company Secretary, has disclosed information acquired in the course of her professional engagement to a person other than the client, without the consent of such client. Can she do so? Can she retain the digital signature of her client for uploading e-forms on the MCA portal? (December 2018) (5 marks)
Answer:
1. As per clause (i) of the PART, I of the Second Schedule to the Company Secretaries Act, 1980, which deals with professional misconduct in relation to company secretaries in practice company secretary in practice shall be deemed to be guilty of professional misconduct, if he discloses the information required in the course of his professional engagement to any person other than his client, so engaging him, without the consent
of his Client, or otherwise than as required by any law for the time being in force.

2. In the given case, Shalini, practicing Company Secretary, has disclosed information acquired in the course of her professional engagement to a person other than the client, without the consent of such client

Question 4.
‘S’ is a member of the Institute of a Company Secretaries of India. He has defaulted in payment of annual subscription and his name is removed from the Register of Members by ICSI on 31st December 2018.
(i) Can he be appointed as “Company Secretary” by ‘M’ Ltd. with a paid-up share capital of INR 10 crore on 1st January 2019?
(ii) If M Ltd. has paid-up share capital of INR 2 crore and it has appointed ‘S’ as a company secretary on a part-time basis, is it valid? (June 2019) (4 marks)
Answer:
1. Under section 2(24) of the Companies Act, 2013, Company Secretary or Secretary means a company secretary as defined in section 2(1 )(c) of the Company Secretaries Act, 1980, who is appointed by a company to perform the functions of a Company Secretary under the Act.

2. As per section 2(l)(c) of the Company Secretaries Act, 1980, Company Secretary means a person who is a member of the ICSI.

3. As per section 203 read with rules 8 and 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the appointment of Company Secretary is mandatory’ in the following types of companies:

  • Every Listed Company
  • Every other Public Company paid-up capital of which is INR 5 crore or more.

4. In light of the above-mentioned provisions:

  1. Mr. S has defaulted in payment of his annual subscription and his name is removed from the Register of Members. Hence, he cannot be appointed as Company Secretary by M Ltd.
  2. If the paid-up capital of M Ltd. is INR 2 crore appointment of whole-time Company Secretary is not mandatory for it and hence it can appoint Mr. S as part-time Company Secretary.

Question 5.
(a) Ragini, a practicing company secretary expressed her opinion on a report given to a business firm called “Quick March Consultants”. Ragini has an interest in the same to be the extent of 12% of shares in the firm. Is she guilty of professional misconduct?
Answer:
As per Clause (4) of Part, I of the Second Schedule to the Company Secretaries Act, 1980, Company Secretary in Practice shall be deemed to be guilty of professional misconduct if he expresses his opinion on any report or statement given to any business enterprise in which he, his firm or a partner in his firm has a substantial interest.

This clause ensures that a professional has to be independent while expressing any opinion. He should not have any substantial interest in the business enterprise to which the report or statement pertains. That would create a conflict with his duty.

Expressing opinion or giving any report with appropriate disclosures about his interest in the report was permitted earlier, however, under the new clause, there is a total ban on expressing an opinion or giving any report about any business enterprise in which he, his firm, or a partner in his firm has a substantial interest. ‘Substantial interest’ used in this clause is not limited to financial interest only.

In this connection, it may be stated that the Council has, pursuant to Regulation 168 of the Regulations passed a resolution in which ‘substantial interest’ has been defined to mean interest to the extent of 25%.

In the given case, Ragini, a practicing company secretary expressed her opinion on a report given to a business firm called “Quick March Consultants”. Ragini has an interest in the same to be the extent of 12% of shares in the firm.
Thus, she is not liable for professional misconduct.

(b) How would you substantiate the view that the members of the Institute of Company Secretaries of India (ICSI) are subject to disciplinary mechanism? (June 2019) (5 marks each)
Answer:
The member of the Institute is subject to the Disciplinary mechanism provided for under Chapter V of the Company Secretaries Act, 1980 (‘the Act’).

Section 21 of the Act provides for the establishment of a Disciplinary Directorate headed by an officer of the Institute designated as Director (Discipline) and such other employees for making investigations in respect of any information or complaint received by it.

On receipt of any information or complaint along with the prescribed fee, the Director (Discipline) shall arrive at a prima facie opinion on the occurrence of the alleged misconduct. The Disciplinary Directorate shall follow such procedure as may be specified to make investigations under the Act.

Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct mentioned in the First Schedule, the matter shall be placed before the Board of Discipline.

Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct mentioned in the Second Schedule or in both the Schedules, the matter shall be placed the Disciplinary Committee.

Question 6.
Distinguish Between: Associate and Fellow Members of ICSI.
Answer:
The members of the Institute shall be divided into two classes designated respectively as Associates and Fellows.
Associate Members of ICSI:
Any person whose name is entered in the Register of members maintained by Institute of Company Secretaries of India shall be deemed to have become an Associate and as long as his name remains so entered, shall be entitled to use the letters “A.C.S.” after his name to indicate that he is an Associate.

Fellow Members of ICSI:
A person, being an Associate who has been in continuous practice in India as a Company Secretary for at least five years and a person who has been an Associate for a continuous period of not less than five years and who possesses such qualifications or practical experience as the Council may prescribe with a view to ensuring that he has experience equivalent to the experience normally acquired as a result of continuous practice for a period of five years as a Company Secretary shall, on payment of fees, be entered in the Register as a Fellow.

Question 7.
Mr. Mahesh, a company secretary practice, wrote two letters to M/s XY a firm of Company Secretaries requesting them to allot him some professional work. As he did not have a significant practice or clients he also wrote a letter to M/s ABC, a firm of Company Secretaries for securing professional work. Mr. Clever, another CS, informed ICSI regarding Mr. Mahesh’s approach to secure the professional work. Is Mr. Mahesh wrong in soliciting professional work?
Answer:
As per Clause (6) of Part I of the First Schedule; a company secretary in practice shall be deemed to be guilty of professional misconduct, if he solicits clients or professional work, either directly or indirectly, by circular, advertisement, personal communication, or interview or by any other means.

However, nothing herein contained shall be construed as preventing or prohibiting:

  1. Any Company Secretary from applying for requesting for inviting or securing professional work from another company secretary in practice; or
  2. A member from responding to tenders or inquiries issued by various users of professional services or organizations from time to time and securing professional work as a consequence.

In the given case, Mr. Mahesh wrote letters to only two other Company Secretaries, M/s XY and M/s ABC requesting them to allot some professional work to him, which is not prohibited. Mr. Mahesh is not wrong in soliciting professional work. Hence, there is no professional misconduct in terms of Clause (6) of Part I of First Schedule to the Company Secretaries Act, 1980.

Question 8.
Mr. Ayush passed his CS final examination of 1CSI on 18th July 2017 and started his practice on 15th August 2017. On 16th August 2019, one female candidate approached him for an article ship. In addition to the monthly stipend, Mr. Ayush also offered her 1% profits of the CS Firm. She agreed to take both 1% profit of the CS Firm and stipend as per the rate prescribed by the ICSI. The Institute of Company Secretaries of India sent a letter to Mr. X objecting to the payment of 1% profits. Mr. X replies to the ICSI stating that he is paying 1% profits of his firm over and above the stipend to help the articled clerk as the financial position of the articled clerk is very weak. Is Mr. Ayush liable for professional misconduct?
Answer:
1. As per Clause (2) of Part I of the First Schedule, a company secretary in practice shall be deemed to be guilty of professional misconduct, if he pays or allows or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the fees or profits of his professional business, to any person other than a member of the Institute or a partner or a retired partner or the legal representative of a deceased partner, or a member of any other professional body or with such other persons having such qualifications as may be prescribed for the purpose of rendering such professional services from time to time in or outside India.

2. In view of the above, the objections of the ICSI, as given in the case, are correct and reply of Mr. Ayush, stating that he is paying 196 of profits of his firm over and above the stipend to help the articled clerk as the position of the articled clerk is weak is not tenable.

3. Hence, Mr. Ayush is guilty of professional misconduct in terms of Clause (2) of Part I of First Schedule to the Company Secretaries Act, 1980.

CS Executive Company Law Questions and Answers

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