Ease of Doing Business- Secretarial Standard
Ease of Doing Business- Secretarial Standard
As we all know that the Institute of Chartered Accountants of India (ICAI) has listed out numerous accounting principles and rules which are to be followed by the auditor fraternity while auditing the organizations they are appointed to audit for ICAI has also introduced the Accounting Standards, most popularly called as “AS” which are supplementary to the accounting rules and norms. Likewise, The Institute Of Company Secretaries Of India( ICSI) has also long back introduced some set of rules and norms, which are supplementary to the Companies act,1956, called as ‘ Secretarial Standards’ and popularly termed as ‘SS’
We have Companies Act, rules and regulation for conducting of Meetings from last 6 decades, but since beginning we don’t have process for conducting of Meetings. There are many provisions which are not clear to the Corporates and professionals from decades regarding process of holding of Meetings of Board and shareholders.
Secretarial Standard giving a democratic and transparent consultative process paves the way for effective implementation of legal mandate. Secretarial Standards will bring a huge change in the corporate practices which will certainly become benchmark for counterparts to follow.
Presently we are living in era when government attempts to improve the ease of doing business to improve the ranking of our country in the world. Like; Ministry of Corporate Affairs have prescribed the faster way of incorporation of Company in India and ministry have suggested alteration in Companies Act also in prospective of ease of doing business.
These secretarial standards set out the explanations, procedures, interpretations and practical aspects in connection with holding of Meetings. Earlier these were not available with the Corporates and professionals, therefore now SS will help to conduct the meeting with available process and interpretations.
Let’s discuss how the Secretarial Standard will help in ‘ease of doing business’
Harmonization & Standardization:
The ICSI over a period of time while regulating the profession of Company Secretary noticed about the divergent Secretarial Practices and felt the need of integration, harmonization and standardization of divergent Secretarial Practices and constituted the Secretarial Standard Board.
ICSI has been the first professional body in the world to start the concept of setting Secretarial Standards for integration harmonization and standardization of corporate practices.
When standards were not available with us everyone used to follow different practices for the following purposes i.e. preparation of Notice, agenda, notes to agenda, draft Resolution, circulation of minutes, modes of circulation of notice, signing of minutes etc.
Before SS there was no clarity for many questions like: to whom notice is to be sent, how notice is to be sent, what all documents are to be sent along with notice, By whom minutes are to be prepared, what all is to be mentioned in agenda.
But SS provides the clarity of the questions and the way to conduct the meetings by the interpretations of laws and process. SS provides us the clarification on the various points. Some of these are:
v Modes of sending of notice (As per clause 1.3.1),
Notice, Agenda and Notes to Agenda in writing of every Meeting shall be given to EVERY DIRECTOR by following ways:
· By hand or By Speed Post or by Registered Post or
· By Courier or By facsimile or By Email or by any other electronic mode.
v By whom notice is to be issued (As per clause 1.3.2),
· Notice, Agenda and Notes to Agenda shall be issued by the Company Secretary or
· Where there is no Company Secretary, any Director or any other person authorized by the Board for the purpose.
· Proof of sending of Notice and its delivery shall be maintained by the Company
Secretarial Standards are needed to be integrated, harmonized, standardized and for streamlining various practices followed by the Company. Therefore, wherever divergent practices are being followed they will now cease to exist.
Strengthening the Board Processes: SS brings more clarity as board processes are now documented. The information to be placed before the Board are to be duly codified. As the agendas would be circulated well in advance, Board members will come prepared in board meetings, engage in constructive debates, and take the well informed decisions on that basis. This will help in ease of taking business decision. It also helps to provide clarity of agenda and purpose of such business in the meeting.
It will also ensure the observance of uniform practices across the Board, while strengthening the Board processes, protecting the individual directors, preventing oppression & mismanagement.
Reduces ambiguity Secretarial Standards intend to reduce ambiguity in law and ensures the adoption of best practices of the Industry which has been followed over decades conventionally. They do not seek to substitute or supplant any existing laws or the rules and regulations framed there under but, in fact, seek to supplement such laws, rules and regulations
Secretarial Standards would help in achieving the national agenda of ease of doing business, improved governance norms, building of confidence in the minds of investors, improved compliance level ultimately leading to flow of capital in India and achieving the objective of Make in India.
Secretarial Standards plays the role of assisting / supplementing (and not supplanting) the extant company law regulation. Wherever there are issues in practically implementing the provisions, i.e. where there is no appropriate solution in Companies Act & Rules, the SS provides an adequate guidance to the corporates and professionals – for ensuring compliance of the Companies Act, 2013.
Secretarial Standards not only help in the implementation of law by bringing in clarity wherever needed but also advocates good corporate governance practices in certain areas where definite law is not feasible or where divergent practices are being followed.
Increase in Confidence of Investors:
Secretarial Standards will bring enormous confidence in minds of investors particularly fund managers and overseas investors as these investors are more concerned about good corporate governance practices and sound procedures. Consequently, this will lead to more flow of capital into India, new projects, more modernization and expansion.
While talking about the stakeholders’ expectations on the governance issues such as transparency disclosures, timely dissemination of information, uniformity in practices etc., the Secretarial Standards would act as one of the benchmarks in stakeholders’ assessment of companies.
The Secretarial Standards would benefit the industry and the regulators and would help to repose more confidence in the institutional investors for the adoption of robust board processes and systems in companies.
It would definitely result in better corporate accountability and disclosures leading to better value enhancement for stakeholders including shareholders, regulators and international.
The Secretarial Standards are applicable to the Meetings of Board of Directors meetings & General Meetings of all companies incorporated under the company law. Therefore, a company – where husband & wife are directors and shareholders or a listed company with a paid up share capital of Rs. 500 crores – all companies are under obligation to ensure the compliance of Secretarial Standards.
SS have laid down strict rules for compliance of procedures for conducting the board meeting & general meeting and such compliance will assist in strengthening the corporate governance practices and will also help in curbing corporate misdoings.
The Secretarial Standards aim to protect the interest of individual directors including independent directors by enabling them to make proper and adequate disclosures in a transparent manner thereby reducing the areas of dispute and managing the risks associated, especially in the light of the increased accountability of the Independent Directors.
As SS mandates the circulation of draft minutes and signed minutes of the Meeting to all the directors whether they were present in the meeting or not will also increase the transparency of information and decisions.
Synchronization of conducting of the Board Meeting
SS provide the synchronized process for conducting of Board Meeting by providing the steps for the calling and conducting of Board Meeting. Steps are as follow:
1. Notice of Board Meeting along with agenda, notes to agenda and draft resolution will be sent at least 7 days before the date of Board Meeting.
2. Notice shall be issued by the Company Secretary or where there is no Company Secretary, by any Director or any other person authorised by the Board for the purpose.
3. Each item of business requiring approval at the Meeting shall be supported by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal and the nature of concern or interest, if any, of any Director in the proposal, which the Director had earlier disclosed.
4. Quorum shall be present throughout the Meeting.
5. The Chairman of the company shall be the Chairman of the Board. If the company does not have a Chairman, the Directors may elect one of themselves to be the Chairman of the Board.
6. Minutes shall be recorded in books maintained for that purpose.
7. The pages of the Minutes Books shall be consecutively numbered.
8. Minutes of the Board Meeting shall be kept at the Registered Office of the company or at such other place as may be approved by the Board.
9. Minutes shall contain a fair and correct summary of the proceedings of the Meeting.
10. Within fifteen days from the date of the conclusion of the Meeting of the Board or the Committee, the draft Minutes thereof shall be circulated by hand or by speed post or by registered post or by courier or by e-mail or by any other recognised electronic means to all the members of the board or the Committee for their comments.
11. Minutes of the Meeting of the Board shall be signed and dated by the Chairman of the Meeting or by the Chairman of the next Meeting.
Reliable board process: Complying with the SS-1 ensures reliability in the Board processes. As SS helps in strengthening the Board Process of meetings, reduced ambiguity, increase in Corporate Governance and transparency will help to rely on board processes.
Reduction of non-compliances:
The Act also introduced a new provision "functions of Company Secretary" under Section 205 of the Companies Act, 2013 and one of his functions is to ensure the compliance of secretarial standards within the organization. It is the responsibility of the Company Secretary to keep a close watch on the compliance of provisions relating to board and general meetings as provided in the secretarial standards.
Responsibility is also entrusted to the Secretarial Auditor to examine the compliance by the company with the applicable clauses of the Secretarial Standards and to include in his secretarial audit report the status of compliance.
It will help in better monitoring of compliances, thereby achieving the common goal of better corporate governance.
To resolve the issues where the law is subject to multiple interpretations;
At many places in the law interpretations are not clear, thereby having multiple interpretations. i.e. Preparation of agenda, signing of notice, signing of minutes, circulation of minutes, address of directors on which notice is to served, persons who has the right to receive the notice on various other matters. On these matters there were various interpretations and these interpretations were being used under Companies Act, 2013. SS provided the clarity on the issues where there were no clear interpretations available.