[The following
post is contributed by Shampita Das,
who is an Associate at Vinod Kothari
& Company. She can be contacted at shampita@vinodkothari.com]
post is contributed by Shampita Das,
who is an Associate at Vinod Kothari
& Company. She can be contacted at shampita@vinodkothari.com]
Amendments from the
Ministry of Corporate Affairs (MCA) to the hurriedly introduced Rules (under
the Companies Act, 2013) continue to flow. Now, the MCA has come out with an amendment
to the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 dated 9 June 2014 to introduce Rule 8A pertaining to appointment of whole-time
company Secretary. The text of the Rule is provided below:
Ministry of Corporate Affairs (MCA) to the hurriedly introduced Rules (under
the Companies Act, 2013) continue to flow. Now, the MCA has come out with an amendment
to the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 dated 9 June 2014 to introduce Rule 8A pertaining to appointment of whole-time
company Secretary. The text of the Rule is provided below:
“8A. Appointment of Company Secretaries in
companies not covered under rule 8. – A company other than a company covered
under rule 8 which has a paid up share capital of five crore rupees or more
shall have a whole-time company secretary.”
companies not covered under rule 8. – A company other than a company covered
under rule 8 which has a paid up share capital of five crore rupees or more
shall have a whole-time company secretary.”
Rule 8 to the
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
follows from Section 203 (1) of the Companies Act, 2013 and provides for
appointment of key managerial personnel (‘KMP’) in companies as follows:
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
follows from Section 203 (1) of the Companies Act, 2013 and provides for
appointment of key managerial personnel (‘KMP’) in companies as follows:
“Every listed company and every other public
company having a paid-up share capital of ten crore rupees or more shall have
whole-time key managerial personnel.”
company having a paid-up share capital of ten crore rupees or more shall have
whole-time key managerial personnel.”
Rule 8 specifies
two sets of companies – (1) Listed Companies and (2) Other Public Companies. For
other public companies, the threshold limit for the section to be applicable is
Rs. 10 crore paid up capital.
two sets of companies – (1) Listed Companies and (2) Other Public Companies. For
other public companies, the threshold limit for the section to be applicable is
Rs. 10 crore paid up capital.
Looking at the
language of the newly inserted Rule 8A, one can just lament on the loose drafting
of MCA, which has once again created confusion instead of clarifying the
position. Rule 8A suggests that companies not falling under Rule 8 would be
required to appoint a whole-time company secretary. Now there are two ways interpreting
it:
language of the newly inserted Rule 8A, one can just lament on the loose drafting
of MCA, which has once again created confusion instead of clarifying the
position. Rule 8A suggests that companies not falling under Rule 8 would be
required to appoint a whole-time company secretary. Now there are two ways interpreting
it:
(a) First, this may mean that only private
companies with paid up capital of 5 crores or more are covered under Rule 8A
since the existing Rule 8 talks about two types of companies viz. listed companies and other public
companies.
companies with paid up capital of 5 crores or more are covered under Rule 8A
since the existing Rule 8 talks about two types of companies viz. listed companies and other public
companies.
(b) Another way of reading it is that Rule 8
covers all listed companies and other public companies with paid up capital of 10 crores or more. Accordingly Rule 8A
covers all private with paid up capital of 5 crores or more and unlisted public
companies with paid up capital between 5 to 10 crores.
covers all listed companies and other public companies with paid up capital of 10 crores or more. Accordingly Rule 8A
covers all private with paid up capital of 5 crores or more and unlisted public
companies with paid up capital between 5 to 10 crores.
In our opinion,
scenario (b) seems more logical since the intent of the MCA was surely not to
burden private companies with paid up share capital of Rs. 5 crores to appoint
a whole-time company secretary while leaving public companies with paid up
capital between 5 crores to 10 crores unattended. Public companies have a greater
need for a whole-time company secretary in view of the additional compliance
responsibilities.
scenario (b) seems more logical since the intent of the MCA was surely not to
burden private companies with paid up share capital of Rs. 5 crores to appoint
a whole-time company secretary while leaving public companies with paid up
capital between 5 crores to 10 crores unattended. Public companies have a greater
need for a whole-time company secretary in view of the additional compliance
responsibilities.
Though it is
open to interpretation as to how one would read the language of Rule 8A, we are
of the view that both the scenarios create a paradox of sorts. Rule 8A suggests
that though companies falling under it may remain headless without the
requirement of appointment of a CEO / MD / CFO, it necessarily needs to appoint
a company secretary.
open to interpretation as to how one would read the language of Rule 8A, we are
of the view that both the scenarios create a paradox of sorts. Rule 8A suggests
that though companies falling under it may remain headless without the
requirement of appointment of a CEO / MD / CFO, it necessarily needs to appoint
a company secretary.
Will the company secretary be a KMP for the
company?
company?
Another point
worth mentioning here is that the definition of Key Managerial Personnel under
section 2(51) includes a company secretary. Thus where a company appoints a
company secretary, whether mandated by law or not, such officer will be treated
as a KMP. Accordingly, the company secretary appointed pursuant to Rule 8A
would be treated as a KMP of the Company and such a person would need to abide
by the provisions of Section 205 of the Companies Act, 2013 (relating to
functions of company secretary). Such a person would also be treated as an
officer in default and the liabilities of a KMP would be equally applicable.
worth mentioning here is that the definition of Key Managerial Personnel under
section 2(51) includes a company secretary. Thus where a company appoints a
company secretary, whether mandated by law or not, such officer will be treated
as a KMP. Accordingly, the company secretary appointed pursuant to Rule 8A
would be treated as a KMP of the Company and such a person would need to abide
by the provisions of Section 205 of the Companies Act, 2013 (relating to
functions of company secretary). Such a person would also be treated as an
officer in default and the liabilities of a KMP would be equally applicable.
Comparison with Section 92 of the Act, 2013
pertaining to Annual Returns
pertaining to Annual Returns
Section 92 (1)
of the Companies Act, 2013 requires a company to get its annual return signed
by a company secretary or where there is no company secretary, by a company
secretary in practice. Further sub-section (2) of the said section 92 read with
Rule 11 of the Companies (Management and Administration) Rules, 2014 provides
that every listed company and companies having paid-up share capital of Rs. 10
crore or more or turnover of Rs. 50 crore or more, shall be certified by a Practising
Company Secretary. Here the law does not distinguish between public and private
companies.
of the Companies Act, 2013 requires a company to get its annual return signed
by a company secretary or where there is no company secretary, by a company
secretary in practice. Further sub-section (2) of the said section 92 read with
Rule 11 of the Companies (Management and Administration) Rules, 2014 provides
that every listed company and companies having paid-up share capital of Rs. 10
crore or more or turnover of Rs. 50 crore or more, shall be certified by a Practising
Company Secretary. Here the law does not distinguish between public and private
companies.
One would have
come to a logical conclusion here that the requirement of having a company
secretary arises when the paid up capital exceeds 10 crores. This view was
retained under Rule 8 of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014. However private companies were left out from
the purview. This was reinstated by the introduction of the new Rule 8A, which
additionally covers public companies with paid up capital between 5 – 10
crores.
come to a logical conclusion here that the requirement of having a company
secretary arises when the paid up capital exceeds 10 crores. This view was
retained under Rule 8 of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014. However private companies were left out from
the purview. This was reinstated by the introduction of the new Rule 8A, which
additionally covers public companies with paid up capital between 5 – 10
crores.
Making sense of various classes of
companies
companies
The following
checklist for various categories of companies which will clarify the revised
position on the appointment of KMPs in view of said Rule 8A:
checklist for various categories of companies which will clarify the revised
position on the appointment of KMPs in view of said Rule 8A:
1. Listed
Company
Company
Will be required to
appoint all three categories of KMP on a whole-time basis:
appoint all three categories of KMP on a whole-time basis:
(i) CEO / MD / WTD / Manager
(ii) CS
(iii) CFO
2. Unlisted
Public companies with paid up capital of Rs. 10 crore or more
Public companies with paid up capital of Rs. 10 crore or more
Will be required to
appoint all three categories of KMP on a whole-time basis:
appoint all three categories of KMP on a whole-time basis:
(i) CEO / MD / WTD / Manager
(ii) CS
(iii) CFO
3. Unlisted
Public companies with paid up capital between 5 – 10 crores
Public companies with paid up capital between 5 – 10 crores
Will
be required to appoint only a whole-time CS, who will serve as a KMP of the
company.
be required to appoint only a whole-time CS, who will serve as a KMP of the
company.
4. Unlisted
Public companies with paid up capital of less than Rs. 5 crore
Public companies with paid up capital of less than Rs. 5 crore
Will
not be required to appoint any KMP.
not be required to appoint any KMP.
5. Private
companies with paid up capital of Rs. 5 crore or more
companies with paid up capital of Rs. 5 crore or more
Will
be required to appoint a whole-time CS, who will serve as a KMP of the company.
be required to appoint a whole-time CS, who will serve as a KMP of the company.
6. Private
companies with paid up capital of less Rs. 5 crore
companies with paid up capital of less Rs. 5 crore
Will
not be required to appoint any KMP
not be required to appoint any KMP
Conclusion
The aforesaid
amendment has brought a lot of cheer to CS fraternity. However, a lot has been
left unattended. As mentioned in the Article, the companies falling within the
bracket of Rule 8A would not have to appoint any CEO / CFO, whose presence in
the company are equally important for its proper management. Retaining one
category of a KMP and ignoring the other categories may not serve the best of
the company’s interest.
amendment has brought a lot of cheer to CS fraternity. However, a lot has been
left unattended. As mentioned in the Article, the companies falling within the
bracket of Rule 8A would not have to appoint any CEO / CFO, whose presence in
the company are equally important for its proper management. Retaining one
category of a KMP and ignoring the other categories may not serve the best of
the company’s interest.
– Shampita Das