But relief will take time with model code in force, say observers

The Corporate Affairs Ministry is hoping to find a solution to the structural problem that company secretaries are facing, after the notification of rules under the new company law.

The rules had completely exempted a private limited company (irrespective of its paid-up capital) from the requirement of having key managerial personnel (KMP).

“We are trying to find a way out of this structural problem,” an official source said, while largely placing the blame for this situation at the doors of the company secretaries institute.

Exclusion of KMP, a new concept, for private companies has resulted in a knotty problem for company secretaries, while not adding to their compliance cost.

While the earlier regime required certain private companies to employ a company secretary, the new regime has done away with the appointment of any such professional.

This has led to a threat of job losses for thousands of company secretaries employed in private companies and has dimmed the future of lakhs of students pursuing company secretary courses.

Different solution

One solution that could be of comfort for the aggrieved company secretaries and the private companies is the aspect of having a separate set of rules for such companies, say corporate observers.

The separate rules for private companies could provide for having KMP in the form of only the company secretary.

But there are mixed views on this, with some legal experts raising concerns of any such rule overriding the intent of the original enactment.

“Section 203 of the Companies Act, 2013 does not give any liberty to pick and choose the KMP out of the KMPs listed in Section 203. The section requires certain categories of companies to have all (and not some) of the listed KMPs at the same time, namely, to have a managing director or CEO or manager or a whole-time director and a company secretary and a CFO.

If the Ministry wants to provide that a certain classes of private companies will only have a company secretary and not other KMPs, it will not be within the Ministry’s rule-making powers to do so unless Section 203is amended or Section 462 is invoked, said Lalit Kumar, Partner, J Sagar Associates, a law firm.

Even if the Ministry wants to amend the situation to provide some relief to the anguished company secretaries, it could take some time.

The Ministry may have to again approach the Election Commission (EC) for its approval to amend the rules when the model code of conduct for elections is in force.

“The EC approval was taken for notification of the rules. But if we are now going to again amend those rules, then a fresh approval from poll panel will be required,” a source in the Ministry said.

Tricky issue

Another tricky issue is a new rule from the Cabinet Secretary that all proposals seeking EC approval should be first sent to the Cabinet Secretariat.

This advice has been sent to all line Ministries.

(This article was published on April 10, 2014)
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