There is a huge responsibility cast on the Company Secretary to ensure good governance and
protect the interest of all stakeholders. If they fail to perform their duty diligently, they will fall
into the category of “officer in default” under the eyes of the law.
Sometimes due to, varied reasons it engenders friction between the board and the Company
Secretary over the due compliance of the applicable laws, and such confrontation puts them in
a bind. Under such a scenario, one can rarely imagine the situation where Company Secretary
went to the court or quasi-judicial body against the Board or other stakeholders in a bid to
perform his duties.
The National Company Law Tribunal (NCLT), Chennai Bench, dealt with a similar matter where
Company Secretary approached it as his last resort for ensuring due compliance. The order
was pronounced by the NCLT Chennai Bench on 01st July 2022 in the matter of Mayank
Agarwal vs. M/s. Technology Frontiers (India) Private Limited
BRIEF ABOUT THE CASE:
The matter is about compliance with the Significant Beneficial Ownership provisions,
initially, Mr. Sriram Srivatsan (Company Secretary) issued a notice to the company whose
holding in their company falls under the threshold of Significant Beneficial Ownership
provisions and asked them to disclose their ultimate beneficial owner.
As per the Significant Beneficial Ownership provisions, upon issuance of the notice, the company
is required to disclose its ultimate beneficial owner. In the instant case, the Company Secretary
went to NCLT as the company was not complying with the regulatory requirements.
The nominee director (Mr. Mayank Agarwal) of the respondent company refuted the stance by
filing an Interlocutory Application, by arguing that the Company Secretary does not have a locus
stand to file the petition as the board has not authorized him to file the same and the Companies
Act, 2013 does not empower him to supersede the Board of Directors.
HISTORICAL INSTANCES:
Mr. Mayank Agarwal (Applicant) is a nominee director appointed by M/s Crest Investment
Holdings Pvt. Ltd. on the Board of Directors of the M/s. Technology Frontiers (India) Private
Limited and Mr. Sriram Srivatsan is a Company Secretary (Respondent) of M/s. Technology
Frontiers (India) Private Limited.
* CS Bharati Yadav, Executive (Academics), The ICSI
Views expressed in the Article are the sole expression of the Author and may not express the views of the Institute.
Mr. Mayank Agarwal (Applicant), filed an Interlocutory Application before NCLT Chennai Bench
and following were the prayers as the main relief:
a) To declare that the Company Petition is not maintainable and dismiss the company petition at the outset;
b) Direct Mr. Sriram Srivatsan, Company Secretary to solely bear all costs associated with the present petition.
The main petition was filed by Mr. Sriram Srivatsan, Company Secretary for ensuring compliance
of mandatory requirements mentioned under the provisions of the Companies Act, 2013.
Section 90 of the Companies Act, 2013 states that:
“(1) Every individual, who acting alone or together, or through one or more persons or trust,
including a trust and person resident outside India, holds beneficial interests, of not less than
twenty-five percent or such other percentage as may be prescribed, in shares of a company or
the right to exercise, or the actual exercising of significant influence or control (herein referred
to as "significant beneficial owner"), shall make a declaration to the company in form BEN-1,
specifying the nature of his interest and other particulars, in such manner and within such
period of acquisition of the beneficial interest or rights and any change thereof, as may be
prescribed. Provided that the Central Government may prescribe a class or classes of persons
who shall not be required to make a declaration under this subsection.”
“…………..(4) Every company shall file a return of significant beneficial owners of the company in
Form BEN-2 and changes therein with the Registrar containing names, addresses, and other
details as may be prescribed within such time, in such form and manner as may be prescribed.
(4A) every company shall take the necessary steps to identify an individual who is a significant
beneficial owner about the company and require him to comply with the provisions of
this section.
(5) A company shall give notice, in the prescribed manner, to any person (whether or not a
member of the company) whom the company knows or has reasonable cause to believe—
(a) to be a significant beneficial owner of the company;
(b) to be having knowledge of the identity of a significant beneficial owner or another person
likely to have such knowledge; or
(c) to have been a significant beneficial owner of the company at any time during the three
years immediately preceding the date on which the notice is issued, and who is not registered as a significant beneficial owner with the company as required under this section.
(6) The information required by the notice shall be given by the concerned person within a period not exceeding 30 days from the date of the notice.
(7) The company shall,—
(a) Where that person fails to give the company the information required by the notice within the time specified therein; or
(b) Where the information given is not satisfactory,
apply to the Tribunal within 15 days of the expiry of the period specified in the notice,
for an order directing that the shares in question be subject to restrictions about
transfer of interest, suspension of all rights attached to the shares, and such other matters as may
be prescribed.”
In this case, Company Secretary Mr. Sriram Srivatsan had sent the notice to the Applicant’s
the company on 03rd May 2021 along with the form to disclose their Ultimate Beneficial Ownership
of the shares held.
The applicant filed this application to adjudicate the maintainability of the main petition filed by
the Company Secretary.
APPLICANT (Mr. MAYANK AGARWAL) CONTENTIONS IN THIS CASE:
- The Company {M/s. Technology Frontiers (India) Private Limited} alone is empowered to
apply to NCLT under section 90(7) of the Companies Act, 2013, and the company acts
through its board of directors and Company Secretary has not taken any approval from the
board of directors to file the present petition and there is no Board Resolution nor has any
delegated authority to present the present petition.
- That any suit or any other legal proceedings can be instituted by a director or officer of the
a company such as Company Secretary only on the strength of valid Board Resolution duly
passed authorizing them to do so and in absence of such board resolution if any suit or legal
proceedings are instituted then there has to be a board resolution ratifying the defect, failing
which the suit or legal proceedings cannot be maintained.
- That the Company Secretary has no locus standi to file a petition under section 90 and is
not empowered by section 205 or any other provisions of the Companies Act, 2013 to
bypass or supersede the Board of Directors of a company and substitute the authority and
powers of the Board of Directors in the Company Secretary’s own wisdom.
- Certain aspects of professional misconduct on part of the Company Secretary was also alleged
by the applicant.
WRITTEN SUBMISSIONS BY THE RESPONDENT COMPANY SECRETARY (Mr. SRIRAM SRIVATSAN) IN THIS CASE:
- It was submitted that he has the locus standi on account of board resolution duly passed
by the board of directors at the time of his appointment which states that he is appointed
as the Compliance Officer of the company and he is required to perform the duties as
required under the Companies Act, 2013, and any duties assigned by the board of directors
from time to time.
- The respondent also quoted Order 29, Rule 1 of the Civil Procedure Code, 1908 which
states that in suits by or against a corporation, any pledging may be signed and verified on
behalf of the Corporation by the security of any director or other principal officer of the
a corporation that can dispose of the facts of the case.
- That the Company Secretary being an officer as per the above-quoted rule have the
authority to enter into pleadings on behalf of the Company in absence of a formal
authorization from the Board of the company more significantly to ensure compliance by
or on behalf of the Company in which he has been appointed in that capacity.
- The respondent also refers to the provisions of the Companies Act and the rule wherein he
submits that by Section 205 of the Companies Act, 2013 he is authorized to
represent and he must do so. Section 205 states the Functions of the Company Secretary
which includes that it is his duty to report to the board about compliance with the provisions
of this Act, rules made there under and other laws applicable to the company and to ensure
that the company complies with the applicable secretarial standards.
- The respondent also states that Rule 10 (4) of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014 state that Company Secretary can
represent before various regulators and other authorities under the Act in connection with discharge of various duties under the Act.
NCLT OBSERVATIONS:
The Bench observed that the Company Secretary is the secretary of the Company and not the
Secretary of the shareholders. He is appointed under the Companies Act, 2013 under a
board resolution in respect of which appointment is given effect by filing the prescribed form
with the Registrar of Companies to ensure statutory compliances failing which he is the
only Officer who receives the Show Cause notice from the Registrar of Companies so also the
Company. He would be required to face the penal consequences in the event of failure to
comply. He is answerable for the violations of the compliance requirement.
Company Secretary is the watchdog of protecting corporate governance principles and
ensuring the interest of all stakeholders and not a bloodhound. He has to ensure that the
company complies with all regulations, and in case of any failure on the part of the board,
he should approach the competent authority.
The bench further stated that the era in which the Company Secretary occupied the
position of a glorified clerk in Companies has expired consequent upon the evolution of
corporate governance and the various compliance requirement in a complex regime to protect the interest of the company as well as its various stakeholders.
The bench also noted that the Company Secretary acted diligently by approaching the appropriate authority.
PRONOUNCEMENT:
The Bench dismissed the Interlocutory Application and held that being Company Secretary falls
under the definition of the Key Managerial Personnel (KMP) under Section 2(51) of the Act, and
officer in default under Section 2 (60) of the Act and power enshrined to them under Section
205 (1)(c) of the Act, read with Rule 10 clause 4 of the Companies (Appointment and
Remuneration of the Managerial Personnel) Rules, 2014, he has the power to represent the
company before various regulators and other authorities in the discharge of the various duties
under the Act and has locus standi in the present case to file such application. NCLT being a quasi-judicial authority the Company Secretary can very well represent before the same.
CONCLUSION:
This judgment and case throw the light on evolved duties of the Company Secretaries and
expectations of the regulators from the Company Secretary. From the order, it is inferred that
for the regulators, the diligent act is not by putting the compliance requirement over a mail, this
will not absolve them from the officer in default. The regulators expect a leap beyond it by approaching the respective regulatory authority.
References:
1. https://nclt.gov.in/gen_pdf.php?filepath=/Efile_Document/ncltdoc/casedoc/33051180
33382021/04/Order-Challenge/04_orderChallange_004_1658469116197228080362da3afc74cb3.pdf
2. https://www.mca.gov.in/content/mca/global/en/actsrules/ebooks/acts.html?act=NTk
2MQ==
3. Student Company Secretary e- journal, July 2022
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