Company Secretary: Not Just Compliance, It’s an Investment.

Non-appointment of a company secretary can result in heavy penalties for both the company and its directors.

Failing to appoint a company secretary can be costly for both companies and their directors in India. The Companies Act, 2013, and related rules make it mandatory for certain types of companies to have a qualified company secretary on board. Non-compliance can result in significant penalties, including fines and daily charges for continuing defaults.

Understanding the Legal Requirements:

• Section 203 of the Companies Act read with Rule 8 of appointment and remuneration of managerial personnel,2014mandates that  Every listed company and every other public company with a paid-up share capital of ten crore rupees or more must have whole-time key managerial personnel. Where whole-time key managerial personnel include the whole-time Company Secretary.
• Further Rule 8A of appointment and remuneration of managerial personnel,2014 states that a  company not covered under Rule 8 but with a paid-up share capital of ten crore rupees or more must have a whole-time company secretary

In brief, Every listed company needs to appoint a whole time Company Secretary and every other public company and private Company with a paid-up share capital of ten crore rupees or more must have a whole-time company secretary.

The Cost of Non-Compliance:

Non-compliance comes with significant penalties. Clause 5 of the Companies Act, 2013 clearly states that in case of non-appointment of a company secretary, Companies face a fine of Rs. 5 lakh, while each director and key managerial personnel in default can be penalized Rs. 50,000. This penalty further increases by Rs. 1,000 per day for continuing defaults, capped at Rs. 5 lakh.

Beyond the Fines: The Hidden Costs of Missing a Secretary

While the financial penalties are substantial, they only represent the tip of the iceberg. The real cost of non-compliance lies in the absence of critical functions that a company secretary performs:

• Compliance Guardian: Ensures adherence to legal and regulatory requirements, minimizing the risk of fines, legal action, and reputational damage.
• Corporate Governance Champion: Promotes good corporate governance practices, fostering transparency, accountability, and investor confidence.
• Records Custodian: Maintains accurate and complete company records, ensuring legal and regulatory compliance and facilitating smooth audits.
• Board Advisor: Provides expert advice and guidance on legal, procedural, and governance matters, empowering informed decision-making.

Protect Your Company and Yourself:

Complying with the mandatory requirement of appointing a company secretary is not just about avoiding financial penalties. It’s about building a strong foundation for sound corporate governance, minimizing risks, and maximizing success. Investing in a qualified professional pays off in numerous ways:

• Reduced legal risks and liabilities.
• Enhanced investor confidence and market reputation.
• Improved operational efficiency and compliance.
• Sounder decision-making and strategic direction.

Remember, a competent company secretary is not just a legal obligation; they are a valuable asset, safeguarding your company’s long-term health and success.

By proactively complying with the law and prioritizing the role of a company secretary, you can protect your company and its directors from the sting of non-compliance and pave the way for sustainable growth and prosperity.

Case law:

The recent case of M/s. SUVARNABHOOMI ENTERPRISES PRIVATE LIMITED (ADJ/15/RD (SR)/2023-24) serves as a stark reminder of the potential financial consequences of neglecting legal obligations pertaining to company governance. Incorporated in 2009, the company crossed the paid-up capital threshold in 2015, triggering the mandatory appointment of a qualified company secretary under the Companies Act, 2013. However, for two years between 2018 and 2020, the company operated without fulfilling this critical requirement.

This non-compliance attracted significant penalties from the Registrar of Companies, Coimbatore, under Clause 5 of Section 203. Initially, the company faced a hefty fine of Rs. 5 lakh, along with individual penalties of Rs. 5 lakh for each of its four directors. While the company successfully appealed and received a 50% reduction in the final penalty, this case highlights the severe financial risks associated with such lapses.

Case Facts:

• The Company, SUVARNABHOOMI ENTERPRISES PRIVATE LIMITED bearing CIN no. U72200TZ2009PTC015122 situated under ROC Coimbatore w.e.f 31/03/2009.
• The company was required to appoint a company secretary from 2015 onwards due to meeting the paid-up capital criteria.
• Compounding application filed for non-appointment of CS from 01-10-2015 to 1-11-2018. Compounded on 22-4-22.
• Company secretary appointed on 02-11-2020.
• Therefore, the company operated without a company secretary from 1-11-2018 to 1-11-2020.

The Registrar of Companies, Coimbatore, imposed a penalty on the company and its directors under Clause 5 of Section 203.

• The company was fined Rs. 5 lakh, and each of the four directors was also fined Rs. 5 lakh.

On appeal, the penalty was reduced by half to Rs. 12,50,000 instead of Rs. 25,00,000.