Legal Framework Governing Company Secretaries

Associates and Fellows Company Secretaries

The members of the Institute shall be divided into two classes designated respectively as Associates and Fellows.

Any person whose name is entered in the Register of Members maintained by the Institute of Company Secretaries of India shall be deemed to have become an Associate and as long as his name remains so entered, shall be entitled to use the letters “A.C.S.” after his name to indicate that he is an Associate.

A person, being an Associate who has been in continuous practice in India as a Company Secretary for at least five years and a person who has been an Associate for a continuous period of not less than five years and who possesses such qualifications or practical experience as the Council may prescribe to ensure that he has experience equivalent to the experience normally acquired as a result of continuous practice for five years as a Company Secretary shall, on payment of fees, be entered in the Register as a Fellow.

Register of Members

The Council shall maintain in the prescribed manner a Register of the members of the Institute. The Register shall include the following particulars about every member of the Institute, namely:

his full name, date of birth, domicile, residential and professional addresses;
the date on which his name is entered in the Register;
his qualifications;
whether he holds a certificate of practice; and
any other particulars which may be prescribed.

Disciplinary Directorate

On receipt of any information or complaint along with the prescribed fee, the Director (Discipline) shall arrive at a prima facie opinion on the occurrence of the alleged misconduct. The Disciplinary Directorate shall follow such procedure as may be specified to make investigations under the Act.

Disciplinary Committee

According to Section 21B, a Disciplinary Committee shall be constituted by the Council. The Disciplinary Committee shall consist of the President or the Vice-President of the Council as the Presiding Officer two members to be elected from amongst the members of the Council and two members to be nominated by the Central Government from amongst the persons of eminence having experience in the field of law, economics, business, finance or accountancy:

The Council may constitute more Disciplinary Committees as and when it considers necessary. The Disciplinary Committee, while considering the cases placed before it, shall follow such procedure as may be specified.

Appeal to Authority

Under Section 22A of the Act the Appellate Authority constituted under sub-section (1) of Section 22A of the Chartered Accountants Act, 1949, shall be deemed to be the Appellate Authority for this Act, subject to certain modifications.

Accordingly, any member of the Institute aggrieved by any order of the Board of Discipline or the Disciplinary Committee imposing on him any of the penalties referred to in Section 21A and Section 21B, may within ninety days from the date on which the order is communicated to him, prefer an appeal to the Authority:

The Director (Discipline) may also appeal against the decision of the Board of Discipline or the Disciplinary Committee to the Authority if so authorized by the Council, within ninety days:

The Authority may entertain any such appeal after the expiry of the said period of ninety days if it is satisfied that there was sufficient cause for not filing the appeal in time.

Certain Provisions Relating to Misconduct under the Company Secretaries Act, 1980

Professional misconduct concerning Company Secretaries in Practice. (Part I of the First Schedule).
Professional misconduct about members of the Institute in service. (Part II of the First Schedule)
Professional misconduct about members of the Institute generally. (Part Ill of the First Schedule)
Other misconduct about members of the Institute generally (Part IV of the First Schedule)
Professional misconduct about Company Secretaries in practice requires action by a disciplinary committee (Part I of the Second Schedule)
Professional misconduct about members of the Institute generally, requires action by a disciplinary committee (Part II of the Second Schedule).
Other misconduct about members of the Institute generally (Part III of the Second Schedule)

Complaints and Enquiries Relating To Professional or Other Misconduct of Members

any complaint received against a member of the Institute under Section 21 shall be investigated, and any inquiry relating to the misconduct of such member shall be held, by the Disciplinary Committee.
A complaint under Section 21 shall be made to the Council in the appropriate form, duly verified as required therein.
Every complaint shall contain the following particulars, namely-
- the acts or omissions which, if proved, would render the member complained against guilty of any professional or other misconduct;
- the oral and/or documentary evidence relied upon in support of the allegations made in the complaint.
Every complaint other than a complaint made by or on behalf of the Central or any State Government shall be accompanied by a deposit of rupees fifty which shall be forfeited, if the Council, after considering the complaint, concludes that no prima facie case is made out and that the complaint is either frivolous or has been made with mala fide intention.

Descriptive Questions

Question 1. Rakesh, a practicing Company Secretary, has accepted the position of Secretarial Auditor previously held by another Company Secretary in practice by communicating through SMS. He also used the designation ‘Company Law Consultant’ in his visiting cards. Examine the relevant provisions of the Company Secretaries Act, 1980 and/or Companies Act, 2013 whether these are in order.

Answer:

Clause 8 of Part I of First Schedule to the Company Secretaries Act, 1980, provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct if he accepts the position of a Company Secretary in Practice previously held by another Company Secretary in Practice without first communicating with him in writing.

The primary requirement under this clause is prior communication with the previous incumbent. The is intended for reasons of professional courtesy. It would be necessary that the communication, to be effective, shall be by a registered letter or by hand with an acknowledgment so that there is positive evidence of the communication having been completed.

With the advent of the use of technology, communication by any electronic medium viz., SMS, WhatsApp, and such other Messenger apps is permitted, provided the sender (the PCS taking up the assignment) can establish that the message is delivered to the recipient before he or she takes up the assignment.

Therefore, Rakesh is not guilty of professional misconduct in this case. Clause 7 of Part I of First Schedule to the Company Secretaries Act, 1980, provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct if he uses any designation or expressions other than Company Secretary on professional documents, visiting cards, letter-heads or signboards unless it is a degree of a University established by law in India or recognized by the Central Government or a title indicating membership of the Institute of Company Secretaries of India or of any other institution that has been recognized by the Central Government or may be recognized by the Council.

Designations like Company Law Consultant, Income Tax Consultant, Corporate Adviser, Investment Adviser, Management Consultant, etc. are prohibited.

Therefore, Rakesh is guilty of professional misconduct in this case.

Question 2. How would you substantiate the view that the members of the Institute of Company Secretaries of India (ICSI) are subject to disciplinary mechanisms?

Answer:

The members of the Institute of Company Secretaries of India are subject to disciplinary mechanisms under the First and Second Schedule of the Company Secretaries Act as amended from time to time.

Where a member is guilty of any professional or other misconduct mentioned in the First Schedule, the matter shall be placed before the Board of Discipline.

Where a member is guilty of any professional or other misconduct mentioned in the Second Schedule or both the Schedules, the matter shall be placed before the Disciplinary Committee.

reprimand the member;
remove the name of the member from the Register for up to three months;
impose such fine as it may think fit which may extend to rupees one lakh.

Where the Disciplinary Committee thinks that a member is guilty of professional or other misconduct mentioned in the Second Schedule or both the First Schedule and the Second Schedule, it shall allow the member to be heard before making any order against him and may thereafter take any one or more of the following actions, namely;

reprimand the member;
remove the name of the member from the Register permanently or for such period, as it thinks fit;
impose such fine as it may think fit, which may extend to rupees five lakhs.

Question 3. CS Rohan, a company secretary in practice availed a loan against his investments from a bank. He issued two cheques towards repayment of the said loan as per the terms of the sanction of the loan. Both the cheques were returned by the bank with the remarks ‘returned due to insufficient funds’. Comment on the facts given concerning provisions of the Company Secretaries Act, 1980.

Answer:

A Company Secretary is expected to maintain the highest standards of integrity even in his personal affairs and any deviation from these standards even in his non-professional work would expose him to disciplinary action.
A member of the Institute is subject to disciplinary action under Section 21 of the Company Secretaries Act, 1980 if he is found guilty of any, professional or other misconduct.
As per Clause 2 of Part IV of the First Schedule to the Company Secretaries Act, 1980, a member of the Institute whether in practice or not shall be deemed to be guilty of other misconduct if in the opinion of the council brings disrepute to the profession or the Institute as a result of his action whether or not related to the professional work.
The question of whether a particular act or omission constitutes other misconduct should be based on the facts and circumstances of each case.
Further, Part III of the Second Schedule to the Company Secretaries Act, 1980 provides that, a member of the Institute whether in practice or not shall be deemed to be guilty of other misconduct if he is held guilty by any civil or criminal court for an offense which is punishable with imprisonment for a term exceeding six months.
Under the Negotiable Instruments Act, of 1881 where any cheque drawn by a person for the discharge of any liability is returned by the bank unpaid either for insufficiency of funds or the cheque amount exceeds the arrangements made by the drawer of the cheque shall be deemed to have committed an offense.
In the above case, the cheque was dishonored with the remark insufficient funds. Hence, CS Rohan may be liable for misconduct under Clause 2 of Part IV of the First Schedule of the Company Secretaries Act, 1980, if the Council thinks that the offense under the Negotiable Instruments Act, 1881 is due to negligence or willful act of CS Rohan.

Question 4. Kavita, a practicing company secretary, posted a request on a WhatsApp group of practicing company secretaries to provide secretarial audits in any company. She also made a similar request on WhatsApp to her college friends. Has she committed professional misconduct?

Answer:

According to Clause 6 of Part I of the First Schedule to the Company Secretaries Act, 1980, a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he/she ‘solicits clients or professional work, either directly or indirectly, by circular, advertisement, personal communication, interview or by any other means’.

Although, there are two exceptions. According to the above clause, nothing contained in this clause shall be construed as preventing or prohibiting

Any Company Secretary from applying or requesting for or inviting or securing professional work from another Company Secretary in practice.
A member from responding to tenders or inquiries issued by various users of professional services or organizations from time to time and securing professional work as a consequence.

Accordingly, when Kavita posted a request on the WhatsApp group of Company Secretaries in Practice, it would not amount to professional misconduct. However, when she sends messages to her college friends seeking professional work it amounts to professional misconduct.

Question 5. FMP & Associates, Company Secretaries, has sent a letter to the foreign exchange department of the Reserve Bank of India stating that the firm has three partners who specialize in the law of Foreign Exchange & Management and asked the said Authority to include their names in the panel, whenever formed for providing advisory services. Comment concerning the provisions of the Company Secretaries Act, 1980.

Answer:

Clause 6 of Part I of First Schedule to the Company Secretaries Act, 1980 states that a Company Secretary in practice shall be deemed to be guilty of professional misconduct if he solicits clients or professional work either directly or indirectly by a circular, advertisement, personal communication or interview or by any other means. Such restraint has been put so that the members maintain their independence of judgment and can command respect from their prospective clients.

Consequently, CS firm FMP & Associates and its partners are guilty of professional misconduct under Clause 6 of Part I of First Schedule to the Company Secretaries Act, 1980 as it has solicited professional work from the Reserve Bank of India by inquiring about the maintenance of the panel and advertising about the partners of the firm having specialized knowledge of foreign exchange and management law.

Question 6. Can a company secretary advertise himself as per the guidelines of the ICSI 2020? Mention a few of the restrictions in this regard.

Answer:

As per the ICSI 2020 guidelines, the following activities are permitted for a Company Secretary in Practice as a means to advertise:

Display the scope of work on his/her website.
Creating a visual identity in compliance with the Guidelines for the Use of Individual Logo issued by the Council of ICSI.
Display of Location and decor of the workplace, meeting rooms, etc.
Display of Firm name, Logo, or any other identity on Uniform, Office/s, office stationary, and equipment/ material and provide Training to Staff.
Professional Updates and Write-ups in any mode.
Appearing on local radio or television.
Holding professional seminars, conferences, and workshops.
Sponsoring any event or helping with community programs or doing voluntary work as a professional for charitable organizations.

The restrictions are given below:

The Advertisement shall:

not violate provisions of Institute of Company Secretaries interest;” Act, 1980
not be false or misleading
not claim superiority over any or all other Company Secretaries;
not be indecent, sensational, or otherwise of such nature which may bring disrepute to the profession or the Institute;
not contain fabricated or false testimonials or endorsements concerning the Company Secretary;
not refer to the Company Secretaries in the terms such as “specialists” or “experts”;
not constitute a guarantee, warranty, or prediction regarding the outcome of any professional assignment;
in no way indicate that the charging of a fee is contingent on the outcome, or that no fee will be charged in the absence of the desired outcome;
not be designed for “pleasing customers,” which might mislead or eventually harm customers or third parties;
not contain any humorous slogans. E.g. Save Xx Come to us, and we will tell you how.

Practical Questions

Question 1. Ragini, a practicing company secretary expressed her opinion on a report given to a business firm called “Quick March Consultants”. Ragini has an interest in the same to be extent of 12% of shares in the firm. Is she guilty of professional misconduct?

Answer:

Clause 4 of Part I of the Second Schedule to the Companies Secretaries Act, 1980 deals with professional misconduct about Company Secretaries in Practice. A company secretary in practice shall be deemed to be guilty of professional misconduct if he –

“Expresses his opinion on any report or statement given to any business enterprise in which he, his firm, or a partner in his firm has a substantial

This clause ensures that a professional has to be independent while expressing any opinion. He should not have any substantial interest in the business enterprise to which the report or statement pertains. That would create a conflict with his duty. Expressing opinion or giving a report with appropriate disclosure about his interest in the report was permitted earlier.

However, under the new clause, there is a total ban on expressing an opinion or giving any report about any business enterprise in which he, his firm, or a partner in his firm has a substantial interest. “Substantial Interest used in this clause is not limited to financial interest only.

In this connection, it may be stated that the Council of the ICSI under Regulation 168 of the Company Secretaries Regulations, 1982 passed a resolution in which ‘Substantial Interest’ has been defined to mean an interest to the extent of 25%. The same guideline is relevant under the above clause also.

Based on the above regulation, Ragini who holds only 12% of shares in the business firm Quick March Consultants would not be guilty of Professional misconduct.

Question 2. A complaint of professional misconduct is filed with ICSI against Swapan, a practicing member. The Disciplinary Committee of ICSI thinks that Swapan is guilty of professional misconduct mentioned in the Second Schedule to the Company Secretaries Act, 1980. The Committee, after affording Swapan an opportunity of being heard, ordered for removal of his name from the Register permanently and also imposed a penalty of 10 lakh. Is the action of the Committee valid? What actions can the Board of Discipline (a separate authority) take if it thinks that a member is guilty of professional misconduct mentioned in the First Schedule to the Act, 1980?

Answer:

Under section 21B(3) of the Company Secretaries Act, 1980 where the Disciplinary Committee thinks that a member is guilty of professional or other misconduct as mentioned in the Second Schedule or both the First Schedule and the Second Schedule to the Company Secretaries Act, 1980, it shall afford to the member an opportunity of being heard before making any order against him and may thereafter take any one or more of the following actions, namely:

Reprimand the member;
Remove the name of the member from the Register permanently or for such period, as it thinks fit;
impose such fine as it may think fit, which may extend to ₹ 5 Lakhs.

In the given provisions to Swapan, a practicing member, the order for permanent removal of name from the Register of members is valid but a fine can be imposed a maximum of upto 5 Lakhs.

Under section 21A(3) of the Company Secretaries Act, 1980 Where the Board of Discipline thinks that a member is guilty of professional or other misconduct mentioned in the First Schedule to the Company Secretaries Act, 1980, it shall afford to the member an opportunity of being heard before making any order against him and may thereafter take any one or more of the following actions, namely:

Reprimand the member;
Remove the name of the member from the Register for up to 3 months;
Impose such fine as it may think fit which may extend to 1 lakh. Space to write important points for revision

Short Notes

Question 1. Write short notes on:

Board of Discipline
Fellow member
Appellate authority

Answer:

Board of Discipline: The Board of Discipline shall be constituted by the Council of the Institute under Section 21A of the Companies Act, 1980. The Board of Discipline shall follow a summary disposal procedure in dealing with all the cases before it.

Where the Board of Discipline thinks that a member is guilty of a professional or other misconduct mentioned in the First Schedule, it shall afford to the member an opportunity of being heard before making any order against him and may thereafter take any one or more of the following actions, namely:

reprimand the member;
remove the name of the member from the Register for up to three months;
impose such fine as it may think fit which may extend to rupees one lakh.

The Director (Discipline) shall submit before the Board of Discipline all information and complaints where he thinks that there is no prima facie case and the Board of Discipline may, if it agrees with the opinion of the Director (Discipline), close the matter or in case of disagreement, may advise the Director (Discipline) to further investigate the matter.

Fellow member: Any person whose name is entered in the Register of Members maintained by the Institute of Company Secretaries of India shall be deemed to have become an Associate and as long as his name remains so entered, shall be entitled to use the letters “A.C.S.” after his name to indicate that he is an Associate.

Appellate Authority: Under section 22A of the Act the Appellate Authority constituted under sub-Section (1) of Section 22A of the Chartered Accountants Act, 1949, shall be deemed to be the Appellate Authority for this Act, subject to certain modifications.

Accordingly, any member of the Institute aggrieved by any order of the Board of Discipline or the Disciplinary Committee imposing on him any of the penalties referred to in Section 21A and 21B, may within ninety days from the date on which the order is communicated to him, prefer an appeal to the Authority:

The Director (Discipline) may also appeal against the decision of the Board of Discipline or the Disciplinary Committee to the Authority if so authorized by the Council, within ninety days:

The Authority may entertain any such appeal after the expiry of the said period of ninety days if it is satisfied that there was sufficient cause for not filing the appeal in time.

The Authority may, after calling for the records of any case, revise any order made by the Board of Discipline or the Disciplinary Committee under sub-section (3) of Section 21A and sub-Section (3) of Section 21B and may-

confirm, modify, or set aside the order;
impose any penalty or set aside, reduce, or enhance the penalty imposed by the order;
remit the case to the Board of Discipline or Disciplinary Committee for such further inquiry as the Authority considers proper in the circumstances of the case; or
pass such other order as the Authority thinks fit:

Provided that the Authority shall allow being heard to the parties concerned before passing any order. – Space to write important points for revision-

Descriptive Questions

Question 2. What is the Disciplinary Mechanism in case of misconduct of clause 5 of Part I of the First Schedule of Company Secretaries Act, 1980?

Answer:

Disciplinary Directorate:

Section 21 of the Act provides for the establishment of a Disciplinary Directorate headed by an officer of the Institute designated as Director (Discipline) and such other employees for making investigations in respect of any information or complaint received by it. On receipt of any information or complaint along with the prescribed fee, the Director (Discipline) shall arrive at a prima facie opinion on the occurrence of the alleged misconduct.

The Disciplinary Directorate shall follow such procedure as may be specified to make investigations under the Act. Where the Director (Discipline) thinks that a member is guilty of any professional or other misconduct mentioned in the First Schedule, the matter shall be placed before the Board of Discipline.

Where the Director (Discipline) thinks that a member is guilty of any professional or other misconduct mentioned in the Second Schedule or both the Schedules, the matter shall be placed in the Disciplinary Committee.

Board of Discipline:

The Board of Discipline shall be constituted by the Council of the Institute under Section 21A of the Companies Act, 1980. The Board of Discipline shall follow a summary disposal procedure in dealing with all the cases before it.

Where the Board of Discipline thinks that a member is guilty of professional or other misconduct mentioned in the First Schedule, it shall afford to the member an opportunity of being heard before making any order against him and may thereafter take any one or more of the following actions, namely:

reprimand the member;
remove the name of the member from the Register for up to three months;
impose such fine as it may think fit which may extend to rupees one lakh.

Disciplinary Committee:

Authority, Disciplinary Committee, Board of Discipline, and Director (Discipline) to have powers of civil court:

Section 21C provides that for an inquiry under the provisions of this Act, the Authority, the Disciplinary Committee, the Board of Discipline and the Director (Discipline) shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, in respect of the following matters, namely:

summoning and enforcing the attendance of any person and examining him on oath;
the discovery and production of any document; and
receiving evidence on the affidavit.

Appeal to Authority:

Accordingly, any member of the Institute aggrieved by any order of the Board of Discipline or the Disciplinary Committee imposing on him any of the penalties referred to in Section 21A and 21B, may within ninety days from the date on which the order is communicated to him, prefer an appeal to the Authority:

The Director (Discipline) may also appeal against the decision of the Board of Discipline or the Disciplinary Committee to the Authority if so authorized by the Council, within ninety days:

The Authority may entertain any such appeal after the expiry of the said period of ninety days if it is satisfied that there was sufficient cause for not filing the appeal in time.

Confirm, modify, or set aside the order;
Impose any penalty or set aside, reduce, or enhance the penalty imposed by the order;
Remit the case to the Board of Discipline or Disciplinary Committee for such further inquiry as the Authority considers proper in the circumstances of the case; or
Pass such other order as the Authority thinks fit:

Provided that the Authority shall allow being heard to the parties concerned before passing any order. -Space to write important points for revision-

CS Company Law – Legal Framework Governing Company Secretaries

Legal Framework Governing Company Secretaries

Descriptive Questions

Practical Questions

Short Notes

Descriptive Questions

Leave a Comment Cancel reply