Ceiling on Secretarial Audit and Annual Return

Institute of Company Secretaries of India on 7th April 2015 informed its members by mail that it has put ceiling on Secretarial Audit and Annual Return. “The Council of the Institute has issued “Guidelines for Issuing Secretarial Audit Report, Signing and Certification of Annual Return” in supersession of the “Guidelines for Issuing Compliance Certificate and Signing of Annual Return” issued by the Council on 27th November, 2007”, the mailed apparently send by president of the institute declares. These new guidelines are issued on 6^th April 2015.

Secretarial Audit:

“A member of the Institute holding a valid certificate of practice shall be entitled –

1. to sign Secretarial Audit Report(s) pursuant to Section 204 of the Companies Act, 2013 (Act No. 18 of 2013) subject to the following limits, for each of the financial year under consideration:

Sl. No.	No. of years as member of ICSI as on 1st April of each Financial Year	Number of Secretarial Audit Reports
1	Upto and equal to 5 years	5
2	More than 5 years but less than or equal to 10 years	10
3	More than 10 years	20

Provided that in the case of a firm of Company Secretaries, the  ceiling in respect of Secretarial Audit as aforesaid would apply to each partner.

These Guidelines shall come into effect for issue of Secretarial Audit Report for financial year 2015-2016 onwards.”

The guideline came with drafting error as it contains only one clause which is numbered as (i). There is no other clause under heading “Secretarial audit”. This either show incompetence of institute in drafting or some unwarranted urgency to issue this guideline.

What is “valid certificate of practice”? These guidelines do not define this term. I do not know, whether the Institute of Company Secretaries of India also issues “Invalidate Certificate of Practice” also. Just to clarify, whether MCA /ROC issue “Valid Certificate of incorporation”?

The guideline creates three classes within class of company secretaries on the basis of experience. The term Experience is not defined anywhere in guidelines. It seems numbers of years as member of ICSI as on 1st April of each Financial Year. A person who got membership on 10^th April of a year shall have zero years of experience on next 1^st April.

What if, member was in practice as chartered Accountant or as advocate or as allopath all these years? A Senior Advocate of Supreme Court of India became eligible for 20 secretarial audits, if he chooses to take certificate of practice today.

Why should experience under employment also be constituted as experience for the purpose of secretarial audit? There is no explanation. There are reports some senior company secretaries resigning from big groups to get secretarial audit of same groups on “present packages”.

These guidelines suggest experience based slabs for eligibility for numbers of secretarial audits. I may agree that experience may create more understanding to handle for complex issues but whether it increase capacity to handle more assignment. No, with age physical capacity diminishes and dependence on staff and trainees increases. These guidelines give reason in support of such discrimination.

Thankfully, Guidelines make ceiling applicable on each partner basis. However, term “Partner” may need to be defined to make it clear in wake of near future possibility of multi – disciplinary partnership/limited liability partnerships.

Dangerously, these guidelines shall come into effect for issue of Secretarial Audit Report for financial year 2015-2016 onwards. This is a hidden statement not a proviso or clause or anything legally understandable. This paves way for “open competition” (or “open loot” among top rank present or past council members to grab as much as they can before open competition among all members. This effectively goes against open and fair competition among all members for present financial year 2014 – 15. This statement proves apprehension and close door allegations of members correct. If someone has not on same conclusion on this, please wait to read similar statement given under Annual Return.

Annual Return:

A member of the Institute holding a valid certificate of practice shall be entitled –

(i) to certify Annual Return pursuant to Section 92(2) of the Companies Act, 2013 (Act No. 18 of 2013), for not more than 80 companies for each of the financial year under consideration.
(ii) to sign Annual Return pursuant to Section 92(1) of the Companies Act, 2013 (Act No. 18 of 2013), for any number of companies, for each of the financial year under consideration.

These Guidelines shall come into effect for signing and certification of Annual Return for financial year 2014-2015 onwards.

First thing, unlike secretarial audit part, annual return certification and signing come into effect from financial year 2014 – 15. This is allegedly because, mightier of profession want to focus on loot of Secretarial Audit and leaving Annual Return Signing and Certification for “others”.

Now I will focus on Section 92(1) [clause (ii) of these guidelines] first and then on Section 92(20) [Clause (i) of these guidelines].

Signing of Annual Return:

I quote relevant part of Section 92(1); “Every company shall prepare a return (hereinafter referred to as the annual return) and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice”.

After these guidelines, only one company secretary in practice may replace any number of company secretaries in employment. I do not buy argument that employee company secretary look into many other matters in the company. A company where employee company secretary look into many other matters other than company laws, never consider a condition where it may have “no company secretary”.

I propose, a company secretary in practice should not be allowed to sign more than one “Annual return”. This will be good for better corporate governance and for better employment possibilities for young members. Otherwise from tomorrow, not only practising company secretaries will replace all employee company secretaries but also so called “dummy company secretaries” at once. Young members will neither have job nor dummy assignment.

Certification of Annual Return:

The annual return, filed by a listed company or, by a company having such paid-up capital or turnover as may be prescribed, shall be certified by a company secretary in practice in the prescribed form, stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act. [Section 92(1) as amended by the Companies (Removal of difficulties) Order, 2014]

Whether Annual Return Certification would soon be putting stamp exercise? Yes, guideline seems to suggest as such. It seems Institute has not considered, while drafting these guideline its own arguments related to time consumption for quality work.