As you are aware that a Company Secretary in a company is the Principal Officer and acts as a link between the Board of Directors, the company and government, regulators, judicial agencies, courts, enforcement agencies etc. A Company Secretary is responsible for compliance and disclosures of the activities and results of the company every year under various laws of land. A Company Secretary provides guidance to the Board of Directors of a company for compliance of various applicable laws. He/she is also responsible for conduct of activities of the company. He /she is also included in definition of “Officers in Default” and “Key Managerial Personnel” of the Company. The duties of a Company Secretary increased many fold in case of listed companies and those companies in which public are substantially engaged. In this article we are going to explore the rights and duties of a Company Secretary on the basis of a decided case of Deccan Chrinicals Holdings Ltd. Vs. SEBI.
Section 205 of the Companies Act, 2013 read with Rule 10 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 deals with the functions of a Company Secretary . Some of the major duties and functions of a Company Secretary can be inferred as follows: To ensure compliance with laws prevalent and applicable on the company and report to the Board of Directors (Board of Directors) about the same. To facilitate approval and conduct of Board meetings and general meetings of shareholders. To ensure compliance with the applicable secretarial standards. To represent the company before various authorities. To ensure that the company engages in good corporate governance practices. Any other function that the Central Government may prescribe. Certain companies have been prescribed under Section 204 of the Companies Act, 2013 read with Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 These companies include: Every listed company Every public company having- paid-up share capital of fifty crore rupees or more or; turnover of two hundred fifty crore rupees or more or; outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more. Such companies are required to comply with secretarial audits which shall be conducted by a CS in practice.
The report of such an audit is attached with the report of Board of Directors. LET’S DISCUSS THE CASE BRIEF OF CASE Deccan Chronicle Holdings Ltd. (“DCHL” or the “Company”) is a publisher of newspapers suchas ‘Deccan Chronicle’, ‘Asian Age’, ‘Financial Chronicle’ and ‘Andhra Bhoomi’. In December 2004,the Company had come out with a public issue of Rs. 80,13,100 shares of Rs. 10 each at Rs. 162 pershare and had got its shares listed on BSE and NSE. DCHL announced the first buy-back in July 2009 for up to 3.50 cr. equity shares of Rs. 2 each(minimum of 1 cr. equity shares) from the open market through stock exchanges at a price not exceeding Rs.100/- per equity share for an aggregate amount not exceeding Rs. 180 crore. The buyback commenced on August 12, 2009 and closed on January 25, 2010 wherein 26.54 lakhequity shares were bought back at an average price of Rs. 97.78 aggregating Rs. 25.95 crore. DCHL announced another buy-back of its equity shares in May 2011 up to 3.45 cr. equity shares and minimum of 1 cr. equity shares from the open market through stock exchanges. SEBI’S INVESTIGATION SEBI conducted an investigation to ascertain:- If the promoters, Chairman, Vice Chairman of DCHL, have made any fraudulent pledgingof shares of DCHL and have made wrong, misleading or inadequate disclosures to the stock exchange, as alleged in the media reports. Whether there was understatement of loans by DCHL in its financial statements for the financial years from 2008- 09 to 2011-12. THE INVESTIGATION, INTER ALIA, REVEALED THAT (1) DCHL had understated its outstanding loans to the tune of Rs. 1,339.17 crore, Rs. 2,982.07crore and Rs. 3,347.41 crore for the year 2008-09, 2009-10 and FY 2010-11 respectively. (2) The Company had understated the interest and financial charges from financial year2005-06 onwards and the cumulative amount of such understated amount stood at approximately Rs. 753.91 crore up to September 30, 2012. (3) Without having adequate free reserves DCHL carried out buyback of its shares which misled the uninformed investors and shareholders about the perceived valuation, strong financials, and adequate free reserves of the company which actually was not true and might have influenced / induced the decision of investors and shareholders, particularly when the price of the share was declining since May 2010.
(4) The Company had manipulated its financials and the announcement for buyback of its securities was made even in the absence of adequate reserves. (5) The Company had carried out the buyback of shares beyond the prescribed limit and also did not make any disclosure about change in its shareholding consequent to the buyback. (6) The promoters and directors of DCHL, while making disclosure to the stock exchanges for the quarter ending on September 30, 2012 have for the first time disclosed that 99.81% of their shareholding in DCHL is encumbered / pledged whereas the promoters had obtained loans from financial institutions, banks, or finance companies either by way of pledging their shareholding or by way of entering into Non disposal Undertaking or Security Net Agreements since March 2011. DCHL along with its promoters, chairman and vice-chairman who are responsible for the overall management of DCHL have, inter alia, failed to comply with the following conditions of the listing agreement, namely – (a) Failed to disclose to the stock exchange material price sensitive information on the dateof entering into agreement with DCM (partnership firm with its promoters and directors). (b) Misleading financial information (i.e. understatement of interest and outstanding loans and thereby overstatement of profits) in its Annual Report for FY 2008-09, FY 2009-10and FY 2010-11 which were not true and fair. (c) Delay in filing shareholding pattern for quarters ended Sep-12 and Dec-12 to the stockexchange. (d) Failure to provide updated information on the shareholding pattern from quarter endedMar-13 onwards on its website. (e) Failure to appoint Company Secretary of the Company. (f) Failure to disclose related party transactions pertaining to funds advanced to Flying ton Freightors Ltd., a related entity. SHOW CAUSE NOTICE TO THE COMPANY SECRETARY Pursuant to the investigation, a common show cause notice (“SCN”) dated May 10, 2016 was issued to its, Company Secretary of the company for the above mentioned allegations, based on the findings in the investigation conducted by SEBI, which further includes that Company Secretary being the signatories to the public announcement made by the Company on May 6,2011 for buy back of its equity shares without having adequate free reserves which misled the uninformed investors and shareholders about the perceived valuation, strong financials or adequate free reserves of the company and these actions have wrongfully influenced and induced the decision of investors and shareholders particularly when the price of the share was declining since May 2010. REPLY OF THE COMPANY SECRETARY He was appointed as a company secretary of DCHL on April 21, 2009 and resigned from the services of the Company vide resignation letter dated May 1, 2012. He had stopped attending the office and discharging his official duties at DCHL from June 1, 2012.
The Company has filed Form No. 32 showing relieving of Company Secretary on August 31,2012. During his employment in DCHL, he was not invited to the meetings of the board of directors of the Company. The promoters/directors used to meet prior to the scheduled time on the board meeting date (for approval of results, etc.) and would direct him to send the financial results to the stock exchanges. He is not aware as to what transpire din those meetings. Based on the requirement for loan/borrowings any resolutions to be passed were discussed in the meeting. With regard to non-disclosure of encumbrance/pledge of shares it has been stated that neither he was involved in the transactions nor he had knowledge of the same. Further,the responsibility to make disclosure under regulation 31(1) r/w regulation 31(3) of the Takeover Regulations, 2011 is solely on the promoters.
With regard to alleged mis-statement in books of accounts, it has been stated that at no point of time he was entrusted with any duties or responsibilities relating to the accounting or finance function of the Company by the management and as such he hadno knowledge of the loan, bank correspondences, pledge etc. The presumption as to correctness of the Audited Financial statement is established immediately upon signing of the same by the Statutory Auditors and if any understatement of outstanding loans is noticed upon investigation then a person who is merely a company secretary may not be held liable as he was not involved in preparation and finalization of annual accounts. He had signed the financial statements of the company under the provision of Section 215 of the Companies Act, 1956 with a view onlyto authenticate that the documents were approved by the board of the company. He had ascribed his signature on the public announcement for buyback in his capacity asa Company Secretary. It was only in relation to the compliances of procedural formalitiesfor the buy-back of shares and not in respect of financial statements and information contained therein. The alleged non-compliances with certain clauses of the Listing Agreement by DCHL havetaken place after he had resigned from the Company as Company Secretary. Therefore,he may not be held responsible for the same.As admitted by the Company Secretary, he was appointed as Company Secretary in DCHL onApril 21, 2009. He resigned from the services of the Company vide his resignation letter datedMay 01, 2012.
The Company Secretary has further claimed that he had stopped attending theoffice and discharging his official duties at DCHL w.e.f. from June 01, 2012.The Company Secretary has, inter alia, also contended that during the time when he was in theemployment of DCHL, he was not invited to the meetings of board of directors of the Company. He has claimed that the promoters/directors used to meet prior to the scheduled time on thedates of board meeting (for approval of results, etc.) and would direct him to send the financialresults to the stock exchanges and that he was not aware as to what transpired in thosemeetings. With regard to the alleged mis-statement in books of accounts, the Company Secretary hasstated that at no point of time he was entrusted with any duties or responsibilities relating tothe accounting or financial transactions of the Company by the management and as such he hadno knowledge of the loan, bank correspondences, pledge, etc. The presumption as to correctness of the Audited Financial statement is establishedimmediately upon signing of the same by the Statutory Auditors and if any understatement ofoutstanding loans is noticed upon investigation, then a person who is merely a companysecretary may not be held liable as he was not involved in preparation and finalisation of annualaccounts. He had signed the financial statements of the Company only pursuant to the statutoryrequirement under Section 215 of the Companies Act, 1956 which is mandatory and the signingwas only in the nature of attestation to the effect that these financials have been considered andapproved by the directors. He has also contented that as per the provisions of the CompaniesAct, 1956 the responsibility for accounts and financials rests ultimately on the board ofdirectors.
The requirements of section 215 of the Companies Act, 1956 (section 134 of theCompanies Act, 2013) regarding authentication of balance sheet and profit and lossaccount is given hereunder:- “215. AUTHENTICATION OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT (1) Save as provided by sub-section (2), every balance sheet and every profit and lossaccount of a company shall be signed on behalf of the Board of directors – (i) in the case of a banking company, by the persons specified in clause (a) or clause(b), as the case may be, of subsection (2) of section 29 of the Banking CompaniesAct, 1949 (10 of 1949);
