Some Important Points from Secretarial Standards 1 & 2

Scope of Applicability

Section 118 (10) of the Companies Act, 2013

Every Company shall observe secretarial standards with respect to General and Board meetings specified by ICSI.

Section 205(1) of the Companies Act, 2013

One of the functions of the Company Secretary include -To ensure that the Company complies with all secretarial standards.

Effective Date of SS 1 & 2

Effective from July 1, 2015 and Revised effective from 1st October, 2017

Non compliance with SS

Section 118 (11) provides for a penalty of Rs 25000/- on the company and Rs 5000/- on every officer.

Highlighting that this is penalty

Therefore, it will not require prosecution, and it may be imposed by the Adjudicating officer (AO)

and another important point here is that it uses the term“penalty of Rs 25000” and not penalty upto Rs 25000/-

Now, who is the officer for penalty provisions above: As Section 205(1) imposes the obligation on the CS therefore CS. 

Q. Are these applicable to all companies?

Yes, to all Companies OPERATING IN INDIA (WHETHER INCORPORATED O/S INDIA OR IN INDIA) exceptions are as follows:

SS 1: OPC of one Director and a Section 8 Company.

SS 2: OPC and a Section 8 Company.

But if due to any changes or amendments in Companies Act, 2013 any particular Standard or any part thereof becomes inconsistent with the Act, then the provisions of the Act shall prevail. 

Q. ICSI has issued 9 Secretarial Standards so far, are all the standards mandatory? 

If we Look at Section 118(10) mandatory force has been given to only SS for board and general meetings that is SS 1 & 2. Other standards when issued may bind the CS and the Companies to all then only.

Q. Are they applicable to Commitee/ Class meetings etc.?

Yes, SS 1 pertains to committee meetings as well,

SS 2 pertains to class meetings, court-convened meetings; meetings of debenture holders also.

Q. The Heading of Section 118 is pertaining to minutes. Are the standards to be limited to minutes only in terms of their statutory force?

Ans. is No, Marginal note or caption or Heading does not control the language of the section. The section makes SS pertaining to board and general meetings mandatory in entirety.

Q. The Standards deal with matters such as postal ballot as well. Has it became mandatory now? 

Ans is that, this is a point of debate, Postal ballots are an alternate to the meeting.

Secretarial Standards V/s. Articles

Q. While the SS are clearly subordinated to the Act, then which is supreme and are SS subordinated to the articles?

Ans as about consistent principles, companies have the right to self-regulate themselves,

Meetings are matters of internal management of companies and therefore canonical rule of power to self regulate should apply here.

Another important point to note that SS are given the mandate of the law by virtue of section 118(10) but they do not represent matters of legislative policy (they are not in the act itself but has given only a reference, they are only the standards to balance the act where it is silent on certain matters) and moreover Unless the article is derogatory of a corporate standard, it is still permissible for companies to self regulate by articles.

Example:

# SS1 says board meetings may be called at any place [whether regd office or branch office or any other place] at any time [day or night or mid-night] on any day [sunday, national holiday, etc.]

# Articles may regulate the place of the board meeting.

Some important provisions of Secretarial Standards 1 : Meeting of The Board of Directors

Convening of Meeting

Any Director may summon a Meeting. CS or any other person authorised by Board on the requisition of a Directors shall convene a meeting.

It means Power to call a meeting is exclusively given to a director only.
It means any director whether whole time or nominee or independent or small director.
It also means that CS can not call any meeting himself/herself but can only arrange the convening.

In case of dissenting directors on board,this may create a major difficulty.

       Important for the Articles to restrain this power, so to avoid any future disputes among mgt

Article 67(ii) of Table F also permits Manager along with CS to convene a meeting.

the para uses the words “unless otherwise provided in the Articles"

The Chairman, unless objected by majority of Directors, can adjourn the Meeting at any stage for any reason.

Article 67 (i) of Table F permits the Board to adjourn its meetings as it thinks fit.

Time, Place, Mode and Serial Number of Meeting

Every Meeting shall have a serial number
          No such provision under the Act, 2013, specially ordered by SS1.

Q. For companies that need to start seriating now, how would serial numbers be written?
A. Serial numbers may be year-specific:2019-20/1 or 01/2019-20.
     Some also suggest to count from the very beginning like if the company was incorporated in the    year 2017 then today it may be having its 24th Board Meeting of its lifetime, then it may also write as 24th Board Meeting of XYZ Pvt. Ltd.

Intent of this serializing is clearly to prevent post-facto insertion of board meetings.

Meetings shall be convene at any time and place, on any day. Now also on national holidays.

Place of meeting: Notice need to clearly mention the the venue it can be regd office or any hotel or any other place.

Unlike in case of general meetings, the place of board meetings need not be India, BMs can also be held foreign locations.  

If the directors/invitees are attending the meeting thorough VC then what would be the place of the BM: for this before issuing notice, any place can be written as Meeting place in the notice and that would be assumed that meeting held at that place only.