Functions of Company Secretary under the Companies Act

Apart from the statutory duties enumerated above, the secretary is required to send notices of the meetings of the Board of Directors and the general meetings. The company secretary is also required to maintain minutes of the meetings and several registers as also file various returns prescribed under the Act with the Registrar and is also responsible for ensuring compliance of the various provisions of the Act including to seek approval of the Central Government , besides compliance of the other legislations, more particularly relating to investor and consumer protection like the SEBI Act, 1992; the competition Act 2002; the consumer protection Act, 1986 and the Depositors Act, 1996.

Powers and duties of Company Secretary

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Secretary’s duties are largely of ministerial or administrative nature. He has no power to negotiate contracts nor borrow moneys or make policy decisions, nor, in the absence of special authorization, acknowledge a debt or other liability. The Supreme Court observed:  Ordinarily the functions of the secretaries of the corporation would be ministerial and administrative. As a secretary only, he would have no authority to bind the corporation entering into contracts or other commitments on its behalf. He cannot register a transfer of shares without the sanction of the Board and if there is no Board of Directors it does not mean that he can register the transfer of his own.

Under no circumstances can the secretaries of the company discharge the functions of the Board or act on behalf of the company in matters of policy or take substantial steps which or not of an administrative or ministerial nature. He cannot give consent on behalf of the company under section 399 to filing the petition under sections 397 and 398 of the 1956 act (Corresponding to section 241 of the 2013 Act].Speaking of the effect of the amendment of 1974, the Calcutta High Court said that through the amendment elevated the position of the secretaries as to enable him to undertake serious litigation on behalf of the company registration without the decisions of the company’s Board. The Secretaries have no power, without the resolution of the directors to call the meeting of a company or to commence proceedings on behalf of the company, nor can he alter the register of members, but any such act may be ratified by the directors. The secretary cannot usurp the functions and powers of the board or the company, but due to the enormous growth of company activities he has been empowered to discharge various ministerial and administrative duties on behalf of the company which generally can be performed by an authorized agent. In due course of time the secretary has been given certain statutory powers, like signing the annual returns etc.,  But under no circumstances can he discharge the functions of the Board or act on behalf of the company in matters of policy or substantive steps which is not administrative or ministerial in nature. He cannot also file a suit on behalf of the company, unless authorized to do so. So the secretaries cannot issue notices without the Board’s authority or commence litigation in the Company’s name without the authority from the Board or alter the register of members without the Board’s authority.

Whole field of Administrative but not managerial functions

The functions of the secretary of a company have considerably expanded during the past eighty and more years. He is no more a mere clerk or servant as was stated in several decisions of the English Court. Short of managerial functions his powers and duties extend to the whole field of administration of the affairs of the company registration , so that an outsider dealing with him may assume that functions and duties other than managerial, are normally within the ambit of the secretary’s powers unless there are circumstances to show that they are limited in respect of particular matters . In England the duties of secretary are thus described : “The duties of the secretary will depend on the size and nature of the company and of the arrangement made with him. But in any case he will be present at all meetings of the company and of the directors and will take proper minutes of proceedings, he will issue under the direction of the Board all notices to members and others that may requisite; he will conduct all correspondence with shareholders in regard to calls, transfers, forfeiture and otherwise, and will keep the books of the company or such of them as relate to the internal business thereof, the register of members , the share-ledger, the transfer book, the Registrar or mortgages, etc. He will also make all necessary returns to the Registrar of Companies”.

The Company Secretaries perform many of the administrative duties imposed upon companies, such as delivering documents to the Registrar of Companies and engaging office staff. So far as the position of the secretary  as such is concerned, it is established beyond all question that a secretary, while merely performing the duties appropriate to the office secretary , is not concerned in the management of the company. Equally he is not concerned in carrying on the business of the company. On the other hand, it is equally well established, indeed it is obvious, that a person who holds the office of the secretary may in the some other capacity be concerned in the management of the company’s Business.

Advisory role of secretary  : Cadbury Report

The CADBURY COMMITTEE  in England observed that the secretary is a kind of impartial civil servant offering advice to the Board of directors on procedures and responsibilities. The company secretary has a key role to pay in ensuring that the board procedures are both followed and regularly reviewed. The chairman as well as the board will see to the company secretary for guidance on what their roles are under the rules and regulations. It should be standard practice for the company secretary to administer, attend and prepare minutes of the board meetings”. The expressed its expectation that the secretary would be a source of a advice to the Chairman and also to the Board of directors on the implementation of the code of best practice. This provision of the code has to be observed by all listed companies. The Report on this point further says that all directors should have access to the advice and services of the secretary and that the secretary is responsible to the Board for ensuring compliance with provisions Rules and Regulations.

Representations by secretary

Representations by the secretary in the absence of authority, do not bind the company. The secretary has no general authority to make representations to induce persons to take shares in a company. Even where a secretary is held out as a person to answer certain enquiries, the company incurs no liability for untrue answers if made by the secretary for his own private ends. In all these cases , it would have been open to the directors to ratify the unauthorized acts. A bank was held to be guilty of negligence in crediting to the secretary’s private account the company’s cheque which was endorsed by the secretary without authority. The company was allowed to recover the amount. A similar recovery from a bank was allowed where it had permitted the secretary to draw from the company’s account by forging signatures.

Fiduciary nature of duties

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A secretary is in fiduciary position towards the company and is liable to account to the company registration if he receives an improper commission. But a secretary not personally liable for  a misapplication of the company’s funds by someone else though he may know all about it. In a parallel situation a director would have been held liable. There is also this observation in a ruling on the position of a company secretary, he owed no fiduciary duty to the company and had, therefore, committed no act causing loss to the company which could be actionable by it.

Prescribed authority for authentication of documents

A secretary is a prescribed authority for authenticating a number of documents which  companies have to be issue for different purposes at different times. Most of the documents which are required to be filed with the Registrar have to be authenticated either by a secretary or by a director or by both, a secretary and  a director. When two signatures are so prescribed they cannot be made by one person acting in both capacities. Where at the crucial moment there is no secretary in office, the acts required to be done by the secretary, may be done by other officers,  such as assistant or deputy secretaries including a director who has authorized by the Board. A principal officer of the company registration , including its secretaries can verify the contents of pleadings on the company’s behalf and it is immaterial for this purpose that the appointment of any such officer is pending before the Central Government for approval.

UK Institute of Secretaries’ view of Secretary’s duties

The president of the U.K. Institute of chartered securities  summarized the  Secretary’s duties as follows:

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Board: Briefing directors, documenting agenda, preparation of concise minutes for action purposes, arrangement for meetings (Conditions and atmosphere important); progression of business between meetings; liaison with full and part time directors; personal matters affecting the directors such as service contracts, committee, composition, meeting and reports.

Stockholders: Service in regard to notices, reports and dividend and interests payments, correspondence, information and work visit involving public relations, takeover bids, merger codes, disclosure of information including interim financial and trading statements, timely notification to stock exchange and the press, analysis of shareholdings for Board dissemination.

Legal obligations: Requirements of the companies Act, and  a multitude of other legislation concerning trade, employment etc.,

Administrative Duties:  Accounting functions, general legal work in conjunction with internal legal departments and /or outside solicitors, company law administration, property valuations, negotiations and management, insurances and banking; personnel and contracts of services, clinics, medical and dental services, charitable trust and general head quarters, organisation and administration .

Outside contacts: Government departments, stock exchange, professional advisors, consultants and trade associations.

Judicial view of position of secretary

The secretary is one of the subordinate officer and he has no managerial functions. He performs such functions and exercises such powers as the board may delegate to him and these powers may be extensive or limited according to the terms of appointment in each case of company registration, and there is nothing to prevent their  being extended to the sphere of managerial functions also. But no one entering into contractual relations with the company can assume without further enquiry that the secretary as such, has authority to make representations or do anything binding on the company. The present position of the company secretary as explained : “Time have changed, a company secretary is much more important person nowadays. He is an officer of the company with extensive duties and responsibilities. This appears not only in the modern companies Act, but also by the role which he plays in day -to-day business of the companies. He is no longer a mere clerk. He regularly makes representations on behalf of the company and enters into contracts on its behalf which come within day-to-day running of the Company’s business. So much so he may be regarded as having been held out as having authority of  a company secretary. Even in the light of this decision it cannot assumed, in the absence of the facts or special circumstances in many case, that the powers of a secretary have expanded to any extend over the area of managerial functions.  Functionally a secretary as such can only be doing secretarial duties  and exercising secretarial powers. He cannot be equated with the manager whose powers and functions are distinct from those of  a secretary as understood by the today business world. It may be  noted that this remuneration is not taken into calculate the overall management under section 198 of the 1956 Act.

Duty to ensure compliance with laws

Under the scheme of the 1956 Act, it would be seen that where a company appoints  a secretary , it is his duty and responsibility to see that the affairs company  are conducted in  accordance with law and the requirements of the Companies Act and other laws duly complied with. Accordingly in all cases where no contravention of any law by the company registration, as an officer of the company is punishable as an  officers, the secretary will be liable.

True legal position of the Secretary

His true legal position is that he is an agent in the same position as any other agent of the company. If his dealings are such that the company is not bound by them, he may himself be liable as in the case of a director on the ground of breach of warranty of authority. If he does any unauthorized acts or makes unauthorized representations of the company is not bound by them.

Criminal liability for non-compliance

Generally the secretaries of  a company is treated as a mere administrative assistant of the Board, statutes (such as labor welfare and anti-pollution) creating new criminal offences responsible for the company’s crimes to the same extent as the directors. Thus criminal law is more in accordance with reality, because the secretary’s  sometimes a full-time director also who is as influential in managing the company’s affairs as his fellow directors.

Illustrative cases of Secretary’s role

Certain English cases have considered different aspects of a secretary’s role; these cases are

  • The knowledge of directors is in the ordinary circumstances the knowledge of the company, but the knowledge of a mere official such as the secretary would only be the knowledge of the company if the thing of which the knowledge is secured is a thing within the ordinary domain of the secretary’s duties.
  • The secretary is not liable or accountable, as the directors are, for loss which may be incurred by the company registration by reason of any mis-application of funds of the company even with his knowledge unless the said miss-application was due to his own fraud or negligence.
  • The offices of a director and secretary are so incompatible that one and the same person cannot held both.
  • If the acts of the secretary are done within the scope of his authority, it has been laid down that the principal if liable for the fraud of the secretaries acting within the scope of his authority whether the fraud is committed for the benefit of the principal or for the benefit of the agent.

Removal of Secretary

The removal of a secretary by the managing director is bad when the articles of association give such power only to the Board of directors. Where a managing director of  a Government Company, appointed by the Governor in accordance with the Company’s articles, placed the secretaries of the company under suspension for initiating disciplinary proceedings, the secretary was not allowed to question the validity of the appointment of the managing director to his office. A secretary on his removal from service, has no cause of action against the company on the basis of articles. Where the directors of a company gave notice to the secretaries for his removal but the notice was defective, it was held that the defect in the notice became rectified when the shareholders approved the notice of the removal and, therefore, the removal was valid in law.

Professional privilege of the qualified secretary

The 1956 Act distinguishes a secretary in whole-time practice under section 2 (45 A), other than the secretary possessing the qualifications  prescribed under section 2(45) of the 1956 Act is entitled to appear in proceedings before the Company’s Law Board, as per Rule 19 of the Company Law Board Regulations , 1991.

ICSI is an authority

The Institute of Company Secretaries of India us an “authority” within the meaning of Article 12 of the constitution . It has a public element and therefore its action must be guided by reason. If it refuses arbitrarily to admit a person to membership the action will be volatile of the Article 14 of the constitution and  a writ petition will be maintainable against such refusal. Where a person possesses prescribed qualifications, he has a legal right to be enrolled as a member of the Institute.

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