The department of company affairs is considering a proposal to dilute the responsibility of the board of directors. Instead, it is planning to ask companies for a compliance audit on having legal obligations fulfilled by a company secretary. The proposal has been mooted by the Institute of Company Secretaries of India.
Officials said the proposal, if accepted, could be implemented after the relevant rules were issued. The certificate from a company secretary could be the company's own, they pointed out. They added that the institute had proposed that the compliance certification from the company secretary cover all the relevant laws applicable to a company, including corporate and environmental laws.
The rationale behind the move lies in the fact that directors are not involved in the day-to-day affairs of a company and, therefore, should not be held responsible.
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In the case of the nominees of financial institutions, governed by the Companies Act, 1956, and government nominees, the Centre had earlier this year granted an exemption from prosecution in case of default in payment obligations of certain types.
At the same time, a particular individual would be responsible for ensuring compliance with the rules because the company secretary would only provide a compliance certificate after receiving the same from the person concerned, the officials said.
The government recently relaxed the norms for corporates to hire company secretaries by hiking the minimum paid-up capital requirement from the existing Rs 50 lakh to Rs 3 crore. The move was necessary due to the shortage of company secretaries in India, who number around 16,000 at present.
Section 383A of the Companies Act says firms with a paid-up capital as prescribed by the government are required to have a whole-time secretary. The Section, however, allows other companies to file a certificate from a secretary in whole-time practice with the registrar of companies.