The successive Annual Reports on the Working and Administration of the Companies Act, 1956 reveal that a large number of documents are returned for rectification of defects and also remain pending for being taken on record. While this state of affairs has perhaps resulted from the constraints under which the offices of the ROCs operate, it cannot be denied that in case of documents returned for rectification, a large number of errors or omissions arise on account of misinterpretation or ignorance of the provisions of law.
Further, the Department of Company Affairs institutes every year a large number of prosecutions against the companies and their officers in default for contravention of various provisions of the Companies Act. Most of the companies against which prosecutions are instituted are private limited companies or small public limited companies which do not have the benefit of expert professional services of qualified Company Secretaries.
Thus, it is a well established fact that smaller companies fall prey to violations of the provisions of the Companies Act in the absence of professional support as compared to companies which have employed a qualified Company Secretary.
Compliance Certificate is, therefore, salutary as it creates an awareness among companies to comply with the provisions of the Companies Act and also provides a mechanism for self regulation by companies.
Compliance Certificate will not only act as an effective mechanism to ensure that the legal and procedural requirements under the Companies Act are duly complied with but also instill professional discipline in the working of the company besides building up the necessary confidence in the state of affairs of the company. It will relieve the company and its directors including the nominee directors from the consequences of unintended non‑compliance of the provisions of the Companies Act. It will further curb the tendency on the part of the smaller companies to short circuit the procedural requirements which primarily occur due to ignorance or lack of professional support. It will act as a pre‑emptive check to monitor compliatice with the requirements of the Companies Act and the Rules made thereunder.
The Company Secretaries, while undertaking the work of issuing Compliance Certificate will act as a friend and guide to the management of companies. There is also a need to educate the management of small companies and to instill professionalism in their management so that these companies appreciate their contribution. Only a positive and helpful approach would build the necessary confidence. If there have been technical non‑compliances, the approach should be to guide and advise the company to make good the deficiencies by maintaining proper records, filing the requisite returns or seeking compounding of offences.
SECRETARY IN WHOLE‑TIME PRACTICE
Section 2(45A) defines "secretary in whole‑time practice" as a secretary who shall be deemed to be in practice within the meaning of sub‑section (2) of section 2 of the Company Secretaries Act, 1980 and who is not in full‑time employment. Thus, a member of the Institute of Company Secretaries of India, who is not in full‑time employment can become a Secretary in whole‑time practice (hereinafter referred to as CSP) after obtaining from the Council of the Institute a Certificate of Practice under section 6 of the Company Secretaries Act, 1980 and the regulations thereunder.
THE COMPANIES (COMPLIANCE CERTIFICATE) RULES, 2001
In terms of the newly inserted proviso to sub‑section (1) of section 383A, the Central Government has prescribed the Companies (Compliance Certificate) Rules, 2001 (hereinafter called the rules) for issue of Compliance Certificate by a CSP. The text of the Rules is given in Annexure 'A'.
COMMENCEMENT OF RULES
The Rules have come into force w.e.f. February 1, 2001 i.e. the date of their‑publication in the Official Gazette.
OBTAINING OF COMPLIANCE CERTIFICATE
According to sub‑rule (1) of rule 3, every company not required to employ a whole‑time secretary under sub‑section (1) of section 383A of the Act and having a paid‑up share capital of ten lakh rupees or more shall obtain a certificate from a CSP.
It may be noted that the requirement of obtaining compliance certificate is mandatory for a company to which proviso to sub‑section (1) of section 383A applies even if it has employed a whole‑time secretary.
Thus, every company which is not requires to employ a whole‑time secretary and whose paid‑up share capital is ten lakh rupees or more at any point of time during the financial year, shall be required to obtain Compliance Certificate from a CSP in respect of that financial year.
SCOPE OF COMPLIANCE CERTIFICATE
The scope of Compliance Certificate would comprise of certification of the compliance of various requirements under the Companies Act and the Rules thereunder. The CSP should certify compliance only in respect of matters specified in the Form prescribed under the Rules and where any matter is not applicable, he should specify accordingly.
Sub‑rule (2) of rule 3 specifies that the Compliance Certificate shall be in Form appended to the Rules or as near thereto as circumstances admit. Certain amount of flexibility in the Form has, therefore, been provided which means that if any information required to be given in the Certificate does not fit into the format, necessary modifications way be made in the format by the CSP.
At the time of issue of the first Compliance Certificate, CSP should verify the registers and records maintained by the company from the first day of the financial year except where there are reasons for CSP to verify the records for the earlier years. Such occasions may arise in respect of maintenance of registers, retirement of directors by rotation, issue of share certificate when the allotments were made in the earlier years, payment of managerial remuneration, etc.
PERIOD OF CERTIFICATION
Sub‑rule (2) of rule 3 provides that the Compliance Certificate shall relate to the period pertaining to the financial year of the company.
The Companies (Amendment) Act, 2000 has come into force w.e.f. 13th December, 2000 and the Companies (Compliance Certificate) Rules, 2001 have come into force w.e.f. from 1st February, 2001. Accordingly every company to which these Rules are applicable is required to obtain a Compliance Certificate from a CSP for the financial year in respect of which Board's report is signed on or after 1 st February, 2001.
FILING OF COMPLIANCE CERTIFICATE
Every company to which these Rules apply is required to file with the ROC the Compliance Certificate within thirty days from the date on which its annual general meeting is held.
Where the annual general meeting of such company for any year has not been held, such certificate is required to be flied with the ROC within thirty days from the latest day on or before which that meeting should have been held in accordance with the provisions of the Companies Act.
In case the annual general meeting is held and adjourned, the Compliance Certificate should be filed with the ROC within thirty days from the date on which such adjourned meeting was held provided such adjourned meeting is held within the statutory limit.
RIGHT TO ACCESS RECORDS
Sub‑rule (3) of rule 3 provides that the CSP for the purpose of issue of Compliance Certificate shall have right to access at all times to the registers, books, papers, documents and records of the company whether kept in pursuance of the Act or any other Act or otherwise and whether kept at the registered office of the company or elsewhere and shall be entitled to require from the officers or agents of the company, such information and explanations as the CSP may think necessary for the purpose of such certificate.
ATTACHMENT OF COMPLIANCE CERTIFICATE WITH BOARD'S REPORT
Proviso to sub‑section (1) of section 383A of the Act requires that the Compliance Certificate shall be attached with the Board's report referred to in section 217. It is, therefore, necessary for the company to attach a copy of the Compliance Certificate with the Board's report while forwarding the same to members and others under section 219 of the Act.
Further it would also be desirable for the Board to give full information and explanation in its report to the members under section 217 of the Act on every reservation, qualification or adverse remarks contained in the Compliance Certificate.
LAYING OF THE COMPLIANCE CERTIFICATE AT THE ANNUAL GENERAL MEETING
Sub‑rule (4) of rule 3 requires the Compliance Certificate to be laid by the company in its annual general meeting. As a good secretarial practice, the certificate should be read at the meeting and also made available to the members for inspection.
PENALTY FOR NON‑COMPLIANCE
Where a company fails to comply with the requirement of filing the Compliance Certificate with the ROC or attaching the copy of such certificate with Board's report, in terms of sub‑section (1A) of section 383A the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 500 for every day during which the default continues.
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