CH 4.

LEGAL FRAMEWORK GOVERNING CS

The role of a Company Secretary (CS) has evolved significantly over time,
transitioning from a mere clerk to a Key Managerial Personnel (KMP) and a
vital governance professional within a corporate entity.

Here's an overview of the CS profession, its functions, and its regulatory

framework, based on the provided text:

Evolution and Recognition of the CS Profession

The need for a Company Secretary profession arose in the early 1950s to
instill Corporate Discipline in a changing business environment.

Early Development: The Government initially set up an Advisory Board to

standardize qualifications and held examinations leading to the Government
Diploma in Company Secretaryship (GDCS).

Establishment of ICSI: Due to a substantial increase in candidates, the

Institute of Company Secretaries of India (ICSI) was established and
registered on October 4, 1968, as a not-for-profit company under the
Companies Act, 1956.

Statutory Status: The ICSI was converted into a statutory body in 1980 with
the enactment of the Company Secretaries Act, 1980. This marked the
Government's recognition of the CS's important part in introducing
professionalism into corporate management.

Judicial Acknowledgement:

In 1887, Lord Justice Esher considered the CS a "mere servant."

By 1971, Lord Denning famously acknowledged the change, stating, "A

Company Secretary is a much more important person nowadays... He is an
Officer of the company with extensive duties and responsibilities... He is no
longer a mere clerk."

Key Managerial Personnel (KMP): Under the Companies Act, 2013, CS

professionals are recognized as KMP, holding a senior-level management
position and being an intrinsic part of the Board.
🎯 Functions and Duties of Company Secretaries
The Company Secretary is described as an in-house legal expert, a compliance
officer, and the chief advisor to the board on corporate governance. Their role is
increasingly extending to areas of sustainability and ethics.

The role of a Company Secretary broadly covers the following areas:

Statutory Functions (Companies Act, 2013, Section 205)

The primary functions and duties of a CS include:

Compliance Reporting: Reporting to the Board on compliance with the Companies

Act, rules, and other applicable laws.

Secretarial Standards: Ensuring the company complies with applicable Secretarial

Standards.

Guidance to Directors: Providing collective and individual guidance to Directors

regarding their duties, responsibilities, and powers.

Meetings and Minutes: Facilitating the convening of Board, committee, and general
meetings and maintaining their minutes.

Regulatory Approvals: Obtaining necessary approvals from the Board, general

meeting, Government, and other authorities.

Representations: Representing the company before various regulators and

authorities (as upheld in the Mayank Agarwal v. M/s. Technology Frontiers case).

Corporate Governance: Assisting and advising the Board in ensuring good corporate
governance and complying with requirements and best practices.

Compliance Officer (SEBI (LODR) Regulations, 2015)

For a listed company, the qualified CS must be appointed as the Compliance Officer,
responsible for:

Ensuring conformity with the regulatory provisions of the SEBI regulations.

Co-ordination and reporting to the Board, Stock Exchange(s), and Depositories.

Ensuring the correctness, authenticity, and comprehensiveness of information and

reports filed.

Monitoring the email address for investor grievance redressal.

Ensuring compliance with other SEBI regulations like SEBI (Prohibition of Insider
Trading) Regulations, 2015.

⚖️Disciplinary Mechanism

The conduct of ICSI members is governed by the Company Secretaries Act,

1980, which sets out a formal disciplinary mechanism for professional and
other misconduct.

The disciplinary structure includes:

1. Disciplinary Directorate (DD)

Headed by the Director (Discipline).

Receives complaints, conducts investigations, and forms a prima facie

opinion on alleged misconduct.

Refers matters to the Board of Discipline (BOD) for misconduct listed in the
First Schedule.

Refers matters to the Disciplinary Committee (DC) for misconduct listed in

the Second Schedule (or both).

2. Board of Discipline (BOD) - Section 21A

Deals with misconduct under the First Schedule (less severe).

Follows a summary disposal procedure.

Penalties include:

Reprimand the member.

Remove the name from the Register for up to three months.

Impose a fine up to Rupees One Lakh.

3. Disciplinary Committee (DC) - Section 21B

Deals with misconduct under the Second Schedule (more severe).

Penalties include:
Reprimand the member.

Remove the name from the Register permanently or for a specified period.

Impose a fine up to Rupees Five Lakhs.

Appeals

Any member aggrieved by the BOD or DC order can appeal to the Appellate
Authority (constituted under the Chartered Accountants Act, 1949, and
deemed the Appellate Authority for the CS Act) within ninety days.

👤 Membership and Practice

A "Company Secretary" is defined as a person who is a member of the ICSI.

The members are divided into two classes: Associates and Fellows.

Right to
Class Requirements (Simplified) use
letters

A.C.S.
Passed qualifying examinations and (Associate
Associate
completed prescribed practical training. Company
Secretary)

An Associate for a continuous period of not

F.C.S.
less than five years and possesses
(Fellow
Fellow prescribed qualifications/experience (or has
Company
been in continuous practice for at least five
Secretary)
years).
Company Secretary in Practice

A member is deemed "to be in practice" when they, individually or in

partnership, engage in the profession of Company Secretaries for
remuneration. This requires obtaining a Certificate of Practice.

Professional services of a CS in practice include:

 Services related to the promotion, forming, incorporation,

amalgamation, reconstruction, reorganization, or winding up of
companies.
 Acting as an unauthorized representative for filing/attesting
documents.
 Acting as a share transfer agent, secretarial auditor, or
consultant.
 Advising management, legal, or procedural matters.
 Professional Misconduct: CS in Practice
(Part I, First Schedule)

Summary /
Clause Provision Key Exceptions/Clarifications
Prohibition

Allows any
person to
Prohibition:
practice in his
Allowing
name as a CS
unqualified
unless such Permitted: An individual
persons or
person is also must be a PCS and must be
non-partners/n
(1) a CS in either a partner or an
on-employees
Practice (PCS) employee of the PCS whose
to practice in
and is in name is used.
the PCS's
partnership
name/sign as
with or
PCS.
employed by
him.

(2) Pays or Prohibition: Permitted: Sharing with:

allows, Fee/Profit ICSI members (who are
directly or Sharing with also in practice/partners),
indirectly, any unprescribed partners (including
share, third parties. deceased/retired partners'
commission, legal representatives), or
or brokerage members of other
in the fees or professional bodies (CA,
profits of his CMA, Advocate, Actuary,
professional Engineer, Architect, etc.) as
business to prescribed by the Council.
 any person
other than a
member of
the Institute
or a
partner/retire
d
partner/legal
representative
of a deceased
partner/memb
er of any
other
prescribed
professional
body.

Accepts or
agrees to
accept any Permitted: Entering into
Prohibition:
part of the a profit-sharing
Accepting a
profits of the arrangement with
share of
professional members of prescribed
(3) professional
work of a professional bodies (as
profits from
person who referred to in Clause 2).
non-ICSI
is not a (This is the converse of
members.
member of Clause 2).
the
Institute.

(4) Enters into Prohibition: Permitted: Partnership

partnership Partnership with: Other PCS or
, in or with non- members of prescribed
outside recognised professional bodies
India, with professionals. (CA, CMA, Advocate, etc.)
any person for carrying on the
other than a profession.
PCS or such
other
prescribed
person who
 is a member
of any other
professional
body having
such
qualifications
as may be
prescribed.

Secures
professional
business
either
through the Prohibition:
services of a Securing Permitted:
person who work through Arrangements allowed
is not an unethical under Clauses (2), (3),
(5)
employee or means or and (4). Securing work via
partner, or unauthorized Council Guidelines on
by means persons (i.e., Advertisement.
that are not touting).
open to a
CS
(unethical
means).

(6) Solicits Prohibition: Permitted: Securing

clients or Touting or work from another PCS
professiona directly/indire (expressly permitted).
l work, ctly asking for Responding to tenders
either professional or enquiries issued by
directly or work. users of professional
indirectly, by services. Publishing
circular, change of address/firm
advertiseme constitution (bare facts).
nt, personal Writing to existing
communicati clients about law
on, changes.
interview, or
 by any other
means.

Advertises
his
professional Prohibition:
attainments Self-laudatory
Permitted: Advertising
or services, advertisemen
through a write-up
or uses any ts or using
setting out services
designation unauthorized
provided, subject to
or designations
Council Guidelines.
(7) expressions (e.g.,
Using degrees (University
other than "Specialist,"
established by law in
'Company "Company
India) or membership
Secretary' on Law
titles of other recognized
professional Consultant,"
institutions.
documents "Income Tax
(letterheads, Consultant").
signboards,
etc.).

Accepts the
position of
Prohibition:
a CS in
Accepting a Clarification:
Practice
new Communication is for
previously
assignment courtesy only; No-
held by
without objection/consent of the
(8) another PCS
informing the previous PCS is not a
without
previous PCS prerequisite. Client's right
first
(lack of to change CS remains
communica
professional absolute.
ting with
courtesy).
him in
writing.

Summary /
Key Requirements /
Clause Provision Key
Clarifications
Prohibition

(8) Accepts the Prohibition: Communication Must:

 Be written (Registered
Post, Hand with Ack., or
verifiable Electronic
Medium like
email/WhatsApp).
Delivery is essential
(mere posting is
position of a
Taking over insufficient, citing J S
CS in
specific Bhati v. Council of ICAI).
Practice
professional Consent is NOT
previously
assignments mandatory. Mandatory
held by
(exclusive Communication Areas:
another PCS
attestation Annual Return
without
work) without certification (Sec. 92),
first
prior written Secretarial Audit Report
communica
communicatio (Sec. 204), Certification of
ting with
n to the Securities Transfers,
him in
outgoing PCS. Corporate Governance
writing.
Certification (SEBI LODR
Reg. 34). Not Mandatory
(But Desirable):
Certifying e-forms, Due
Diligence for consortiums,
Retainership, Legal
opinions.

(9) Charges or Prohibition: Fundamental Principle:

offers to Charging Fee must relate to
charge fees contingent or expertise and time
which are percentage- spent, not linked to the
based on based fees. final result (e.g., cannot
percentage charge a percentage of an
of profits or excise refund amount).
which are
contingent
upon the
findings or
results of
such
 employment.

Permitted Occupations
Engages in
(General Permission):
any
Authoring books, acting
business or Prohibition:
as a director (subject to
occupation Engaging in
Companies Act), internal
other than incompatible
auditor, arbitrator, valuer,
(10) the occupations
trustee, or part-time
profession without
teaching (max 3
of CS unless Council's
hours/day). Specific
permitted permission.
Approval Required:
by the
Managing Director or
Council.
Whole-time Director roles.

Allows a
person not
being a
member in
Principle: The PCS's
practice or Prohibition:
judgment and expertise
a partner to Delegating
cannot be substituted.
sign on his statutory
Only the PCS or his
behalf or on certification/si
partner in practice can
behalf of his gning
(11) sign the certifications
firm anything authority to
(e.g., Annual Return,
he is non-
Secretarial Audit Report).
required to partners/non-
Due care required for
certify as a members/em
Digital Signatures
CS or any ployees.
(password retention).
other
statements
related
thereto.

Part II, First Schedule:

CS in Service
 Summary / Key
Clause Provision Context
Prohibition

Pays or allows,
This is
directly or indirectly, Prohibition: Sharing
distinct from
to any person any salary/remuneration from
a PCS
(1) share in the employment with any other
sharing fees
emoluments of person (even another
(Part I, Cl.
the employment member).
2).
undertaken by him.

Accepts or agrees to
accept any part of Upholds the
Prohibition: Receiving
fees, profits, or confidence
secret commission or
gains from a and trust
gratification from third
lawyer, CS, or reposed by
(2) parties who deal with the
broker engaged the
employer (e.g., receiving a
by the employer employer in
cut from the company's
by way of the
lawyer's fee).
commission or employee.
gratification.

Part III, First Schedule:

Members Generally (Professional Misconduct)

Clause Provision Summary / Key Prohibition

Not being a Fellow of the Prohibition: Misrepresenting one's

(1) Institute, acts as a Fellow of seniority/status (e.g., styling oneself as
the Institute. FCS when only an ACS).

Does not supply the

information called for or does Duty: Mandatory compliance with all
not comply with the information/requirements from
(2)
requirements asked for by the disciplinary and governing bodies. Non-
Institute, Council, DD, BOD, DC, compliance is misconduct.
etc.

(3) While inviting professional work Prohibition: Providing deliberately

or responding to false or misleading information in
tenders/advertising, gives professional communications.
information knowing it to be
 false.

Part IV, First Schedule:

Members Generally (Other Misconduct)

Claus Summary / Key

Provision Examples
e Prohibition

Held guilty by any

civil or criminal
court for an offence Misconduct:
punishable with Conviction for
(1)
imprisonment for minor
a term not crimes/offences.
exceeding six
months.

Sending derogatory
In the opinion of the emails to other
Council, brings members/MCA,
disrepute to the Misconduct: arranging
profession or the Any conduct that unbefitting
(2) Institute as a result stains the agitations/DHARNA,
of his action reputation of the misusing
whether or not profession. confidential data, or
related to his tampering with
professional work. Chapter/RC
minutes.
PART I, SECOND SCHEDULE
 Part I, Second Schedule: CS in Practice (Clauses 1-5)
These cases are dealt with by the Disciplinary Committee

Summary /
Key Key Requirements /
Clause Provision
Prohibitio Clarifications
n

Discloses
information
acquired in the
Principle: Information is
course of his
privileged communication.
professional
Disclosure requires client
engagement to Prohibitio
consent (e.g., Board
any person other n: Breach of
(1) resolution for a company)
than the client, confidentiali
or legal mandate. PCS must
without the ty.
secure authorization for
consent of
retaining/using digital
such client or
signatures to upload forms.
otherwise than
as required by
law.

(2) Certifies or Prohibitio Reliance: PCS may rely on

submits a n: an examination or search
report of an Certifying report done by another
examination of work not PCS. Trainees are not
matters related verified by considered employees
to CS practice competent for this purpose.
unless the personnel
examination was (PCS,
 made by him,
his partner,
partner,
his employee,
employee).
or another
PCS.

Permits his
name to be used
Prohibitio
in connection
n:
with any report
Guaranteein
or statement Requirement: If signing
g or
contingent upon such a document, must
vouching
future include appropriate
for the
(3) transactions in disclaimer clauses and
accuracy of
a manner which disclose sources/premises
future
may lead to the of the forecast. PCS cannot
results,
belief that he be a "fortune teller."
forecasts,
vouches for
or
the accuracy
projections.
of the
forecast.

Expresses his
opinion on any
report or Prohibitio
statement given n: Lack of "Substantial Interest":
to any business independen Defined as owning
enterprise in ce due to beneficially 25% or more
(4)
which he, his substantial of the voting power (for a
firm, or a interest company) or 25% of the
partner in his (conflict of profits (for other concerns).
firm has a duty).
substantial
interest.

(5) Fails to Prohibitio Duty: Paramount duty of

disclose a n: Omission full and complete
material fact of a disclosure (Golden Rule).
known to him in material The onus is on the PCS to
 his report or
statement, the
disclosure of
which is
necessary in
fact that
making such prove non-disclosure did
makes the
report or not make the statement
report
statement, misleading.
misleading.
where he is
concerned with
such report in a
professional
capacity.

Part I of the Second Schedule: Specific Clauses

(PCS)

Description
Key Takeaway / Example of
Clause of
Principle Violation
Misconduct

Avoiding "half-
Similar to the Stating a continuous
truth" which can
golden rule of dividend track record
be more disastrous
a prospectus: but omitting that for
Implied than outright
Truth, the the last three years,
Clause falsehood, as it
whole truth, dividends were paid
(Golden misleads the
and nothing from accumulated
Rule) reader into
but the profits/reserves,
believing the
truth must not current year's
financial health is
be disclosed. profit.
sound.

Clause Fails to report Deals with the Knowing about a

 a material
misstateme
nt known to non-disclosure of significant
him and with a known material accounting error in a
(6)
which he is misstatement in a report and failing to
concerned in professional report. disclose it.
a professional
capacity.

A non-wholetime
Requires due
practicing CS
care. Gross
Does not certifying an Annual
negligence
exercise due Return ($\S$92 of
imports a high
diligence, or Companies Act,
degree of careless
is grossly 2013). Certifying
Clause conduct, distinct
negligent in necessary powers for
(7) from minor errors
the conduct an agreement
or simple
of his without thoroughly
negligence. "Watch
professional verifying the
dog but not a
duties. Memorandum and
blood-hound"
Articles of
principle.
Association.

Fails to
First Limb: Duty
obtain
to obtain sufficient
sufficient
information.
information Issuing a wrong
Second Limb:
necessary for consumption
Refrain from
Clause expressing an certificate without
expressing an
(8) opinion, or if obtaining all
opinion if the
exceptions necessary
exceptions
are so information.
(limitations/reserva
material as to
tions) are too
negate the
material.
opinion.

Clause Fails to invite Duty to highlight Failing to note a

(9) attention to any material significant deviation
any material deviation from from standard
 departure
well-recognized
from the
and accepted
generally
sound secretarial practice in the
accepted
practices (e.g., in minutes or share
procedure
share transfers, issue process.
relating to the
meetings
secretarial
procedure).
practice.

Fails to keep
client's
money (other
Ensures client
than
money is Adjusting fees from
fees/remuner
separately advance received for
ation/expendi
accounted for statutory fees
ture money)
and used only for without client's
Clause in a separate
the specific authorisation or
(10) banking
purpose for which delaying the use of
account or
it was received funds for
fails to use it
(e.g., incorporation/capital
for intended
statutory/filing increase.
purposes
fees, stamp duty).
within a
reasonable
time.

Part II of the Second Schedule:

Members Generally

Description of
Clause Key Takeaway / Principle
Misconduct
 Requires obedience to the
Contravenes any of
governing legal and regulatory
the provisions of the
Clause framework (e.g., holding a
Act, Regulations, or
(1) Certificate of Practice (CoP) if
Guidelines issued
representing oneself as being in
by the Council.
practice).

Being an employee,
discloses Embodies the principle of trust
confidential and confidence in the employer-
Clause information acquired employee relationship;
(2) during employment, confidentiality must be maintained
except as legally regarding non-public, sensitive
required or permitted information.
by the employer.

Includes in any
Ensures accurate submission of
submission to the
information. The term 'false'
Clause Institute/Council/Com
implies intentional or knowing
(3) mittees etc.,
untruth/deception, not mere
particulars knowing
mistake/accident.
them to be false.

Defalcates or
embezzles moneys Applies to the misappropriation of
Clause
received in his funds received directly in a
(4)
professional professional capacity.
capacity.

Part III of the Second Schedule:

Other Misconduct (Members Generally)
  A member is deemed guilty of other misconduct if they are held
guilty by a civil or criminal court for an offence punishable with
imprisonment for a term exceeding six months.
 This applies after the final appeal is disposed of and the member
is held guilty, and it covers such imprisonment even if the offence
does not involve moral turpitude.

**************************************************************************
***********

Key Professional Mechanisms

Unique Document Identification Number (UDIN)

 Purpose: A 17-digit system-generated number to verify the

authenticity of documents attested/certified by a PCS and prevent
counterfeiting.
 Mandatory: Mandatory w.e.f. October 1, 2019, to be mentioned in
Reports, Returns, Certificates, and Other Documents.
  Generation: Generated at the time of signing or up to seven days in
advance.
 Consequence of Violation: Liable for action under the Company
Secretaries Act, 1980 (First and Second Schedules).

Employee Company Secretary Identification Number

(eCSIN)

 Purpose: An 18-digit system-generated unique alphanumeric

number to enable the Institute (ICSI) to identify the appointments
and cessations of employed Company Secretaries.
 Applicability: Mandatory w.e.f. October 1, 2019, for members
entering into/relieving from any employment as a Company Secretary
(KMP or otherwise).
 Generation: Generated by the member at the time of issuing the
consent/acceptance letter and on the date of relieving.
 Requirement: Mandatorily required at the time of renewal of
membership for employed members.
 Consequence of Violation: Liable for action under the Company
Secretaries Act, 1980.

Multidisciplinary Firm

 Regulation 165A: Permits a member in practice to form a

multidisciplinary firm with members of other professional bodies as
prescribed, in accordance with ICSI Council guidelines.

ICSI Guidelines for Advertisement, 2020

Effective: 1st April 2020

Applicability: All members (holding CoP or otherwise) rendering

advisory/consultancy services.

A. Permitted Means of Advertisement

  Website: Display scope of work.
 Visual Identity: Own Logo (compliant with ICSI guidelines).
 Office: Display of location, décor, firm name/logo on uniform, stationery, and
equipment.
 Content: Professional updates, write-ups, appearing on Radio/TV.
 Events: Speeches, lectures, holding seminars/workshops, sponsoring
cultural/professional events.
 Social Media: Allowed on Facebook, LinkedIn, WhatsApp, Instagram, etc.

B. Restrictions (What is Prohibited)

 Violations: Must not violate the CS Act, 1980.

 Content: No false, misleading, indecent, or sensational claims.
 Comparisons: No claiming "Superiority," "Best," "Cheapest," or "Better"
than others.
 Titles: Cannot use terms like "Specialist" or "Expert."
 Guarantees: No guarantees on outcomes or "success" stories (e.g., "We
made X win the case").
 Fees: No indication that fees are contingent on the outcome.
 Slogans: No humorous slogans (e.g., "Save Rs. X, come to us").

C. Specific Prohibitions

 Aggregators: Cannot list services on Sulekha, JustDial, UrbanClap, etc.

 Networking/MLM: Cannot join organizations requiring the recruitment of
others or unapproved services.

D. Mandatory Disclaimer

 Websites must state that content is the sole responsibility of the Advertiser
and ICSI owns no responsibility.

E. Consequence of Non-Compliance

 Deemed as Professional Misconduct $\rightarrow$ Disciplinary action

under CS Act, 1980.

Professional Liabilities of a Company Secretary

A Company Secretary (CS) acts as an "Officer in Default" for non-compliance.

Liabilities are categorized into two types:
A. Statutory Liabilities (Legal Obligations)

Liabilities arising from the Companies Act and other statutes.

 Key Duties: Maintaining records/registers, arranging statutory

meetings, issuing share certificates, preparing minutes.
 Penalty Example: Default in filing Annual Return $\rightarrow$
Penalty on officer in default (up to ₹50,000). If a PCS certifies incorrect
return $\rightarrow$ Penalty of ₹2 Lakh.
 Important Case Law: Re Saumil Dilip Mehta v. State of Maharashtra
(2001)
o Verdict: A Director can resign unilaterally. It is the duty of the
Company Secretary (not the director) to file Form 32 (now DIR-
12) with the ROC and update registers.

B. Contractual Liabilities (Service Contract)

Liabilities arising from the engagement/employment contract.

 Breaching or exceeding authority.

 Disclosing secret information to outsiders.
 Committing fraud.
 Failure to protect the company's interest.

3. Disciplinary Mechanism (CS Act, 1980)

The mechanism handles professional misconduct under two Schedules.

 Director (Discipline): Receives complaint $\rightarrow$ Forms prima

facie opinion.
 Board of Discipline: Handles cases where the member is guilty of
misconduct under the First Schedule.
 Disciplinary Committee: Handles cases where the member is guilty
of misconduct under the Second Schedule (or both Schedules).

4. Membership Categories

 Associate Member (ACS): Name entered in the register.

 Fellow Member (FCS): An Associate who has been in continuous
practice for 5 years or has been an Associate for 5 years with
equivalent experience.