On January 3, 2020, the Ministry of Corporate Affairs (“MCA”) issued the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020 which will come into force from April 1, 2020. By this amendment, the MCA has revised the threshold for appointing whole-time Company Secretaries (“CS”) in private companies.
As per revised Rule 8A, every private company having a paid-up capital of INR 100 million or more has to appoint a whole-time CS. Before the amendment, this limit was INR 50 million.
Initially, under the Companies Act, 1956, it was compulsory for every private company having paid-up capital of INR 50 million, to appoint a whole-time CS. However, upon introduction of new Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, this limit was increased to INR 100 million. Subsequently, through an amendment dated June 9, 2014, the limit was decreased to INR 50 million.
Despite falling within the threshold, several companies continued to remain non-compliant. Consequently, the MCA introduced form ACTIVE on February 21, 2019 where all companies had to disclose whether they have a whole-time CS or not. After the form was notified, many companies made representations to the MCA that while they meet capital requirement but they are loss-making entities and could not afford remuneration of a CS. It appears that to counter this and to deal with the problem of paucity of CS, the MCA increased the threshold back to INR 100 million, which has again become a contentious issue and is being opposed by the CS community.
It is difficult to assess a company’s financial position just by its paid-up capital. For example, if a company is running in losses, but has paid-up capital of INR 50 million or more, it will have to appoint a CS, despite the fact that it cannot bear an additional burden of CS’s salary. And, if it does not appoint CS, it will have to bear more expenses in form of penalties due to non-compliance. In our opinion, the threshold should not be capital specific but should also take company’s turnover into consideration.