Company Secretaries and Legal Representation: Board Approval or Not?
Bhavya Sharma
Senior Associate(CLAT), Law Sikho
Shivam Agrawal
4th Year, B.Coms. LL.B (Hons.), Gujarat National Law University
Introduction
The role of a Company Secretary (CS) in corporate governance has evolved significantly, especially with the introduction of the Companies Act, 2013, which recognizes the CS as a Key Managerial Personnel (KMP). One of the most debated issues in corporate law is the scope of a Company Secretary’s authority, specifically whether they can represent the company in legal or regulatory matters without the express approval of the Board of Directors. This issue came to the fore in recent case of Mayank Agarwal Vs. Technology Frontier (India) Private Limited (2022) ibclaw.in 620 NCLT decided by NCLT, raising questions about the autonomy of Company Secretaries in corporate governance structures and their legal standing in tribunal matters.
This article aims to explore this issue in detail, analysing the relevant provisions of the Companies Act, 2013, key judicial interpretations, and the evolving responsibilities of a Company Secretary. The discussion also focuses on whether a CS can file petitions on behalf of the company without obtaining prior approval from the Board.
The Actual Problem: Representation by the Company Secretary
At the heart of the discussion lies the question: Can a Company Secretary represent a company in legal matters, such as presenting a petition before the National Company Law Tribunal (NCLT), without obtaining specific approval from the Board of Directors?
In many companies, the Board of Directors is the principal decision-making body. It is assumed that no significant corporate action, including filing legal petitions, can be undertaken without the Board’s approval. However, the growing role of Company Secretaries in regulatory compliance and corporate governance raises the question of whether a CS can act independently in certain legal matters, given the statutory powers they hold under the Companies Act, 2013.
The specific issue often arises in situations where a Company Secretary has filed a petition or represented the company in a tribunal without formal approval from the Board, leading to disputes about the validity of such actions.
Judiciary on the Role of Company Secretaries in Legal Representation
Over the years, courts and tribunals have had to address whether Company Secretaries have the locus standi to file petitions on behalf of their companies. One landmark ruling in this area is from the NCLT, Chennai, which addressed the very question of whether a CS can file a petition without the approval of the Board of Directors.
In this case, the applicant argued that only the company, through its Board, could file an application under the Companies Act. The Company Secretary, acting without prior approval from the Board, was alleged to lack the necessary authority to represent the company. However, the NCLT ruled in favour of the Company Secretary, citing his status as a Key Managerial Personnel (KMP) under Section 2(51) of the Companies Act, 2013. The tribunal held that a CS has the statutory authority to represent the company in regulatory matters, including before quasi-judicial authorities such as the NCLT
This ruling is significant as it underscores the growing recognition of the Company Secretary’s independent role in representing the company, particularly in matters of regulatory compliance and legal representation. However, the question remains whether this autonomy is absolute or subject to limitations, such as the necessity of Board approval in certain cases.
Key Provisions of the Companies Act, 2013
Several provisions of the Companies Act, 2013, along with relevant rules and civil procedure codes, are critical to understanding the legal position of a Company Secretary in representing the company:
- Section 205 of the Companies Act, 2013: This section outlines the primary duties of a Company Secretary, which include ensuring compliance with applicable laws and representing the company before various regulators and authorities. The provision also grants the CS authority to discharge duties assigned by the Board.
- Rule 10(4) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: This rule specifically provides that a Company Secretary may represent the company before regulators and other authorities, further reinforcing the role of a CS in legal matters.
- Section 2(51) of the Companies Act, 2013: It defines Key Managerial Personnel (KMP), which includes the Company Secretary, recognizing them as an officer responsible for the company’s compliance and governance.
- Section 2(60) of the Companies Act, 2013: It defines an “officer in default” and includes the Company Secretary. This section establishes the accountability of the CS in cases of non-compliance, making it clear that the role extends beyond administrative duties.
- Order 29 Rule 1 of the Civil Procedure Code, 1908: This provision allows a Company Secretary or any other officer authorized by the company to sign and verify pleadings in suits by or against the corporation. This rule is often cited in cases involving the locus standi of a CS to represent the company.
These provisions establish that a Company Secretary has a legally recognized role in representing the company, particularly in matters involving regulatory compliance. The question of whether they can do so without Board approval, however, is subject to interpretation.
Analysis: Autonomy of the Company Secretary in Legal Representation
The autonomy of a Company Secretary to represent the company in legal or quasi-legal matters without Board approval is a contentious issue. The Companies Act, 2013, significantly expanded the role of Company Secretaries, making them KMPs and holding them accountable for the company’s compliance with legal requirements. As a result, a CS’s role now extends beyond the mere execution of administrative functions.
- The Role of a Company Secretary as a Key Managerial Personnel (KMP):
The recognition of the Company Secretary as a KMP under Section 2(51) indicates that the CS is entrusted with significant authority within the corporate structure. As a KMP, the Company Secretary is responsible for ensuring that the company complies with its statutory obligations under the Act, including representing the company in regulatory and compliance matters. This recognition of the CS’s enhanced role suggests that they have the authority to act on behalf of the company, provided that the actions are within the scope of their duties under the Act.
- Representation Before Regulators and Quasi-Judicial Authorities:
Section 205 of the Act and Rule 10(4) of the Companies Rules explicitly state that a Company Secretary may represent the company before regulators. Since the NCLT is a quasi-judicial body, it can be argued that the CS’s powers extend to representing the company before the tribunal. The NCLT ruling in the aforementioned case supports this view, holding that the CS’s role in representing the company is not limited to administrative matters but extends to legal representation before quasi-judicial bodies.
- The Need for Board Approval:
While the Companies Act grants a Company Secretary the authority to represent the company, the question of whether this requires prior Board approval depends on the specific circumstances of each case. For routine regulatory filings and compliance-related matters, the CS’s authority may be implied by virtue of their role as KMP. However, for more significant corporate actions, such as initiating litigation or filing petitions that involve substantial legal or financial consequences, obtaining Board approval may still be prudent.
In the case discussed, the NCLT ruled that the CS had the necessary locus standi to file the petition without Board approval, given that the matter was within the scope of his statutory duties. However, this ruling should not be interpreted as granting unlimited autonomy to a CS in all legal matters. The authority of the CS must be exercised within the confines of the powers delegated to them by the Board and under the Companies Act.
Judicial Precedents and Implications
The NCLT’s decision in the discussed case is a key precedent for determining the role of Company Secretaries in tribunal matters. The ruling clarifies that a CS, as a KMP and officer in default, has the authority to file petitions before the NCLT without the necessity of express Board approval, provided that the actions fall within the scope of their statutory duties.
However, this ruling also highlights the importance of corporate governance practices. Boards of Directors must ensure that the powers and duties delegated to the Company Secretary are clearly defined, particularly in matters involving legal representation. Moreover, while the ruling affirms the authority of the CS in representing the company before regulatory bodies, it does not eliminate the need for proper internal processes and approvals in cases involving significant corporate actions.
Conclusion
The role of a Company Secretary in corporate governance has evolved to include greater responsibilities and statutory recognition, particularly under the Companies Act, 2013. As Key Managerial Personnel (KMP), Company Secretaries are entrusted with significant authority to ensure legal compliance and represent the company before regulatory and quasi-judicial authorities like the NCLT. The NCLT ruling affirming that a CS can file a petition without prior Board approval underscores their expanded role, especially in regulatory matters.
However, this authority is not without limitations. The need for Board approval should be assessed on a case-by-case basis, particularly in matters with significant legal or financial implications. The ruling should be seen as part of a broader trend toward recognizing the autonomy of Company Secretaries while emphasizing the importance of clear corporate governance and internal controls to delineate the scope of their powers.
The judiciary’s stance suggests that while the Company Secretary has broad authority, this should be balanced with prudent governance practices to ensure accountability and proper oversight in legal matters.
