Professional Misconduct-diligence required by Practising Company Secretary is not merely restricted to verification of the documents but extends to the purpose of law
ABCAUS Case Law Citation:
ABCAUS 2464 (2018) 08 AA
The appellant, a company secretary was aggrieved by the Order (Impugned Order) passed by the Disciplinary Committee of the Institute of Company Secretaries of India (ICSI) under Sub-Section (3) of Section 21B of the Company Secretaries Act, 1980 (the Act) read with rule 19 (1) of the Company Secretaries (Procedure of Investigations of Professional and Other Misconduct of Cases) Rules, 2007 (Rules).
The Disciplinary Committee had held appellant guilty of committing misconduct under item (7) of Para-I of Second Schedule of the Company Secretaries Act, 1980, for not exercising due diligence in the conduct of his professional duties and awarded the punishment of reprimand and a fine of Rs. 5,000/-.
The complainant had alleged that the appellant had committed professional misconduct while practicing as a Company Secretary for a company in which the complainant was a director.
It was alleged that in the Board of Directors meeting one person was appointed only as an Additional Director under section 260 of the Companies Act, 1956, and was to hold his office up to the conclusion of the next Annual General Meeting (AGM). However, in Form -32, signed by a director of the company and verified by the Appellant, the appointment was shown as a director under the category of ‘Promoter’ and not as Additional Director.
It was further submitted that the said additional director had signed a Form-32 showing the cessation of a director and his wife on the ground of their having vacated offices of Director under Section 283 (1) (g) of the Companies Act, 1956 having not attended the previous three meetings consecutively. It was alleged that the said additional director who signed the Form-32 was not a director of the Company on that date, and was filed by the Appellant after verifying and certifying the said form.
It had been alleged that in the said Form-32 the reason for removal mandatorily required to be attached in terms of Ministry of Corporate Affairs Circular No.01/2012 dated 10th February, 2012 were not attached. It had been stated that in meetings of BOD, the cessation of two directors was wrongly approved as they had attended meetings and could not have been treated as absent from three consecutive meetings as required. This fact had been ignored by the appellant while certifying Form 32.
It was further alleged that in the Annual General Meeting (AGM) of the Company the said Additional Director, was not re-appointed as a Director of the Company and therefore, he ceased to be an Additional Director of the company on the conclusion of the AGM. Therefore, he could not have signed Form 32.
Thus it was alleged that the appellant while working as Company Secretary for the company did not exercise due diligence in verifying and certifying Form-32.
The Appellate Authority, on appeal by the appellant set aside the order of the Disciplinary Committee and remanded the matter by giving certain directions to pass a fresh order.
In the remanded proceedings, the Disciplinary Committee opined that, the Practising Company Secretary, while certifying the form for appointment of a Director who was appointed in an Extra Ordinary General Meeting, is required to verify the following for his diligence and keep copies in his custody of the following:
(i) Copies of the notice of the Extra Ordinary General meeting.
(ii) Evidence not only of dispatch but of service of such notices within stipulated time.
(iii) Copy of the extract of minute/minute of the meeting.
(iv) Explanatory Statement.
(v) Copy of the Resolution for appointment/authority.
(vi) Agenda of Extra Ordinary General meeting.
The Disciplinary Committee (DC) observed that the appellant being a company secretary was not required to understand the intention. However, he was required to exercise due diligence by verifying the following documents:
(i) Notice of the Board meeting.
(ii) Agenda of the Board meeting.
(iii) Proof of Dispatch of Notice of the Board Meeting.
(iv) Minutes of the meeting duly signed by the Chairman.
(v) Documentary Evidence for requisite Quorum i.e. Attendance Sheet
The DC opined that the removal of a Director of the Company is a serious matter particularly when the Appellant was aware of the existence of the management dispute. Therefore, it was incumbent upon him to be more vigilant and send a written communication to the Director for providing him an opportunity before verifying and certifying Form-32 for his removal as a principle of natural justice.
The DC noted that the appellant had verified the minutes and relied on the proof of dispatch of the notice sent through Speed. However, there was no proof of service of the notices on the Complainant and his wife. The fact that the management conducted the Board Meeting for the removal of Director by sending notice to a place where the Complainant was not available, appeared to have been known to the Appellant while certifying the form as the appellant had admitted in his submission that he relied upon the Advocate’s Report stating that the Complainant was absconding with this family.
The DC opined that the diligence which is supposed to be shown by the Practising Company Secretary is not merely restricted to the verification of the documents but also it extends to the purpose of law for which it is envisaged to be exercised by him. Section 283(1) (g) of the Companies Act, 1956 provides for Removal of Director who after due notice of Board meeting fails to attend the meeting either intentionally or because of pre-occupation or for any other reason but surely not for failure to receive the notice.
Consequently, again, the Disciplinary Committee of the Institute held that the appellant was guilty of negligence and passed the Impugned Order.
It was against the aforesaid order; the Appellant had approached the Appellant Authority (AA) by filing the present appeal.
However despite orders passed by the AA none of the parties filed the original minute books or the resolution passed which are the subject matter relevant to the filing of Form-32 for the appointment of Additional / Promoter Director and secondly, for the cession of two directors u/s 283(1) (g) of the Companies Act, 1956.
The AA opined that it was not a case where the professional i.e. the Appellant was expected to act as an investigator. What was required for him was to only see the contents of the resolution passed and relied upon in support of Form-32 himself and in case, it was shown to him in minute books, than he should have been very categorical as to who was in possession of minute books shown to him containing the resolutions in question. However, in this regard, no assistance had been provided to the AA.
The AA opined that the Disciplinary Committee of the ICSI after the remand of the matter had gone through the entire controversy in detail, given cogent reasons in holding that the Appellant was Guilty of Professional Misconduct in as much as he did not exercise due diligence while certifying the two Forms-32 on both the occasions and as such he was grossly negligent in the conduct of his professional duties.
Accordingly the AA dismissed the appeal while maintaining the order of sentence awarded by the Disciplinary Committee.
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