Tuesday, May 19, 2015

Understanding the date of applicability of Secretarial Standards

[The following guest post is contributed by Nivedita Shankar, Senior Associate, Corporate Law Services Division. She can be contacted at nivedita@vinodkothari.com]

The Institute of Company Secretaries of India (‘ICSI’) on May 12, 2015 issued a clarification to state that SS-1 and SS-2 will apply to all such board meetings and general meetings in respect of which notices are ‘issued’ on or after July 1, 2015. This clarification could have probably not come at a more opportune time since companies are gearing up to convene board meetings to approve annual accounts and finalise the notices of their annual general meetings. With board meetings and annual general meetings on the anvil, secretarial departments of companies have to take note of the many provisions contained in SS-1 and SS-2 and understand the implications of the same. However, given the way the clarification from ICSI has been drafted, what is probably even more important to understand is the date of applicability of the Secretarial Standards. The clarification from ICSI gives away nothing else apart from the date of applicability of SS-1 and SS-2. Considering that interpretation of the word ‘issued’ has been subject to various court rulings in the past, it is pertinent to first understand the correct meaning of the word ‘issued’.

Provisions in SS-1 and SS-2

The need to understand the meaning of the word ‘issued’ achieves importance more so because SS-1 and SS-2 have introduced provisions which are either in addition to or overstepping the provisions contained in Companies Act, 2013 (‘Act, 2013’). Listed below are a few such provisions in SS-1 and SS-2:

1. Provisions in SS-1

a. Certain items of business have been restricted from being transacted through video conferencing facilities as per Act, 203 and allied Rules at board or committee meetings. However, SS-1 allows such businesses to be transacted through video conferencing facilities with the permission of the Chairman.

b. Draft resolution to be provided along with the notes or be placed at the meeting. Traditionally, companies had the practice of setting out the resolution in the minutes of the meeting which were subsequently circulated for approval.

c. Any additional item can be taken up at the meeting only with the permission of the Chairman and with the consent of majority of directors including one independent director. If no independent director is present at the meeting, then the minutes can be finalised only after ratification by at least one independent director.

2. Provisions in SS-2

a. To convene any general meeting at shorter notice, prior approval from members for the same should be sought.

b. Every director of the company has to attend the general meetings. The Chairman of the general meeting has to explain the reason for absence of any director.

c.       The secretarial auditor or his representative has to attend the annual general meeting.

d. Where on the one hand the Act, 2013 requires the members to elect one amongst themselves as the Chairman in case the original Chairman is not present within 15 minutes, SS-2 allows the directors to elect the Chairman from amongst themselves. In case no director is also present within 15 minutes or if no director is willing to take the chair, only then can the members appoint one amongst themselves to act as the Chairman.

Analysis of the meaning of the term ‘issued’

The scope of the meaning ‘issued’ has been a subject matter of discussions since the term was used at a number of places in the past viz., MCA’s circular dated September 13, 2013 and provisions of the Income Tax Act. The term had attracted discussions because taking the dictionary meaning of the term would have saved companies from a lot of hardships. Take the case of MCA’s circular dated September 13, 2013 wherein it was clarified that for all notices of general meeting issued before September 12, 2013, section 292 of Companies Act, 1956 will prevail and such companies need not seek a re-approval for their notices. On the other hand, by interpreting the term ‘issued’ in a wider sense, the principle behind the enactment of provisions such as section 34(1) of Indian Income tax Act, 1922 read with section 4 of the Amending Act (Act 1 of 1959) would have been upheld. In fact section 4 of the Amending Act (Act 1 of 1959) was introduced with the very intent to not render any notice issued by the Income Tax Officer for re-assessment beyond the time stated in section 34(1) of Indian Income tax Act, 1922 i.e. 8 years.

Out of the several rulings of courts wherein the term ‘issued’ has been interpreted and juxtaposed with the term ‘served’, one can refer to the ruling of the Supreme Court in Banarsi Devi v. Income-tax Officer ((1964) 53 ITR 100), where in the Supreme Court held that the meaning of the term ‘issued’ should be given a wider meaning such that it includes the entire process of sending the notice as well as the service thereof. The case pertained to interpretation of the meaning ‘issued’ in the context of section 34(1) of Indian Income tax Act, 1922 read with section 4 of the Amending Act (Act 1 of 1959). The Hon’ble Court referred to a number of cases such as Commissioner of Income-tax, Bombay South v. D. V. Ghurve[1], Sri Niwas And Others vs The Income-Tax Officer, A Ward to arrive at this conclusion. The Hon’ble Court also referred to section 27 of General Clauses Act, 1897 wherein term ‘served’ had been taken to include the entire process of properly addressing, prepaying and posting rather than being differentiated from the word ‘ issued’. Of course, as stated in section 27 such a presumption is rebuttable if a contrary intention can be established.

In another case, V.R.A. Cotton Mills (P) Ltd. v. Union of India and Others[2], the Punjab and Haryana High Court overruled its earlier decision in CIT v. AVI-OIL India (P.) Ltd.[3] In the case of V.R.A. Cotton Mills (P) Ltd (supra), on the ground that the legal precedents such as Banarsi Devi (supra), Collector of Central Excise v. M/s. M. M. Rubber & Co. were not presented before the Court in the case of AVI-OIL India (supra) and therefore, the Court, in ignorance of law, had given literal meaning to the word ‘served’ in that case. Treating the decision of AVI-OIL India (supra) as per incuriam, the Court in V.R.A. Cotton Mills  (supra) held that the purpose of the statute would be better served, only if the expression ‘served’ was considered as being issue of notice. The Court, in light of the aforesaid findings, construed the expression ‘served’ as meaning ‘issue’ of notice.

The distinction between the terms ‘ issued’ and ‘served’ was also clearly discussed in the case of Commissioner Of Income-Tax vs Sheo Kumari Debi wherein the Patna High Court stated obiter that:

Merely because a statute may provide that an order issued should also be properly served subsequently on the person directly affected would not, in my view, in any way render the words "issue" and "serve" as either synonymous or identical. A very peculiar situation in a statute and the compulsion of sound canon of construction may sometimes require the enlargement or extension of a word to save the legislation from being rendered nugatory. That, indeed, was the situation in Banarsi Debi's case [1964] 53 ITR 100. However, this cannot possibly be any warrant or authority for saying that the distinct and separate words of the English language, namely, "issue" and "serve" are in any way synonymous.

Where on one hand courts have held that the meaning of the terms ‘issue’ and ‘serve’ cannot be synonymous, on the other hand, the Supreme Court in the more recent case of R.K.Upadhyaya vs Shanabhai P. Patel disagreed with its earlier ruling in the case of Banarsi Devi (supra) stating that the scheme of things under Income Tax Act, 1961 was different from that in section 34 of Indian Income tax Act, 1922. The Hon’ble Court stated obiter that sections 147, 148 and 149 of Income Tax Act, 1961 vested power with the Income-tax Officer to proceed to reassess after a notice was served within the period of limitations stated in section 149. It was also stated that the requirement of issue of notice is satisfied when a notice is actually issued. Since service under the Income Tax Act, 1961  is not a condition precedent to conferment of jurisdiction in the Income-tax Officer to deal with the matter but it is a condition precedent to making of the order of assessment, the terms ‘issued’ and ‘served’ cannot be taken to mean the same. One may also refer to the rulings of ITO vs. Lal Chand Agarwal (ITAT Agra Third Member) and Sanjay Kumar Garg vs. ACIT (ITAT Delhi).


Although, each of the rulings referred to above are in the context of Income Tax Act, one can place reliance on them to conclude that ‘issued’ cannot be a synonym for ‘served’. The word ‘issued’ may have an expansive meaning, including the whole range of activities from authorization of a notice right up to its service, and may have a restrictive meaning, meaning the date of its service. The word has to be interpreted in its natural surroundings – that is, the context in which it is used. Take the case of notices of general meetings which is issued in the name of, authority of, and as approved by a board meeting. The question regarding service of notice is purely administrative and beyond the control of the board meeting. Once the notice is issued i.e. the postal department of the company sends the notice, the company can do little to ensure that the notice also reaches the recipient on time. One may argue that such an issue will be of no relevance when the notices are dispatched through electronic means however considering that notice of general meetings can be dispatched through post, it is important to factor in the difference between ‘issued’ and ‘served’. If one were to conclude that ‘issued’ and ‘served’ mean the same, then for general meetings which are due to be convened after July 1, 2015 and whose notices have already been dispatched, will again require a board meeting to be called to approve the notice of general meeting and consequently, the date of dispatch of the notices will get delayed further, and even the minimum time required for a general meeting, viz., 21 clear days, may not be available.

To conclude, for the sake of practicality and to avoid undue hardships during an already busy general meeting time, the meaning of the word ‘issued’ should mean the process of approval of general meeting notice by board or dispatch of notice for board meeting. Once the same is dispatched, the date of actual receipt will be of no relevance to assess the date of applicability of secretarial standards.

- Nivedita Shankar

[1] (1937) 31 I.T.R. 683, 686
[2] (CWP No. 18193 of 2011) dated 27 September 2011
[3] (2010) 323 ITR 242 (P&H)

1 comment:

Sameer Vyas said...

The Institute of Companies Secretaries of India (ICSI) has come up with a clarification on the applicability of Secretarial Standards. Hope the same will clarify the issue to a great extent.