In a significant move towards promoting professionalism and enhancing the quality of corporate compliance, the Institute of Company Secretaries of India (ICSI) has announced new guidelines that will impact the role of Company Secretaries in Practice (CS). During its 312th Council Meeting, held on October 8-9, 2024, ICSI introduced a cap on the number of Annual Returns (E-form MGT-7) that can be signed by Company Secretaries starting from April 2025.
These new guidelines are being viewed as a transformative step in ensuring transparency and accountability in corporate compliance processes. But what does this mean for company secretaries, and how will it affect their workload and responsibilities? Let’s dive into the details.
What Is E-Form MGT-7?
Before exploring the impact of the new guidelines, it’s essential to understand what E-Form MGT-7 entails. This form is the Annual Return form required by companies in India, under Section 92(1) of the Companies Act, 2013, which captures details of the company’s shareholders, directors, key financials, and other compliance-related information.
The New Cap on E-Form MGT-7 Signatures
1. A Cap of 75 Companies for Company Secretaries
Starting from April 1, 2025, a Company Secretary in Practice will be permitted to sign the Annual Return for a maximum of 75 companies. This restriction is expected to improve the quality and consistency of the compliance work undertaken by these professionals.
2. Peer-Reviewed Secretaries Get a Higher Cap
For Peer-Reviewed Company Secretaries in Practice, the limit is set slightly higher, allowing them to sign up to 125 annual returns. This differentiation incentivizes company secretaries to pursue peer review certification, thus encouraging higher standards of work within the profession.
3. Why the Cap?
The ICSI’s reasoning behind these caps stems from a desire to maintain high-quality service delivery and ensure that company secretaries can thoroughly audit and verify each annual return without being overwhelmed by excessive workloads. This move addresses concerns over the dilution of compliance standards and ensures ethical conduct.
Changes to the UDIN Portal
Along with the signature cap, ICSI has introduced additional changes to the Unique Document Identification Number (UDIN) Portal. The UDIN system, established to authenticate documents signed by company secretaries, will now come with stricter measures to ensure accuracy and transparency.
4. Addressing UDIN Violations
The ICSI raised concerns about the inaccurate generation of UDINs in certain instances, which compromised the validity of signed documents. Under the new guidelines, any violations of the ICSI UDIN Guidelines, 2019, will lead to serious consequences, reinforcing the importance of compliance with these rules.
5. Ensuring Transparent Processes
By strengthening the UDIN guidelines, the ICSI aims to instill a higher level of trust in the corporate compliance sector. The improvements in the portal will ensure that every signature is legitimate, reducing the possibility of fraud.
Implications for Company Secretaries
6. Enhanced Work-Life Balance
With a reduced number of annual returns to sign, Company Secretaries will be able to dedicate more time to each client, improving the overall quality of service while also ensuring they maintain a healthier work-life balance.
7. Incentivizing Peer Review
The higher cap for Peer-Reviewed Secretaries provides a significant incentive for professionals to undergo peer review certification. This will likely lead to an increase in the number of peer-reviewed secretaries and, in turn, elevate the overall standards of corporate governance.
Challenges for Company Secretaries
8. Potential Loss of Clients
For company secretaries handling more than 75 clients, this cap could mean a potential loss of business or the need to refer clients to other secretaries. While this may initially pose a challenge, it will encourage better collaboration within the profession.
9. Higher Demand for Peer-Reviewed Secretaries
Given the higher cap for Peer-Reviewed Company Secretaries, demand for these professionals is expected to rise. This could lead to increased competition in the field, and non-peer-reviewed secretaries may feel pressure to upgrade their qualifications.
Impact on Corporate Compliance
10. Improved Compliance Standards
By limiting the number of annual returns a company secretary can sign, the ICSI is effectively raising the bar for compliance quality. Companies can now expect more thorough and diligent service from their company secretaries.
11. Fewer Compliance Failures
With reduced workloads, company secretaries are less likely to rush through their work, leading to fewer compliance failures and better accuracy in filings. This is a significant win for the corporate sector.
Stakeholder Reactions
12. Positive Response from the Corporate Sector
Many professionals within the corporate compliance sector have welcomed this move. They believe that the integrity and efficiency of the compliance process will improve, leading to better corporate governance.
13. Concerns from Smaller Firms
On the other hand, some smaller company secretaries’ firms may express concern over the potential loss of clients due to the cap. These firms may need to find new ways to adapt, such as specializing in other compliance services or collaborating with peer-reviewed secretaries.
Preparing for the Change
14. What Company Secretaries Should Do Now
With these changes coming into effect in April 2025, company secretaries have time to prepare. They should start by assessing their client base and considering whether to pursue peer review certification. Additionally, they should familiarize themselves with the updated UDIN portal guidelines to avoid penalties.
15. Companies Must Plan Ahead
Companies that rely on company secretaries for signing E-Form MGT-7 should also begin planning. They may need to engage multiple company secretaries or explore the option of hiring a peer-reviewed secretary to ensure seamless compliance.
Conclusion
The new ICSI guidelines, limiting the number of E-Form MGT-7 signatures to 75 firms (or 125 for peer-reviewed secretaries), mark a significant step towards enhancing corporate compliance in India. While these changes come with certain challenges, such as a potential loss of clients for some secretaries, the overall impact is expected to be positive, ensuring higher standards of service delivery and ethical conduct within the profession.