The roles of Compliance Officers and Company Secretaries are becoming more and more difficult today in the Indian corporate system. Rising Liability on Compliance Officers Is Creating Governance Concerns The Update SEBI and MCA actions taken in the recent past have seen a number of officers including the Compliance Officers and Company Secretaries being levied costs by way of penalties for disclosures, related party transactions, governance compliances etc.
The roles of Compliance Officers and Company Secretaries are becoming more and more difficult today in the Indian corporate system. While they are saddled with compliance burden under regulations, the decisions are always with Promoters Directors CEOs and CFOs. That's why, the action of the regulatory authorities has started a serious debate - its officers are being singles out for blame for decisions they cannot control?
Key Takeaways
- The roles of Compliance Officers and Company Secretaries are becoming more and more difficult today in the Indian corporate system.
- Rising Liability on Compliance Officers Is Creating Governance Concerns The Update SEBI and MCA actions taken in the recent past have seen a number of officers including the Compliance Officers and Company Secretaries being levied costs by way of penalties for disclosures, related party transactions, governance compliances etc.
- The Gap Between Responsibility and Authority Many companies have sets of organized reporting hierarchies that guide the work of Company Secretaries and Compliance Officers.
- Numerous companies have Compliance Officers or Company Secretaries that report to the CFOs or executive management rather than acting autonomously and having direct access to the board.
- But, going against upper management decisions is very hard: While many also inform management orally about legal risks, the Company Secretaries do not always put written reservations from management in the appropriate files, fearing the disruption of internal relationships or the risk of negative professional consequences.
Rising Liability on Compliance Officers Is Creating Governance Concerns
The Update
SEBI and MCA actions taken in the recent past have seen a number of officers including the Compliance Officers and Company Secretaries being levied costs by way of penalties for disclosures, related party transactions, governance compliances etc.
The Impact
These developments have also led to the question of whether compliance professionals are being unfairly saddled with so much liability while having little real decision-making power within a company.
The Action
Companies will need to enhance governance structures and adequately document decisions so responsibilities are shared equitably across the management and compliance functions.
Why the Issue Is Becoming Serious?
Contemporary corporate legislations do expect a great deal from Compliance Officers and Company Secretaries. SEBI LODR calls for Compliance Officers to comply and co-ordinate disclosures and adhering to governance standards while article 205 of the Companies Act share a great deal of work in regard to compliance responsibilities to the Company Secretary And, most compliance officers do not have the knowledge, experience or authority to influence major corporate decisions, as they tend to be made by promoters, executive directors, CFOs and senior management. This buy-out of the corporate governing function by promoters and executive management is turning into a serious governance problem.
The Gap Between Responsibility and Authority
Many companies have sets of organized reporting hierarchies that guide the work of Company Secretaries and Compliance Officers. While they hold signatory positions, they are often in a position of operational subservience to senior executives.
So, compliance professionals can identify legal risks and make recommendations to management but the latter may Still depart from the recommendations after making awhat it considersto be a commercial or strategic decision.
Once regulators launch proceeding, the compliance officer remains liable. Because the law actually makes the compliance office responsible, the compliance officer, rather than the actual decision maker, ends up being the head of the liability.
How Management Decisions Create Compliance Risks?
Most of the major corporate actions for related party transactions investments disclosures and approvals in the Board are managed through the hands of the management. In reality, Company Secretaries can draft documents and recommend approval, but they generally do not have the authority to prevent a transaction from going through if a senior executive wants to move forward. Because of this each has own professional risk in their job as well.
For compliance officers, opposing their management impatiently may damage their career or decelerate their job security. but co-operation or sticking to oral/official admonition will leave regulators said to be accountable individually because they gets ignored from their advice. The effect of this is that compliance professionals are becoming increasingly worried that they may be easier to 'pin to the stake' when enforcement action is taken.
The Kalyani Steels Controversy
Controversy grew louder after the hearings involving Kalyani Steels Ltd. raised question on the non clearance by Audit Committee of related party transactions. Settlement amounts were also levied by SEBI on the company, an associated person and the Compliance Officer, of whom the latter is alleged to have paid nearly Rs.95 lakh towards settlement. A point of concern was that a lot of senior management personnel and directors tied to the company operation were not Like that proceeded. This issue further prompted larger questions as to whether regulators ever assume that CO is completely in charge of all aspects of good corporate governance when the truth may be a very different story altogether.
Why Reporting Structures Matter?
Reporting line is critical in the efficiency of corporate compliance. Numerous companies have Compliance Officers or Company Secretaries that report to the CFOs or executive management rather than acting autonomously and having direct access to the board. This becomes problematic because you would effectively be having a compliance function become operationally independent if structurally the compliance decisions are still directly dependent on that same management.
Despite recognising this problem indirectly, the latest SEBI amendments on the appointment of the Compliance Officer have addressed this issue by requiring the Compliance Officer to be placed nearer to the board level. Though indirect, the amendment demonstrates an increasing acceptance that effectiveness of compliance hinges on organisational nature and reporting independence.
Can Compliance Professionals Realistically Oppose Management
In what they should do, compliance officers are supposed to get the companies they work for to obey the law "in form and spirit". But, going against upper management decisions is very hard: While many also inform management orally about legal risks, the Company Secretaries do not always put written reservations from management in the appropriate files, fearing the disruption of internal relationships or the risk of negative professional consequences.
While this practical reality seldom is addressed in the regulatory process, in which latter the liability was crossed examined by the mere statutory duties. As enforcement actions have become tougher, compliance professionals are under more and more pressure, both from management internally and regulators externally about.
Conclusion
The expanding regulation about the Compliance Officers and the Company Secretary also marks the increased significance of corporate governance in India. At the same time, recent trends of enforcement also revealed that the compliance obligation is imposed on officers who do not necessarily have comparability said operational power.
With strengthening of governance regulations, regulators and corporates might have to revisit the level of accountability among the board, senior managers and compliance officers.
Penalties alone will not create a strong culture of compliance; there must also be independent channels of reporting; reasonable responsibility; and an appreciation of how actual corporate decision-making occurs.
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Are Compliance Officers and Company Secretaries Becoming Scapegoats for Management Decisions?+
The roles of Compliance Officers and Company Secretaries are becoming more and more difficult today in the Indian corporate system. Rising Liability on Compliance Officers Is Creating Governance Concerns The Update SEBI and MCA actions taken in the recent past have seen a number of officers including the Compliance Officers and Company Secretaries being levied costs by way of penalties for disclosures, related party transactions, governance compliances etc.