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Apex Court Issues Notice on plea against the Ministry of Corporate Affairs for Increasing Mandatory Limit for CS Appointment

Apex Court Issues Notice on plea against the Ministry of Corporate Affairs for Increasing Mandatory Limit for CS Appointment
The Supreme Court on August 5, 2020 sought response from the Centre on a plea against a notification which exempts public and private companies, having paid up capital of less than Rs 10 crore, from appointing a full time company secretary. The Apex Court issued a noticein a plea seeking declaration of the notification  as being ultra-vires and repugnant to the article 14, 19(1)(g) of the Constitution of India by the Centre on  January 1st 2020 and its subsequent enforcement w.e.f. 01.04.2020.

The plea was taken by a bench comprising of Chief Justice SA Bobde, Justices AS Bopanna & V. Ramasubramaniun which seek that in order to look into the lapses which led to the closure of more than six lakh companies across the country, formulation of a High Powered Committee has been requested.

It further sought to fix the corporate accountability and responsibility to the perpetrators who were responsible for the formation and operations of the fictitious and shell companies through which thousands of crores were manipulated to the detriment of financial infrastructure of the country.

In the Ministry of Corporate Affairs impugned notification, the mandatory limit for CS appointment was enhanced from 5 Crore to 10 crores.

The plea has sought to declare as ultra-virus of the Constitution a notification issued by the Centre on January 3.It read, “In this respect it is pertinently submitted that the said notification dated 03.01.2020 is constitutionally impermissible in as much as there is no rational basis for the categorization and classification for the purpose of requirement of regulatory professionals i.e. Company Secretaries, as the necessity of compliance of Companies Act is sacrosanct and absolute and any compromise by way of classification on a ground of paid-up capital cannot be treated as a reasonable classification and exempting the companies from the regulatory compliances on the basis of irrational and unreasonable classification under the garb of paid up capital is discriminatory in as much as it infringes Article 14 of the Constitution of India.”

It mentioned that the notificationn made it mandatory that every private company which has a paid-up share capital of Rs 10 crore or more shall have a whole-time company secretary. As a result, all the public and private company having the paid-up capital of less than Rs 10 crore were totally exempted from the appointment of whole-time company secretary.

The contention was raised that lack of a robust mechanism leads to a large number of companies being involved in financial shenanigans and misfeasance of the public money by the corporate fraudster which causes huge loss to the interests of nation.Hence, there comes the request to seek for directions to issue comprehensive guidelines in respect of a robust mechanism for enforcement of Corporate Governance.

It was mentioned in the plea that there was no rational basis for such categorization and classification as the necessity of compliance of Companies Act is inviolable and absolute and any compromise by way of categorization on a ground of paid up capital cannot be treated as a reasonable classification and exempting the companies from the regulatory compliances on the basis of irrational and unreasonable classification under the garb of paid up capital is discriminatory in as much as it infringes Article 14 of the Constitution of India.


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