Author(s): Sumalatha Dwarampudi
Paper Details: Volume 4, Issue 4
Citation: IJLSSS 4(4) 24
Page No: 265 – 271
ABSTRACT
The base of company control under the Companies Act, 2013, was formed by board meetings. So that good procedure was kept, strict following of Secretarial Standard-1 (SS-1) was ordered by Section 118(10). But a very big weakness was had by the rule system. This was because old paper proofs were looked at almost completely when the rules were checked by the government. A very common, but legally ignored, situation of “ghost” or “paper” board meetings had been started by this long habit. In these bad times, real meetings were never actually arranged by the board members. Important company decisions were never discussed by the directors. Instead, the legal rules were falsely satisfied by backdated notices, attendance papers, and meeting minutes. All these papers were written by professionals after the time had been passed. The signatures of the directors were just collected by the workers later. When the hidden methods of this trick were studied by this paper, it was said that only paper writing, and not real duties, was encouraged by SS-1. The money of small investors was put in danger by this bad habit. So that this big problem was fixed, a change from old paper checking to live checking systems was suggested by the paper. Compulsory live computer logging, which was put on the MCA portal, and digital sign-in, which was asked for director attendance, were included in this new change.
I. INTRODUCTION
It was thought by basic company rules that meetings were actively attended by the directors so that business danger was discussed and controlled. In India, the forcing of this meeting room good behavior was tried by Section 118(10) of the Companies Act, 2013. At that time, strict following of the Institute of Company Secretaries of India (ICSI) Secretarial Standards (SS-1) was commanded by the law. Even though these strict rules had been made, a big difference between government hopes and real company life was always noticed. The real purpose of the law was completely defeated by this difference.
In many private companies and small public companies, real physical board meetings were almost never organized. Instead, “paper meetings” were often done by directors and rule professionals. Because company board meetings were checked by the Ministry of Corporate Affairs (MCA) mostly when old papers were read, rule following was easily faked by these companies. The whole checking work was being done long after the meeting dates had been crossed. As long as a very perfect look was being kept by the printed papers—like notices, plans, and signed minutes—it was quickly believed by the government office that the meeting had been finished. Questions were never asked by the officers if the papers were stamped correctly by the companies.
The important duty of directors was slowly changed into just a paper writing job by this government situation. Hard talks about business problems were avoided by the board members. Practising Company Secretary (PCS) businesses were also put in a very hard work position. In this bad situation, the fake making of these rule papers was often forced by heavy business tensions. The professionals were being pushed by company owners so that a perfect paper history was saved. If the false papers were not made by the professionals, their job contracts were canceled by the owners. Also, the minority shareholders were cheated by this system. Their voices were silenced by the fake meeting minutes.
At last, because old papers were strictly trusted by SS-1, the real, physical happening of very important company meetings was never truly guaranteed. The system had been broken by this blind trust. It was needed by the fixing of this common mistake that old paper histories were totally thrown away. Instead, a live, computer-helped checking method was taken by the government offices. Only when real-time proofs were asked by the law, true honesty was brought back to the boardrooms.
II. THE OLD HISTORY OF THE COMPANIES ACT AND BOARD MEETINGS
When the new law was written in 2013, great hopes were had by the lawmakers. It was wanted by them that good business habits were followed by all businessmen. The board of directors was given the biggest power by the law. But big duties were also given to them. It was written in the book that four meetings were needed in one year. A gap of one hundred and twenty days was allowed between the meetings. It was expected by the government that long talks were had by the directors in these meetings. The profits of the company were checked by them. The future plans were made by them. The bad risks were also studied by them.
So that everything was recorded properly, the ICSI was asked by the government to make a strict standard. Then, SS-1 was created by the ICSI. Every small detail was covered by SS-1. How the notice was sent by the company was told by SS-1. How the attendance was signed by the directors was told by SS-1. How the minutes were saved by the secretary was told by SS-1. It was thought by everyone that mistakes were stopped by this strong rule. But a big mistake was made by the lawmakers. Only the final papers were asked by them. The real event was never checked by them. The paper was made more important than the real work.
III. HOW THE FAKE MEETINGS WERE ARRANGED BY THE PEOPLE
The trick of the fake meeting was played by the company owners very smartly. When the time of the meeting was approached, no room was booked by the company. No travel tickets were bought by the directors. No tea or coffee was ordered by the office boys. The meeting was completely skipped by everyone. Instead, a phone call was made by the boss to the company secretary. An order was given by the boss that the meeting papers were needed.
After this order was received, the fake process was started by the secretary. First, a fake notice was typed by the secretary on the computer. A back date was put on the notice. It was shown by the notice that the directors were invited seven days before. Then, the fake agenda was prepared by the secretary. Important business decisions were listed by him on the fake agenda. After the fake date of the meeting was passed, the fake attendance register was printed by the secretary. The names of all the directors were written by him. Then, this register was carried by the office boys to the houses of the directors. The signatures were put by the directors on the backdated register.
Finally, the fake minutes were typed by the secretary. It was written by him that big discussions were had by the directors. It was claimed that good decisions were made by them. These fake minutes were signed by the chairman later. All these papers were put in a nice file. When this nice file was checked by the government officer, no fault was found by him. Everything was looked perfect by him. The fake reality was hidden by the perfect papers.
IV. THE BAD POSITION OF THE COMPANY SECRETARY (PCS)
The Practising Company Secretary (PCS) was given a very important job by the law. The rule following of the company was checked by the PCS. A certificate was signed by the PCS. It was promised by the PCS that all rules were followed by the company. But a very sad life was lived by these professionals. Very big pressure was put on them by the company owners.
It was known by the PCS that the meeting was never held. The fake papers were seen by the PCS. But the certificate was still signed by the PCS. Why was this bad thing done by them? It was because their money was controlled by the company owners. If the true complaint was made by the PCS, his service was immediately stopped by the boss. His bill was not paid by the company. Another PCS was quickly hired by the boss. The new PCS was always ready to sign the fake papers.
So, the old PCS was forced by hunger and fear to keep quiet. The bad system was supported by them because their families were fed by this money. Also, no protection was given to them by the government. If the boss was fought by the PCS, no help was sent by the MCA. The professional rules of ICSI were also broken by them, but no fear was felt by them. It was because the fake papers were made so nicely that the truth was never caught by the ICSI inspectors. The whole checking system was defeated by this fear and greed.
V. THE HARM TO THE SMALL SHAREHOLDERS
A company was not only owned by the big boss. Many small shares were bought by normal people. Their hard-earned money was put in the company by them. It was hoped by them that their money was protected by the directors. But they were badly cheated by the fake board meetings.
Because no real meetings were held by the directors, the real problems of the company were ignored. Only the wishes of the big boss were followed by the company. If money was secretly stolen by the big boss, no questions were asked by the board. The fake minutes were simply signed by them. The small shareholders were kept in dark by these fake papers.
When the annual report was read by the small shareholders, they were fooled by it. It was believed by them that four good meetings were held by the wise directors. It was thought by them that their money was safe. But inside the company, bad decisions were being made by one greedy man. When the company was finally failed, all the money was lost by the small shareholders. Tears were cried by them. But no punishment was given to the directors. The perfect fake papers were showed by the directors in the court. It was said by them that their duty was done. They were saved by the fake papers.
VI. THE DANGER TO THE INDIAN BUSINESS MARKET
The bad trick of the paper meetings was not just a small problem. The name of the whole country was spoiled by it. When foreign businessmen were invited to India, the good laws were shown to them. They were told that SS-1 was the best rule in the world. Big money was brought by the foreign investors.
But soon, the dark truth was found by them. It was realized by them that the strict rules were just written on paper. No real respect was given to the laws by the local partners. The foreign investors were shocked by the fake minutes. Their trust was broken by this bad habit. When their trust was lost, their money was taken back by them. The growth of the country was stopped by this cheating. It was clearly seen that a strong building was not supported by fake pillars. The Indian corporate system was weakened by these ghost meetings.
VII. THE DEEP STUDY OF THE LAW WEAKNESS
Why was this trick allowed by the law for so many years? The old Evidence Act was blamed by many experts. Under the old law, if a paper was signed and kept properly, it was accepted as truth by the judge. The paper was blindly trusted by the court. Unless big proof was brought by the police, the signed minutes were never doubted. This old thinking was very helpful for the fake meeting makers.
The government officers were also very lazy. Only the uploaded forms were checked by them on their computers. The office of the company was never visited by them. The directors were never asked by them about the meeting discussions. The whole system was run on blind trust. But this trust was completely broken by the company owners. The old methods of the government were not matched with the new tricks of the businessmen. A big change was needed by the system.
VIII. THE PROPOSED SOLUTIONS: LIVE COMPUTER CHECKING
So that this old paper problem was finally killed, new ideas were proposed by this paper. It was said that the old paper checking was totally useless. A new digital system was demanded by the experts.
First, a live computer link was needed by the government. When the board meeting was started by the directors, a button was pressed by the secretary on the MCA portal. The exact time was recorded by the government computer. When the meeting was finished, another button was pressed by him. The total time of the meeting was locked by the system. If the time was too short, an alarm was raised by the computer.
Second, the old paper attendance register was thrown away. A new digital sign-in was ordered by the new plan. When a director was entered in the meeting room, his fingerprint was scanned by a machine, or an OTP was sent to his mobile phone. His presence was proved by this digital mark. This digital mark was directly sent to the government server. It was not possible for the secretary to fake this digital mark. The backdating trick was completely stopped by this new rule.
Third, if the meeting was joined by video call, the video record was saved by the company. The digital history of the Zoom call or Teams call was kept by them. The login time and logout time of every director were recorded by the computer. This digital history was attached with the meeting minutes. When the file was checked by the government officer, the real video proof was seen by him. The fake papers were easily caught by this method.
IX. FIXING THE DUTY OF THE RULE PROFESSIONALS
The role of the PCS was also changed by the new proposals. The PCS was given new powers and strict punishments. It was ordered that the physical meeting was attended by the PCS himself. Only the papers were not checked by him. The real event was watched by him with his own eyes. If the meeting was not held, it was quickly reported by him to the government.
To stop the fear of the PCS, a new rule was made. A PCS was not easily fired by the boss. If the PCS was fired, the full reason was asked by the government. The fees of the PCS were paid by a special government fund, not by the boss. Because the money was given by the government, the PCS was not scared by the boss anymore. The true facts were bravely written by him in his certificate. If a lie was still told by the PCS, his license was permanently cancelled by the ICSI.
X. CONCLUSION
In the end, it was clearly understood that the Companies Act, 2013 was heavily damaged by the ghost meetings. The good rules of SS-1 were made into a bad joke by the greedy company owners. The whole system was fooled by the perfect fake papers. The small shareholders were badly hurt by this trick. The foreign investors were also chased away by this bad habit.
Because only old papers were checked by the government, the real truth was never found. It was strongly advised by this paper that the old paper system was destroyed. The new digital tools were used by the government. When live computer logging was started, and digital attendance was taken, the fake meetings were stopped forever. Real talks were forced to be had by the directors. Only by these strong digital steps, the true honesty was brought back to the Indian boardrooms. The bad trick of following rules was finally ended by the new technology.