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Thu, April 25, 2024

Legal Dynamics Of Company Secretary Appointments In Nepal

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 In recent years, Nepal has experienced a notable regulatory change pertaining to the appointment of Company Secretaries (CS) in both public and private entities. This article delves into the legal mandates and complexities associated with appointing Company Secretaries in Nepal. It also delves into the exploring the nuances of their roles, appointment processes and the evolving trend of outsourcing secretarial services.

Appointment Requirement of Company Secretary

The legal requirement for appointing a company secretary is contingent upon the nature and characteristics of a company, as mandated by the Companies Act, 2063 (2006) (the Act). Under the Act, companies, both private and public, with a paid-up capital of Rs 10 million or more are required to appoint a company secretary. Consequently, all public and private limited companies with a paid-up capital of at least Rs 10 million must comply with this requirement.

In the context of a non-profit-distributing company, which is not obligated to maintain paid-up capital, there is no mandatory requirement for the appointment of a company secretary.

Eligibility of Company Secretary

The Act requires eligible company secretaries to be Nepali citizens with a recognised professional certificate in company secretaryship from an institution, whether national or foreign, duly recognised by the prevailing law for such certification. Candidates must have a minimum of two years of relevant work experience. Alternatively, eligibility for the position of company secretary includes holding a Bachelor’s degree in law, management, commerce or economics, along with three years of work experience in the relevant field or in company management. Therefore, a foreign national or non-resident Nepali with foreign citizenship/passport cannot be company secretary. A person cannot simultaneously serve as the company secretary for multiple companies.

Appointment Process of Company Secretary

The Companies Act does not specify the appointment process for a company secretary, leaving the authority vested in directors as provided under the charter documents of the concerned company. Also, while appointing the company secretary as an employee, delegating this power to officers like administrative heads or managers is considered impractical, given the pivotal role of directors in ensuring a strategic and shareholder-oriented approach to appointments. This practice aligns with the Supreme Court’s recognition of the unique nature of company secretary positions, as evidenced in the Chilime Jalavidhyut Company Ltd vs. Labour Court case.  In this case, the court emphasised the distinct responsibilities and appointment procedures governed by the Companies Act, underscoring that decisions ordering permanent employment for a company secretary are against the accepted principles of company law. The court’s ruling underscores the importance of the position and clarifies that such matters do not fall under the jurisdiction of the Labour Officer under the Labour Act, 1992. This analysis highlights the significance of adhering to legal frameworks and the strategic considerations involved in appointing company secretaries.

Company Secretary as Employee or Consultant

Even though there is legal mandate to appoint company secretary, the legislative framework lacks comprehensive guidelines on the selection process, leaving crucial aspects open-ended. The law grants boards of directors the authority to decide on the process of appointing company secretaries and defines their roles and responsibilities. This flexibility, while advantageous, poses challenges, requiring boards to align these roles with the company’s strategic goals while ensuring regulatory compliance.

Company Secretary as an Employee

Delving into the intriguing question of whether a company secretary should clock in as an employee or just a consultant, the law remains tight-lipped, giving companies the freedom to take their pick between the two. This flexibility allows them to access professional services without the fixed commitment of an additional employee. Similarly, a well-established corporation might opt for the services of a seasoned chartered secretary, bringing in external expertise for specialised tasks. This dynamic approach ensures that companies can tailor their approach to company secretarial duties based on their unique circumstances and requirements.

When appointed as an employee, a company secretary will be subjected to the managerial role specifically managing day-to-day operations and ensuring compliances of the company. As an employee, the company secretary enjoys benefits under the local labour laws. These benefits include provident fund, gratuity, insurance, leaves and social security, among others. Any breach of duty or employment terms may result in employment-related consequences including the disciplinary action of up to termination. Additionally, in the event of a vacant position, the board can appoint any qualified employee as a new secretary, potentially limiting professional independence and effectiveness.

Company Secretary as a Consultant

Companies in Nepal are redefining the traditional norms of hiring company secretaries. Beyond the conventional practice of engaging an individual, businesses now explore the option of hiring a corporate company secretary or outsourcing secretarial services to professional firms. This innovative approach offers companies the flexibility to hire on a case-to-case basis through service agreements, steering away from the commitment of employing a full-time person. It proves particularly beneficial for organisations facing budget constraints, allowing them to access cost-effective secretarial services.

Outsourcing secretarial tasks to professional firms is gaining traction, providing companies with efficient solutions to meet statutory obligations. This trend fosters positive relationships with service providers, as organisations can tailor contracts to specific needs, such as tapping into financial law expertise from a law firm. In this form of appointment, the rights and responsibilities of the company secretary are no longer a one-size-fits-all scenario. Instead, they are meticulously defined and agreed upon in contractual agreements between parties.

Conclusion

The legal dynamics surrounding the appointment of company secretaries in Nepal are evolving, reflecting the need for clear guidelines in the legislative framework. While the law mandates the appointment of company secretaries, it leaves critical aspects open to interpretation, creating challenges for companies and boards of directors. The dual options of hiring a company secretary as an employee or engaging a consultant provide flexibility but also pose unique considerations.

The Supreme Court’s decision in the Chilime Jalavidhyut Company Ltd vs. Labour Court case underscores the need for a nuanced understanding of the company secretary’s role and the importance of adhering to the specific procedures outlined in the Companies Act. As companies navigate these legal complexities, a balanced approach to appointment, whether as an employee or consultant, is crucial to ensuring effective governance and regulatory compliance in the Nepali business landscape.

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