Companies Act Section 378X

Companies Act, Section 378X: Appointment of Secretary in a Producer Company

Section 378X of the Companies Act, 2013, outlines the statutory requirement for the appointment of a whole-time Company Secretary in a Producer Company under specific financial conditions. The provision ensures professional corporate governance by mandating qualified secretarial oversight in companies with a certain scale of operations. The section is explained in detail as follows:

1. Mandatory Appointment of Whole-time Secretary Based on Turnover Threshold

A Producer Company is required to appoint a whole-time secretary if it satisfies the following financial condition:

The company must have an average annual turnover exceeding five crore rupees (?5 crores), or such higher amount as may be prescribed by the Central Government through rules or notifications.
This threshold must be met for three consecutive financial years.
In simple terms, if a Producer Company records an average turnover greater than ?5 crores for three years in a row, it becomes compulsory for the company to appoint a full-time Company Secretary. The intent behind this provision is to ensure that companies operating at a larger scale are guided by a qualified professional in managing legal compliance, governance, and corporate administration.

2. Qualification Criteria for the Appointment of Whole-time Secretary

Not just anyone can be appointed to the position of whole-time secretary in a Producer Company. The law specifically requires that:

The individual must be a member of the Institute of Company Secretaries of India (ICSI).
The ICSI is a statutory professional body established under the Company Secretaries Act, 1980 (Act No. 56 of 1980).
This requirement ensures that the appointed person is professionally trained, certified, and bound by the code of conduct prescribed by the Institute, thereby promoting high standards of corporate governance and compliance.

3. Consequences of Non-Compliance and Penalty Provisions

If a Producer Company fails to comply with the above requirement (i.e., if it does not appoint a qualified whole-time secretary when required), the law provides for a penal mechanism to enforce accountability. The penalty provisions are as follows:

The Producer Company itself and every officer of the company who is responsible for the default shall be jointly liable.
The penalty is levied at a rate of ?100 (one hundred rupees) for every day that the default continues.
However, the total penalty that may be imposed is capped at ?1,00,000 (one lakh rupees) to prevent disproportionate punishment for prolonged non-compliance.
4. Relief from Penalty Under Special Circumstances

The section also provides a protective provision or proviso for situations where imposing a penalty may not be appropriate. In proceedings initiated for default under sub-section (1), no penalty shall be imposed if the Producer Company or the responsible officer can demonstrate either of the following:

That all reasonable efforts were made to comply with the obligation to appoint a whole-time secretary, or that the financial position of the company was such that it was genuinely not in a position to engage a full-time secretary.
This clause introduces a fairness and proportionality principle by acknowledging the practical limitations or difficulties that companies may face. It allows for the exercise of discretion by the adjudicating authority, ensuring that genuine efforts and financial constraints are considered before imposing penalties.