The beginning of new era of compliance has been embarked with the enactment of Companies Act, 2013. The Act has introduced several new concepts and has also tried to modernize many of the requirements by introducing new definitions. Introduction of stringent provisions with heavy penalties mandated the System of Compliance management in a company to ensure the compliances of laws applicable on the company. The act cast duties on Board as well on the Company Secretary to comply with all applicable laws. Secretarial Audit and Compliance management will be effective tools for smart governance. Compliance management is to be in built into the corporate system to avoid instance of non compliance.
Ø Legal Compliance Systems (LCS)
The LCS may be defined as a method by which corporate manage the entire compliance process starting from creating an inventory of laws as applicable to the company till the implementation of compliance of such law by the respective person/department. Broadly, it includes the compliance search, actual compliance, compliance audit, compliance report, etc. They must establish a compliance management system as a supporting system of risk.
With plethora of laws applicable on companies, it would be difficult task to ensure the 100% compliance due to which the need of some system has emerged to prevent the unintentional default on the part of Board, Company Secretary and the company as whole. Therefore, a need has been arisen to create systems, processes, tools and dynamic corporate compliance management models. The need of Legal Compliance System arises due to following reasons:
· Mandatory compliances under laws applicable on the company.
· Compliance deadlines.
· Frequent amendment in laws.
· In case of non-compliances heavy penalties.
· Difficult to keep track of regular as well as event based compliances.
· Responsibility of compliance is now shifted on board of directors.
Ø Steps to develop a system of LCS
Many companies are adopting comprehensive compliance plans to address emerging regulatory paradigm and those that fail to address the new regulations, pay hefty fines or incurring punitive restrictions on their operations.
Company-based control panel to keep the data of all laws applicable on the company
The organizations face mounting pressures that are driving them towards a structured approach to enterprise-wide compliance management. Increased liability and regulatory oversight has amplified risk to a point where it demands continuous evaluation of compliance management systems. Furthermore, the multiplication of compliance requirements that organizations face increases the risk of non-compliance, which may have potential civil and criminal penalties. This focused attention on compliances with spirit and details of laws casts upon Corporate Secretaries an onerous responsibility to guide the corporates in this direction. They have to advise companies in totality to provide full, timely and intelligible information. To enable companies to put in place an effective LCS, the top management should ensure following:
· Compliance control panel: The compliance program must provide a single enterprise-wide solution.
· Assignment: Assigning compliances to users departmental wise
· Division of compliances: The entire compliances system should be divided into event based compliances and regular compliances.
· Alert by Mail: Time to time alert by mail or popup to those users whose compliances are pending.
· Compliance Report: Generation of compliance report by the head of the compliance.
· Placing the report before the Board: The board of the company shall quarterly review the compliance report of the company by which in case of default it can be corrected within time.
· Audit of system: The Board shall arrange a periodic review of the system to fill the loophole, if any.
· Timely updation: The system should be dynamic in nature which means timely updation of changes brought up notification, circular etc. Also, appropriate evidence of internal audits becomes critical in defending compliance to regulations.
Note: Companies Act, 2013 cast responsibility on Board under section 134(5)(f) to devise a system to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Similarly, section 205(1) cast duty on a Company Secretary to report to the board about compliances with the provisions of the Act, the rules made thereunder and other laws applicable to the company.