CHALLENGES FACED BY COMPANIES
Companies often find themselves wrapped-up under legislative cacophony when it comes to compliance due to their ambiguity to choose between Compliance management and Business management and more often than not it’s the Business management and Operations, which trumps the later.
The Challenges can be categorized as under: –
OPERATIONAL CHALLANGES: –
- LEGISLATIVE CHALLENGES: –
- Large number of Central and state specific legislations and regulations to be managed.
- Managing the Risk of Legal Compliance saving on heavy penalties
- Managing industry specific laws and guide lines.
INTERNAL CHALLENGES: –
Organization nowadays faces lack of ownership and awareness due to which consolidating documents of multiple vendors and contractors for maintaining sequential records become tedious. In absence of segmented initiatives among the organizations recording process and process owner changes is seen as a major internal challenge.
COMPLIANCE REPORTING: –
Along with legislative and internal challenges, compliance reporting is significantly important. Challenge in tracking and monitoring organization’s compliance status, submission of periodic reports to the Board in standard/specific format(s) becomes more difficult as tracking and collecting information from various departments with continuous follow-up for the same within due time is nothing less than roller coaster ride.
CHANGING GOVERNANCE LANDSCAPE: –
The Companies Act 2013 has brought in many changes: Clause 49 of the Stock Exchange Listing Agreement includes requirement of structural legal compliance management (LCM) system. Clause 49 1(c)(iii) states in pertinent parts that “The boards shall periodically review compliance reports of all laws applicable to the company, prepared by the company as well as steps taken by the company to rectify instances of non compliance.” Further, Section 134 (5d) of the Companies Act 2013 mandates Board of Directors to declare that they have devised proper systems to ensure compliance with provisions of all applicable laws and to ensure that such systems were adequate and operating effective. Section 204, Companies Rules 2014 mandates Secretarial Audit Report for every listed company, every public company with more than INR 50 Crore paid-up capital, every public company with more than INR 205 Crore turnover INR 250 Crore turnover. Further under Section 205 (1), the Company Secretary must report the status of compliances under all applicable laws to the Board of Directors.
Increased Penalties for Non Compliance
A company that is non-compliant with the prescribed statutes could be fined a minimum of INR. 50,000 and a maximum of INR. 25,00,000. Whereas, in case if Officer is in default the penalty is : INR 50,000 to INR 500,000 or Imprisonment or both. If PCS officer provides false or wrong certificates can be fined Minimum of INR. 1,00,000 to Maximum of INR 5,00,000.