CAN A COMPANY SECRETARY CUM COMPLIANCE OFFICER OF A LISTED COMPANY CAN BE
HELD ACCOUNTABLE FOR ACCOUNTING IRREGULARITIES WHILE SIGNING FINANCIAL STATEMENTS
IN ADDITION TO CFO AND DIRECTORS?
NOT ACCOUNTABLE
A Company Secretary cum Compliance Officer of a listed company is
generally not held accountable for accounting irregularities in the same way as
the CFO and directors, unless there is clear evidence of their active involvement
or a specific statutory duty to verify financial data.
It has long been settled position that Company Secretaries are not
responsible for ensuring that financial statements comply with accounting
standards.
Under Sec 134(5)(a), 128 and 129(7) of the Companies Act 2013, the
responsibility for preparing financial statements and ensuring compliance with
applicable accounting standards primarily rests with the Directors and the CFO,
not with the CS.
RECENT SAT RULING
Recent rulings by the Securities Appellate Tribunal (SAT) in India have
clarified that mere signing of financial statements does not automatically
impose liability.
PRIMARY RESPONSIBILITY RESTS UPON WHOM?
• CFO and Directors bear direct
responsibility for the accuracy of financial statements under the Companies
Act, 2013 and SEBI regulations.
• They are accountable for
ensuring compliance with accounting standards and disclosure norms.
ROLE OF COMPANY SECRETARY/COMPLIANCE OFFICER:
• Their role is primarily
ministerial and procedural, focusing on ensuring compliance with corporate
governance, regulatory filings, and board processes.
• They are not expected to audit
or verify financial data unless explicitly mandated.
SAT RULINGS (2025) IN V. SHANKAR V
SEBI
SAT held that compliance officers cannot be penalized for accounting
irregularities unless they had a direct role in misrepresentation or fraud.
IN THE DECCAN CHRONICLE
HOLDINGS LTD. CASE
SAT quashed penalties against the Company Secretary, ruling that signing
financial statements does not imply liability without proven involvement.
OFFICER IN DEFAULT:
Merely being a Company Secretary (and a Key Managerial Personnel) does
not automatically make them an "officer in default" under Section 77A
of the Companies Act (regarding buybacks) unless it is established they were
part of the wrongdoing.
SEBI IN THE MATTER OF COFFEE DAY ENTERPRISES HELD COMPLIANCE OFFICER IS
ACCOUNTABLE
SEBI examined the role of the CS by referring to Regulation 6(2) of the
SEBI LODR Regulations, SEBI reasoned that the Compliance Officer is responsible
for ensuring conformity with regulatory requirements and reporting non
compliances to the Board.
Since the Compliance Officer was a signatory to the financial statements,
SEBI observed that the Compliance Officer failed to ensure compliance with
regulatory provisions applicable to the preparation of the financial statements
and failed to bring such requirements to the notice of the Board.
REGULATION 6(2) OF THE SEBI LODR REGULATIONS
Referring to Regulation 6(2) of the SEBI LODR Regulations, SEBI reasoned
that the Compliance Officer is responsible for ensuring conformity with
regulatory requirements and reporting non compliances to the Board.
Since the Compliance Officer was a signatory to the financial statements,
SEBI observed that the Compliance Officer failed to ensure compliance with
regulatory provisions applicable to the preparation of the financial statements
and failed to bring such requirements to the notice of the Board.
RESPONSIBILITIES OF COMPANY SECRETARIES UNDER CORPORATE AND SECURITIES
LAWS
Having held the above, as professionals one needs to be tremendously
cautious, while signing the financials or any other document containing the
financial aspects even though approved by the Board or any other competent authority,
as there is no blanket protection available to a company secretary, even though
such checks have been carried out by an independent statutory auditor.
HOW SEBI IN THE MATTER OF COFFEE DAY ENTERPRISES HELD COMPLIANCE OFFICER
IS ACCOUNTABLE IS IN VARIANCE WITH SAT RULINGS (2025) IN V. SHANKAR V SEBI AND SAT DECISION IN THE
DECCAN CHRONICLE HOLDINGS LTD CASE
SEBI’s order in the Coffee Day Enterprises case (2026) held the
compliance officer directly accountable for disclosure lapses, but this approach
diverges from SAT’s 2025 rulings in V. Shankar v. SEBI and the Deccan Chronicle
Holdings Ltd. case, where SAT limited liability of compliance officers unless
specific involvement or statutory duty was proven.
IMPLICATIONS OF THE VARIANCE
REGULATORY UNCERTAINTY:
SEBI’s stance increases compliance risk for officers, while SAT rulings
provide relief by narrowing liability.
CORPORATE GOVERNANCE IMPACT:
Companies may face difficulty attracting qualified compliance officers if
SEBI continues imposing penalties without proof of involvement.
POTENTIAL APPEALS:
Coffee Day officers may challenge SEBI’s order before SAT, citing
consistency with V. Shankar and DCHL precedents.
POLICY DEBATE:
Raises the question of whether compliance officers should act as
watchdogs with substantive liability or remain ministerial facilitators.
KEY TAKEAWAY
The variance lies in SEBI’s expansive interpretation of compliance officer
accountability versus SAT’s restrictive, evidence-based approach. Unless SEBI’s
order is upheld on appeal, SAT precedents suggest compliance officers cannot be
penalized merely for being signatories or procedural overseers without proof of
complicity.
YOUR
COMPLIANCE PARTNER – R V SECKAR , FCS, LLB 79047 19295
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