Impact of COVID-19 on Company Secretaries: As everyone is aware, the world is experiencing extra-ordinary challenges on account of COVID-19. The Coronavirus pandemic is wreaking havoc to an extent of erasing development gains for every individual. This article covers the highlights of some of the positive and negative situations that have arisen before a Company Secretary both in practice and employment, on account of COVID-19. While the entire world economy is reeling under the pressures of the current situation, adaptation is the key for every Company Secretary.
Topics covered in this article
CORONAVIRUS, A SHOCK LIKE NO OTHER
On March 11, 2020, WHO declared Novel Coronavirus Disease (COVID-19) outbreak as a pandemic and reiterated the call for countries to take immediate actions and scale up the response to treat, detect and reduce transmission to save people’s lives. Countries all across the world waged a war against Coronavirus, the deadliest enemy ever.
No doubt, our country also took bold as well as timely steps and initiatives to fight against COVID-19.
On March 19, 2020 during a 30-minute live telecast, our Hon’ble Prime Minister asked all citizens to observe ‘Janata Curfew’ (people’s curfew) from 7 am to 9 pm on March 22, 2020.
On March 11, 2020, the Cabinet Secretary of India, announced that all states and UTs should invoke provisions of Section 2 of the Epidemic Diseases Act, 1897.
On March 14, 2020 the Union government declared the pandemic as a “notified disaster” under the Disaster Management Act, 2005, enabling states to spend a larger part of funds from the State Disaster Response Fund to fight the virus.
The next strong step was announced on March 24, 2020. On this day, the Government of India under Hon’ble Prime Minister Narendra Modi ordered a nationwide lockdown for 21 days, limiting movement of the entire 1.3 billion population of India as a preventive measure against the 2020 coronavirus pandemic in India. As the end of the lockdown period approached, state governments and other advisory committees recommended extending the lockdown. The governments of Odisha and Punjab extended the state lockdowns to May 1, 2020. Maharashtra, Karnataka, West Bengal and Telangana followed suit.
On April 14, 2020, Hon’ble Prime Minister extended the nationwide lockdown until May 3, 2020, with a conditional relaxation after April 20 for the regions where the spread had been contained.
The Ministry of Electronics and Information Technology launched a smartphone application called Aarogya Setu to help in “contact tracing and containing the spread” of COVID-19 pandemic in the nation. The World Bank lauded the early deployment of such technology to combat the pandemic. Global technology giants Apple and Google announced on April 11, 2020, that they will take up the building of software for smartphones which would help in contact tracing, just as the Aarogya Setu application does.
The Indian state governments have responded to the 2020 coronavirus pandemic India with various declarations of emergency, closure of institutions and public meeting places, and other restrictions intended to contain the spread of the virus.
INITIATIVES BY THE GOVERNMENT OF INDIA
In response to the global outbreak of this pandemic, many emergency regulations have been issued by the Government of India in line with the initiatives by many other countries to mitigate the impact of the pandemic on day-to-day operations. Since March 2020, the government has been proactive with various measures aimed at easing the corporate burden with respect to compliances. Especially by relaxing due dates for filing various returns, issuing various directions, advisories and announcements for clearing the defaults that have arisen due to COVID-19, the corporate sector has been allowed some breathing space.
Impact of COVID-19 on Company Secretaries
Opportunity to get acclimatized to a New Tech-Savvy Avatar
All of a sudden, virtual workspace has become the norm in every sphere of work, thus calling for awareness regarding the various technologies that would cater to the needs of a Company Secretary in the fulfilment of his tasks effectively and efficiently. Technology has become the need of the hour, not just in connecting oneself to the outside world but also getting connected to it. This necessity of connectivity has eased the nature of work in many ways, few of which are listed below:
- Conducting cost-effective and swift meetings (including board meetings or any other meetings) that are required for decision making and for such other purposes.
- Easy and quick recording of the proceedings of these meetings.
- e-Appearance before the Registrar of Companies, Regional Directors and National Law Company Law Tribunals and assistance in conducting the hearings smoothly and efficiently.
- Effective time management, resource management, cost management and management of day to day affairs.
- More transparency and close connection with internal and external contacts.
- Efficient and quick turnaround schedule.
- Availability of time for knowledge management.
- Preparing templates, formats, compilation, articulation for ready reference and future use.
- Self-equipment and a drastic reduction in dependency.
- Exploring new avenues and new opportunities in an innovative way.
- Capacities to handle multiple tasks within a short time.
- There is a saying “Hard times don’t create heroes, it is during the hard times, the Hero within us is revealed”. The hero within us, this way has revealed a new avatar “Virtual Company Secretary” with practice/ performance areas in multiple disciplines.
The various schemes and updates issued by the Government to mitigate the situation have provided additional opportunities for the requisition of a Company Secretary’s services by big and small entities across the board. Few of these opportunities are listed below:
- The Companies Fresh Settlement Scheme and LLP Settlement Scheme recently released by the Ministry of Corporate Affairs has called for various new opportunities like due diligence, compliance check and need for providing services to address the various past defaults and regularise the same.
- Call for various advisory services including opinions, memorandums, notes to guide the entities in employment matters, real estate matters, financing, compliances under applicable laws and performance of contractual obligations especially the “force majeure clause” and measures for mitigations of risks to the maximum extent possible.
- Department of Promotion of Industry and Internal Trade (DPIIT), (Ministry of Commerce & Industry) has issued Press Note No. 3 (2020 series) dated 17th April 2020 to amend the Consolidated Foreign Direct Investment (FDI) Policy to curb opportunistic takeovers/acquisitions of Indian entities by countries sharing land borders with India. The countries sharing land borders with India are Bangladesh, China, Pakistan, Nepal, Myanmar, Bhutan, Afghanistan and Srilanka. In the event of a transfer of ownership of any existing or future FDI in any entity in India, directly or indirectly resulting in the ownership falling within the restriction/ purview of the above points, such subsequent change in beneficial ownership will also require approval from the Government. Further investment by existing investors of a country which shares a land border with India will require prior approval from the Government of India. All contractual obligations with respect to the conversion of securities into equity shares shall require prior approval of the Government. The professionals may find opportunities in seeking approvals from Government in the cases falling under the aforementioned amended policy.
- Providing advisory and support services to the Company in conducting Extra-ordinary general meetings through Video Conferencing or other AudioVisual means [OAVM], in accordance with the circular numbers 14 and 17 of MCA issued in the month of April 2020, gets added under the new opportunities to Company Secretaries.
Although there is hope for a positive light at the end of a long tunnel, nevertheless, the current state of affairs is indubitably dire for every individual and the economy as a whole. Corporate world being an important part of every economy is shrinking due to the unprecedented challenges thrown by this pandemic.
The Company Secretary being an integral part of the corporate world and being a vital link between the Company and its Board of Directors, shareholders, government and regulatory authorities and all other stakeholders, is indeed facing many challenges both in practice as well as in employment. The key highlights of the challenges as foreseen and envisaged by the Author are explained in the ensuing paragraphs.
Sustainability of entities in peril
The Coronavirus has made headlines across the world for almost three months now. The initial lockdowns and quarantines in China have disrupted the supply chain across the world and across industries. The Indian consumer electronic markets have seen no trading days for long. India’s largest wholesale market for household items is staring at a crisis.
70% to 80% of TV and mobile phone components like memory chips, LED and such other spare parts were imported from China and hence, these sectors are also hit badly. Many of the Japanese Companies have informed retailers that pricing of certain goods like AC etc would see growth between 3 to 5%.
An impact is also seen in essential commodities like medicine because India imports medicine and raw materials in bulk for the preparation of medicine from China. Drug makers are struggling to make margins. Textile Industry has also taken a hit due to a dip in the export of cotton and fabrics, fall in prices of raw cotton due to low demand.
Technology companies are facing a huge cost burden due to deferment of projects. Manufacturing companies have also been affected to a greater extent because of low demand for their products. The agriculture sector has also faced a slump due to various factors like shortage of workforce and transport issues. Small and medium firms have also seen shock after shock.
This way the impact is seen across industries as well as in imports and exports. The pandemic has hit sectors hard right from small industries to the aviation sector with millions of jobs at stake. These factors have put the sustainability of many entities in question due to which many Company Secretaries in practice may lose their clients and the Company Secretaries in employment may lose their jobs.
Fall in the economy leading to falling in opportunities
- The pandemic and consequent lockdown have hit various sectors, including MSME, hospitality, civil aviation, agriculture, real estate, manufacturing, technology and allied sector. Various multi-lateral funding agencies have forecasted the drastic reduction in GDP growth for the current fiscal due to the impact of COVID-19 and consequent lockdown.
- As per the World Bank’s latest assessment, India is expected to grow 1.5 % to 2.8%. Similarly, the IMF on Tuesday projected a GDP growth of 1.9% for India in 2020, as the global economy hits the worst recession since the Great Depression in the 1930s.
- The disruption in the supply chain has caused inflationary impacts on the consumers.
- Coronavirus has not just dipped the Chinese economy but also other countries like Japan, South Korea, Singapore, Middle Eastern countries, Europe and the US which are India’s trading partners.
- The global economic impact has become clearer and has played havoc with stock markets and commodity markets.
- The COVID-19 pandemic has harmed the entire global economy and the fact that it is still unknown how long this pandemic will prevail and how much GDP would be lost in the process is worrisome. Due to this unprecedented challenge;
- Many countries that had made investments /proposed to make investments in India have kept their plans on hold. Multiple programs of expansion of business have been stalled which has, in turn, staggered various investment proposals and the creation of new jobs.
- Proposals concerning the establishment of new entities, joint ventures or revival of existing entities have been deferred.
- Proposals of mergers, amalgamations, de-mergers and such other arrangements, collaborations have also been called off and/ or deferred to a future date in many of the cases.
- Many entities are being pushed to the status of dormancy and many may opt for voluntary liquidation post lockdown.
- The uncertain future of many entities has forced them to adopt cost-reduction mechanisms on top priority to sustain and these mechanisms may include lay-offs, renegotiation on the fees with various service providers, advisers, consultants and even termination of various contracts, closure of its branches, etc.
The above outcomes would have a direct impact on Company Secretaries (both in practice and employment) to a great level. The unavailability of new opportunities and/ or the loss of existing opportunities, the reduction in retainer fees, certification fees, deferment of payments by entities may invite deeper consequences to a Company Secretary personally and professionally. Continuity with the same profession sustaining the continued loss of income may not be suitable for all the professionals.
Discouragement towards the growth of the profession may rise high since the market may not be attractive anymore for new entrants. Migration to other jobs / other courses may be inevitable at-least for a year or two.
The saying – “An uneasy situation is not settled or calm, and it could quickly change and get worse” is highly relevant in the present situation.
Elimination of certain opportunities and deferment of services
- As everyone is aware, there are certain compliances under Companies Act, 2013 which arise based on turnover like Secretarial Audit, Internal Audit, XBRL filing of financial statements etc. These opportunities may not arise for professionals in practice during the financial year 2020-21 and may continue to follow for years until the situation all over the world turns to normalcy.
- The threshold of default of ` 100,000 has been enhanced to ` 1,00,00,000 for filing CIRP proceedings under Insolvency and Bankruptcy Code, 2016. It has further been provided that Section 7, 9 and 10 of IBC would be suspended for 6 months if the lockdown situation continues beyond April 30, 2020. This amendment to a certain extent would have an impact on the Resolution Professionals and Registered Valuers.
- Due to extension of timelines in filing various forms, by authorities such as the National Company Law Tribunal, Securities and Exchange Board of India, Stock Exchanges, Tax Departments, Labour Departments have caused deferment of the certification services, liaisoning, representation and other consultancy services which in turn could defer the income of Practicing Professionals.
While the entire world economy is reeling under the pressures of the current situation, ‘adaptation’ is the key. Company Secretaries need to bridge the technological gap as well as strategize their role and practice in accordance with the changing times. With government rolling out plans for businesses to mollify the situation, Company Secretaries are also required to stay updated with all the key developments and come up with acceptable solutions to help businesses sail through the tide smoothly. This could be achieved through knowledge sharing with the clients, maintaining a constant channel of communication, finding optimal and economical solution for compliance requirements and such other creative means.
Maintaining an optimistic outlook and investing in self-development through professional courses to hone existing skills or acquire new ones would also be profitable as changing business environment might result in a change in demand in the foreseeable future. Company Secretaries could also benefit by being personally and professionally available through B2B social media channels. The current time can be utilized in link building and gaining some visibility by sharing expertise wherever an opportunity presents itself. Being flexible, proactive, and equipped for the impending changes as well as being ready with creative solutions in the work environment is the need of the hour.
Vidya H. Pawar, ACS
Fox Mandal & Associates