Compliance Framework: formula sheet

Key formulas

Compliance in one line

Compliance = Identify applicable rules + Assign ownership + Monitor and report + Correct and improve

Use this as the skeleton of any definition or framework answer.

Sources of compliance obligations

Laws + Rules and regulations + Standards and codes + Internal policies

Examiners like answers that show both external and internal sources.

Officer who is in default

Section 2(60): whole-time director, KMP, specified directors where there is no KMP, and others listed in the clause

Shows why individuals, not only the company, carry compliance risk. Quote the clause, do not recite it fully.

Key managerial personnel

Section 2(51): CEO or managing director or manager; company secretary; whole-time director; CFO; and others designated or prescribed

The company secretary is KMP, so compliance accountability reaches the CS.

Compliance framework cycle

Prevent → Detect → Respond

A simple structure for the objectives and design of a framework.

Elements of a compliance framework

Policy + Roles + Procedures + Monitoring + Reporting + Training + Corrective action

Use this as your answer skeleton. Add a line on each element and link it to the facts.

Compliance cycle

Identify obligations → Assign owners → Document procedures → Execute → Monitor and test → Report → Correct and improve

It is a loop. Findings from monitoring feed back into the obligations register and procedures.

Contents of a compliance policy

Objective + Scope + Roles and responsibilities + Procedures + Reporting and escalation + Consequences of breach + Review

The board approves the policy and reviews it periodically.

Three lines of responsibility

Operating units (own it) → Compliance function (guide and monitor) → Independent assurance (internal and secretarial audit)

A common way to explain division of roles. It is a model, not a statutory requirement.

Function 1: Reporting

CS reports to the Board on compliance with the Act, the rules and other applicable laws

Section 205(1)(a). Covers laws beyond the Companies Act, as long as they apply to the company.

Function 2: Secretarial standards

CS ensures the company complies with applicable secretarial standards

Section 205(1)(b). Standards are issued by ICSI and approved by the Central Government.

Function 3: Other duties

CS discharges such other duties as may be prescribed

Section 205(1)(c). Duties come from rules, not from the CS's own choice.

Board's duties preserved

Sections 204 and 205 do not affect duties of the Board, chairperson, MD or WTD

Section 205(2). The CS does not take over or reduce director responsibility.

Trigger for recovery

Restatement of financial statements required due to fraud OR non-compliance with the Act and rules

Both limbs are enough on their own. The restatement must be required, not merely voluntary.

Persons liable

Past or present MD, whole-time director, manager or CEO (by whatever name called)

Ordinary non-executive directors and other officers are not named in this section.

Amount recoverable

Excess = Remuneration received (including stock option) − Remuneration payable as per restated financial statements

Measured only for the period for which the statements are restated. Recover only if the result is positive.

Who recovers

The company shall recover

The duty is mandatory and sits with the company.

Related rule in Section 197(9)

Refund sums drawn above the Section 197 limit or without required approval, within two years or a lesser period allowed by the company; hold in trust meanwhile

This is a separate provision. Do not mix its two-year period with Section 199.

Waiver under Section 197(10)

Waiver of a Section 197(9) refund needs a special resolution within two years from the date the sum becomes refundable

If the company has defaulted to a bank, financial institution, NCD holders or other secured creditor, their prior approval is needed first.

Section 367 trigger

Compliance with the Chapter + fees under section 403 paid → Registrar certifies → company is incorporated

The Registrar certifies under his hand. For a limited company, the certificate also states that it is limited.

Meaning of company in this Part (s. 366(1))

Company includes a partnership firm, LLP, cooperative society, society or any other business entity formed under any other law that applies for registration

The word company is widened only for this Part.

Minimum members (s. 366(2))

Two or more members; fewer than seven members → must register as a private company

The old seven-member requirement was replaced in 2018. Clause (vii) of the proviso fixes the private company rule.

Member assent (s. 366(2) provisos)

General meeting: majority of members present in person or by proxy where allowed; not less than three-fourths if the company without limited liability is registering as a limited company

On a poll, votes are counted according to the company's regulations (s. 366(3)).

Companies that cannot register under s. 366

Companies registered under the 1882 Act, 1913 Act or Companies Act, 1956 cannot register under this section

They are already companies, so this route is closed to them. Section 18 is a separate provision: it applies to a company of any class registered under this Act.

Limited by shares (s. 366(2)(iii))

Only if the entity has a permanent paid-up or nominal share capital of fixed amount divided into shares of fixed amount, or held as stock, and its members are the holders of those shares or stock and no other persons

A limited-liability entity under another law cannot register as unlimited or as guarantee company.

Guarantee company (s. 366(2)(vi))

Assent must be accompanied by a resolution that each member undertakes to contribute up to a specified amount on winding up

The liability covers the period while a member and within one year after he ceases to be a member.

Duty to state liquidation (s. 344(1))

Company being wound up (Tribunal or voluntary) → every invoice, order for goods and business letter bearing the company's name must state that the company is being wound up

Applies to documents issued by or on behalf of the company, the Company Liquidator, or a receiver or manager of the company's property.

Penalty (s. 344(2))

Fine: minimum ₹50,000; maximum ₹3,00,000

Falls on the company and on every officer, Company Liquidator, receiver or manager who wilfully authorises or permits the non-compliance.

Who is liable

Company (always) + persons who wilfully authorise or permit

Wilfulness is the test for individuals. The section does not make every officer liable automatically.

Contrast: Section 60 default

Penalty ₹10,000 on company + ₹5,000 on each officer in default, for each default

Section 60 concerns subscribed and paid-up capital statements. It is a penalty, not a fine range like s. 344.

Quick revision

• Compliance means following applicable laws, rules, standards and internal policies.
• A compliance framework gives structure: roles, processes, monitoring and reporting.
• A compliance policy is the written statement of the company's approach and responsibilities.
• Section 205(1)(a): company secretary reports to the Board on compliance with the Act, rules and other applicable laws.
• Section 205(1)(b): company secretary ensures compliance with applicable secretarial standards.
• Secretarial standards under section 205 are those issued by ICSI and approved by the Central Government.
• Section 205(2): it does not reduce the duties of the Board, chairperson, MD or whole-time director.
• Section 199 applies when financial statements must be restated due to fraud or non-compliance.
• Section 199 recovery covers excess remuneration, including stock options, from past or present MD, whole-time director, manager or CEO.
• Section 367: the Registrar certifies that the existing company is incorporated under the Act, and as limited if it is a limited company.
• Section 344: a company in winding up must state this on invoices, orders for goods and business letters bearing its name.
• Section 344 fine: not less than ₹50,000 and up to ₹3,00,000, on the company and officers who wilfully authorise or permit the default.

Common mistakes

• Defining compliance only as filing forms with the Registrar. Fix: Say compliance covers all laws, standards and internal policies, and includes monitoring and reporting, not only filings.
• Treating compliance as a one-time activity. Fix: Describe it as a continuing process with a calendar, controls and review.
• Treating the compliance policy and the framework as the same thing. Fix: Say the policy is one element, the board-approved statement of commitment. The framework is the whole system around it.
• Listing elements without applying them to the facts. Fix: After each element, add a sentence tied to the company in the question: its size, sector and the gap you see.
• Saying the CS is personally responsible for all company compliance. Fix: Write that the CS reports and ensures standards compliance. Section 205(2) keeps the Board's and directors' duties intact.
• Limiting the reporting duty to the Companies Act. Fix: Quote the text: the Act, the rules made under it and other laws applicable to the company.
• Applying Section 199 to any restatement, including a voluntary change of policy. Fix: Check that the restatement is required because of fraud or non-compliance with the Act or rules.
• Saying the whole remuneration must be returned. Fix: Only the excess over what would be payable on the restated statements is recoverable.
• Saying section 367 lists who can register. Fix: Remember: 366 is eligibility and conditions, 367 is the certificate and the incorporation that follows.
• Allowing a company registered under the Companies Act, 1956 to register under section 366. Fix: Quote proviso (i). Such a company is outside the section, so do not route it through sections 366 and 367. Section 18(1) speaks of a company registered under this Act, so keep that distinction clear in your answer.

Exam tips

• Start every answer with a one-line definition. It earns marks even if the rest is thin.
• Link to the Act with at least one definition (officer in default, KMP). Use only section numbers you are sure of.
• In case questions, name who is accountable and what the framework should have done to prevent the default.
• Keep objectives and benefits separate, and use short numbered points for easy marking.
• Finish with a clear conclusion or advice line that answers the exact question asked.
• Use a fixed skeleton of policy, roles, procedures, monitoring, reporting, training and corrective action, then apply each to the case facts.
• In case questions, point out the specific gap and give a practical fix such as a calendar, owner or escalation route.
• Show the board as accountable and the CS as coordinator, not sole owner of compliance.