CS Professional · Compliance Management, Audit and Due Diligence

Values, Ethics and Professional Conduct: formula sheet

Full chapter guide

Key formulas

Values: Values = deeply held beliefs about what is important; Examples: integrity, honesty, fairness. They are the base of morals and ethics.
Morals: Morals = personal standards of right and wrong, drawn from values; Individual and internal. Can differ from person to person.
Ethics: Ethics = shared standards of right conduct for a profession or organisation; Group-based, often written as a code, and can be enforced.
Relationship: Values → Morals → Ethics (code of conduct) → Law where compulsory; Law sets the minimum. Ethics usually ask for more than the minimum.
Board of Discipline action (Section 21A(3), Company Secretaries Act, 1980): Reprimand; or removal from Register up to 3 months; or fine up to ₹1,00,000; Applies where the Board finds a member guilty of misconduct in the First Schedule, after a hearing. Any one or more actions may be taken.
Four core principles: Integrity + Objectivity + Confidentiality + Professional competence; Name the principle breached first, then apply it to the facts.
Meaning of professional or other misconduct (Section 22): Any act or omission provided in any of the Schedules, without limiting the Director (Discipline)'s power under section 21(1) to inquire into conduct in other circumstances; Misconduct is not confined to the Schedules. Do not say the list is exhaustive.
Designation (Section 7): Member in practice must, and any other member may, use the designation Company Secretary, with no other description in addition or substitution; A member may add letters showing other recognised memberships or qualifications.
Signing documents (Section 27): Only a member of the Institute may sign a document on behalf of a CS in practice or a firm of such CS in professional capacity; Penalty on first conviction: fine of ₹1,00,000 to ₹5,00,000. On later conviction: imprisonment up to one year, or fine of ₹2,00,000 to ₹10,00,000, or both.
Companies not to practise (Section 26): No company, Indian or foreign, shall practise as Company Secretaries; includes an LLP having a company as partner; Officers knowingly party are fined ₹2,00,000 to ₹10,00,000 on first conviction and ₹4,00,000 to ₹20,00,000 on later conviction.
Misuse of name or designations (Section 25): No person shall use the Institute's name or seal or a resembling one, award a similar degree or designation, or seek to regulate the profession; First conviction: up to six months' imprisonment, or fine of ₹1,00,000 to ₹5,00,000, or both. Later conviction: up to one year, or fine of ₹2,00,000 to ₹10,00,000, or both.
Offences by companies (Section 28): Company and persons in charge are deemed guilty, unless they prove lack of knowledge or due diligence; Officers are also liable where the offence is with their consent or connivance or due to their neglect.
Section 15(1): overall control: Institute functions under the overall control, guidance and supervision of the Council; The duty of carrying out the Act is vested in the Council.
Section 15(2)(a)-(c): (a) approve academic courses and contents; (b) prescribe fees for examination of candidates for enrolment; (c) prescribe qualifications for entry in the Register of members; Education and entry duties.
Section 15(2)(d), (e) and (ea): (d) recognise foreign qualifications and training for enrolment; (e) prescribe guidelines for granting or refusing certificates of practice; (ea) grant or refuse registration of a firm; Clause (d) belongs with education and entry. Clauses (e) and (ea) deal with practice. Clause (ea) was inserted w.e.f. 10-5-2022.
Section 15(2)(f)-(h): (f) levy fees from members, examinees and others; (g) regulate and maintain status and standard of professional qualifications of members; (h) carry out research of interest to Company Secretaries, including by financial assistance; Financial assistance for research may go to persons other than Council members.
Section 15(2)(i)-(k): (i) enable functioning of the Director (Discipline), Board of Discipline, Disciplinary Committee and Appellate Authority; (j) enable functioning of the Quality Review Board; (k) consider the Board's recommendations under section 29B(a) and action taken in its annual report; Discipline and quality review support.
Section 15(2)(ja)-(jc), (l): (ja) issue guidelines to carry out the Act's objects; (jb) conduct investor education and awareness programmes; (jc) enter into a memorandum or arrangement with a foreign agency with prior Central Government approval; (l) ensure the Institute functions per the Act and perform other statutory duties entrusted; Clauses (ja)-(jc) were inserted w.e.f. 10-5-2022.
Section 22 rule: Professional or other misconduct = any act or omission in any Schedule (deemed inclusion); the list is not exhaustive; Section 21(1) inquiry power of the Director (Discipline) is not limited by section 22.
Section 21(2) prima facie step: Complaint or information + prescribed fee → Director (Discipline) forms prima facie opinion; This is the first step before any forum hears the matter.
Routing rule, section 21(3): First Schedule → Board of Discipline; Second Schedule or both Schedules → Disciplinary Committee; Say this in every case-based answer.
Board of Discipline, section 21A(3): After hearing: reprimand; OR removal from Register up to 3 months; OR fine up to ₹1,00,000 (one or more); Applies to First Schedule misconduct. The Board follows summary disposal procedure.
Disciplinary Committee, section 21B(3): After hearing: reprimand; OR removal from Register permanently or for a period it thinks fit; OR fine up to ₹5,00,000 (one or more); Applies to Second Schedule, or both Schedules.
No prima facie case, section 21A(4): Director (Discipline) places the matter before the Board of Discipline; Board may close it or advise further investigation; The Board closes only if it agrees with the Director's opinion.
Council election bar, section 9(2)(a) proviso: First Schedule: 4 years; Second Schedule: 8 years, from end of removal period or payment of fine; Applies to a Fellow found guilty and removed from the Register or fined.
Screening (Section 21): Complaint/information + prescribed fee → Director (Discipline) → prima facie opinion; First Schedule → Board of Discipline. Second Schedule, or both Schedules → Disciplinary Committee.
Board of Discipline penalties (Section 21A(3)): Reprimand | removal from Register up to 3 months | fine up to ₹1,00,000; One or more actions, after hearing the member. Applies to First Schedule misconduct.
Disciplinary Committee penalties (Section 21B(3)): Reprimand | removal from Register permanently or for such period as it thinks fit | fine up to ₹5,00,000; One or more actions, after hearing the member. Applies to Second Schedule or both Schedules.
Board of Discipline composition (Section 21A(1)): Presiding officer (law experience) + 2 members + Director (Discipline) as Secretary; One of the two members is a Council member elected by the Council; the other is the person designated under section 16(1)(c).
Disciplinary Committee composition (Section 21B(1)): President or Vice-President (Presiding Officer) + 2 elected Council members + 2 Central Government nominees; The Council may constitute more Disciplinary Committees when it considers necessary.
Appeal (Section 22E): Appeal to the Authority within 90 days of the order being communicated; The Authority may entertain a late appeal if there was sufficient cause. The Director (Discipline) may also appeal if authorised by the Council.
Withdrawal of complaint (Section 21(5)): Director places withdrawal before Board/Committee, which may permit it at any stage if circumstances warrant; Withdrawal is not automatic.
Powers of civil court (Section 21C): Summoning and examining on oath | discovery and production of documents | evidence on affidavit; Vested in the Authority, Disciplinary Committee, Board of Discipline and Director (Discipline) for an inquiry.

Quick revision

Section 22: misconduct is deemed to include any act or omission in any of the Schedules.
Section 22 does not limit the Director (Discipline)'s power under Section 21(1) to inquire into conduct in other circumstances.
Section 21: the Council establishes the Disciplinary Directorate, headed by the Director (Discipline).
The Director (Discipline) forms a prima facie opinion after receiving the information or complaint with the prescribed fee.
First Schedule misconduct goes to the Board of Discipline.
Second Schedule misconduct, or both Schedules, goes to the Disciplinary Committee.
Section 21B: the Disciplinary Committee must give the member an opportunity of being heard before any order.
Section 21B penalties: reprimand, removal from the Register permanently or for a period, and a fine up to ₹5,00,000.
The Disciplinary Committee is presided over by the President or Vice-President, with two Council members and two Central Government nominees.
Section 15 lists Council duties; Section 15A lists Institute functions such as examining candidates and regulating training.
Section 29B: the Quality Review Board reviews service quality and forwards non-compliance cases to the Disciplinary Directorate.
If a complainant withdraws, the Board or Committee may permit withdrawal at any stage if circumstances warrant.

Common mistakes

Treating values, morals and ethics as the same thing. Fix: Always state the source and scope: values are beliefs, morals are personal, ethics are group standards.
Saying ethics and law are identical. Fix: Say law is compulsory and state-enforced, while ethics go beyond the legal minimum. An act can be legal yet unethical.
Treating ethics and law as the same thing. Fix: Say that law is the minimum and ethics goes further. Name the principle, then add the legal link.
Saying confidentiality is absolute. Fix: State that disclosure is allowed or required where the law demands it or proper authority is given. It is never allowed for personal gain.
Attributing examination and training regulation to the Council under Section 15. Fix: Examination of candidates and regulation of training of students are in Section 15A, the Institute's functions. Section 15 covers approving courses and prescribing fees.
Saying the Council itself grants certificates of practice. Fix: Under Section 15(2)(e) the Council prescribes guidelines. Section 15A(h) gives the granting or refusal to the Institute, as per the Council's guidelines.
Writing that misconduct means only what the Schedules list. Fix: Write that the Schedules are deemed inclusions and that section 22 does not limit the Director (Discipline)'s power to inquire in other circumstances.
Mixing up the forums for the two Schedules. Fix: Remember: First Schedule goes to the Board of Discipline; Second Schedule, or both Schedules, goes to the Disciplinary Committee.
Saying the Director (Discipline) decides guilt and imposes penalty. Fix: The Director only forms a prima facie opinion and places the matter before the Board or Committee. Only they can penalise.
Mixing up the fine limits of the Board and the Committee. Fix: Remember Board = ₹1 lakh and up to 3 months; Committee = ₹5 lakhs and permanent or such period.

Exam tips

Write the three definitions first. Examiners give marks for clear definitions before the discussion.
For distinction questions use a two-column style with simple labels in text, and give at least four points.
In case questions follow provision, analysis, conclusion. Name the ethical principle, apply the facts, then decide.
Link ethics to the CS role and to disciplinary consequences. Quote penalties only if you are sure of them.
Keep examples Indian and professional, such as certification, confidentiality and conflict of interest.
Write the principle name in your first line. Examiners look for it.
Use the structure provision, analysis, conclusion even for a five-mark case.
Mention section 22 for misconduct, but add that it does not limit the Director (Discipline)'s power to inquire.