While the law does not mandate it, the chairman’s sign will provide greater comfort and assurance to stakeholders
Way back in 1989, the board of directors of one of the most reputed companies in Chennai met to consider and adopt the accounts. The non-executive promoter chairman of the board, after the discussion on the accounts quipped: “Pass on the accounts to me and I will sign it first. The directors can sign after me”.
The company at that time adopted the procedure of all directors signing the accounts. The message of the chairman was loud and clear — ‘I own the accounts and I take full responsibility for every number that is reflected therein’.
Fast forward to 2022. A recent article in the context of Interglobe Aviation Ltd highlighted that the chairman in question had signed the balance sheet and profit and loss account for the year ended March 31, 2019, but did not do so for the year ended March 31, 2020, March 31, 2021.
Much water has flowed under the bridge from 1989 to 2022, but a key question is: “Is signing or not signing of accounts by the chairman such a big issue?”
Section 134 (1) of the Companies Act 2013 mandates that the financial statements of the company have to be approved by the board of directors and signed by the chairperson where he/she is authorised by the board, or by two directors of which one shall be the managing director and the chief executive officer, if he is a director in the company.
The legal position is crystal clear that the chairman need not sign the accounts if so mandated by the board, and any two directors signing the accounts ticks the box on compliance.
Different companies adopted different practices but most companies do have the practice of the chairman signing the accounts whether he be an executive chairman or not.
Some companies even today rigidly follow the procedure of all directors signing the accounts. Certain other companies follow the procedure of any two directors authorised by the board, signing the accounts.
This brings us to the question of accountability of the directors who sign the accounts vis-à-vis the directors who do not sign the accounts. Section 134(8) of the Companies Act prescribes punishment in the case of any contravention to the provisions of Section 134, which applies to every officer of the company who is in default. In other words, there is no escape for a director who was part of a board proceeding which adopted the accounts though he did not sign the accounts. All directors are equally liable.
The chairman of the audit committee may have a greater role and responsibility on the accounts since the audit committee recommends the accounts for adoption by the board of directors. If the sitting fees of the chairman of the audit committee is higher than that of the other members, the liability could be greater.
The evolution of corporate governance in India has generated two types of debates — form versus substance and compliance vs the optics part around compliance. It will be interesting to debate this in the context of the chairman not signing the accounts.
There can be no two opinions that the chairman signing the accounts provides greater comfort and assurance to stakeholders than a chairman not signing the accounts.
This is by no means to undermine the importance of other directors who sign the accounts but more to emphasise the importance of the post of the chairman in the context of good governance.
Why is so much importance attached to the act of signing? A signature has more than one purpose. It can act as a form of identification of the signatory and confirmation of the contents of the document. Also, it acts as a form of verification that whatever document is signed is indeed true, real and valid. In the context of signing of the accounts the ‘true, real and valid’ portion is crucial and relevant.
For any company, the balance sheet and the profit and loss account are sacred documents and the head of the organisation signing it has an embedded value much beyond the numbers that are conveyed to the world at large.
While it is clear that the chairman not signing the accounts is by no means defiance of any provisions of the law, it has brought the subject to centre-stage only because in the aforementioned case he had signed the accounts for the earlier years. Should the company have explained the reason why the chairman did not sign the accounts is a moot question.
It will be a retrograde step if the law were to mandate that all the directors including the chairman have to sign the accounts. The present system of having various committees ensures the hygiene part of the accounts are taken care of with various supervisory layers built in.
Having said that, companies on their own should ask the question as to whether the chairman signing the accounts enhances the credibility of the accounts or not.
Finally, it is a question of “to be or not to be”. Each company has to take its own call on the matter.
The writer is a chartered accountant
Published on July 25, 2022