Conflicting Clients, Confidences and a False Compliance Certificate
P, a company secretary in practice, has advised Beta Industries' promoter for three years on a shareholders' agreement and has access to Beta's board papers. P is also Beta's secretarial auditor. Alpha Holdings now asks P to advise on acquiring 26% of Beta and to conduct due diligence. Alpha also asks P to issue a compliance certificate stating that Beta's board meeting of 12 May 2025 was validly convened, although P knows that two directors were not given notice and that the meeting was adjourned for want of quorum. Alpha says the certificate is needed urgently for its lender and offers a success fee of 2% of the deal value. P has not obtained Beta's consent to use its confidential information.
1. Can P accept Alpha's engagement? Discuss conflict of interest and confidentiality.
Read the worked answer
P should not accept the engagement in the ordinary course. P has a continuing professional relationship with Beta's promoter and is Beta's secretarial auditor. That gives P access to confidential board papers and creates an actual and likely conflict if P advises Alpha on acquiring 26% of Beta. The Company Secretaries Act, 1980 and the ICSI Code of Ethics require a member to maintain the confidentiality of client information and not to use it for another client without consent. P cannot use Beta's board papers to help Alpha negotiate or conduct due diligence.
A conflict waiver is possible only in a clear case. P should make full written disclosure to both Beta and Alpha, obtain their informed written consent, and put in place confidential information barriers. Even then, P should decline if the engagement requires P to negotiate against Beta or to use information that Beta has not agreed to disclose. A secretarial auditor's independence is also compromised if the same firm advises the acquirer on the same company.
The success fee of 2% of deal value is a separate problem. Contingent fees tied to the outcome of a transaction are generally inconsistent with the dignity and independence of the profession. P should charge professional fees based on time and complexity, not a percentage of the deal.
Practical course: decline Alpha's acquisition engagement, continue with Beta, and offer Alpha only a general, non-confidential advisory service after Beta's written consent - or refer Alpha to another professional.
2. What should P do about Alpha's request for the compliance certificate?
Read the worked answer
P must refuse to issue the certificate in the form Alpha wants. The certificate would state that the board meeting of 12 May 2025 was validly convened when P knows that two directors were not given notice and that the meeting was adjourned for want of quorum. Issuing a false certificate is professional misconduct under the Company Secretaries Act, 1980 and the ICSI Code of Ethics. It could also mislead the lender and expose P to civil and criminal liability.
P should tell Alpha, in writing, that the meeting was not validly convened on the facts and that a clean compliance certificate cannot be given. P may instead issue a factual statement setting out what happened, or a qualified report that identifies the notice and quorum defects. If P is Beta's secretarial auditor, P must also consider whether the defect should be recorded in the secretarial audit report and brought to Beta's board's attention. P should not backdate any document or sign a certificate based on assurances that the defect will be regularised later.
The proper route for Alpha is to ask Beta to convene a fresh board meeting with proper notice and quorum and then obtain a certificate based on the corrected record. P can assist in drafting the fresh notice and minutes, but not in certifying a false position.
3. Draft a conflict-of-interest and confidentiality clause for P's engagement letter.
Read the worked answer
Conflict of interest We will act independently and in accordance with the ICSI Code of Ethics. Before accepting an engagement, we will carry out a conflict check. We will not accept an engagement where an actual or likely conflict of interest exists unless we have made full written disclosure to all affected clients and obtained their informed written consent. If a conflict arises during the engagement, we will notify the clients promptly and, if necessary, cease acting. We will not act for a client against a person from whom we hold confidential information without that person's written consent.
Confidentiality We will keep confidential all information relating to the client's business, affairs, papers and documents received in the course of the engagement. We will not disclose it to any third party without the client's written consent, except where disclosure is required by law, by a court or tribunal, or by the Institute of Company Secretaries of India. We will use the information only for the purpose of the engagement and will return or destroy the documents on closure of the engagement, subject to statutory retention requirements.
Fees Our fees will be professional fees based on the time, skill and responsibility involved. They will not be contingent on the outcome of any transaction or proceeding.