SECRETARIAL AUDIT UNDER COMPANIES ACT, 2013
INTRODUCTION
The Companies Act, 2013 doesn’t specifically defines Secretarial Audit. But for understanding purpose, it can be said as the process of checking compliance to various acts, rules, regulations, circulars, notifications as applicable on the Company. Besides this, it also includes audit of various secretarial records which are required to be maintained under the Companies Act, 2013. Board processes and Composition of the Board are also checked during the audit process.
So it can be said as a compliance mechanism which helps in improving value, corporate governance and helps in detecting non-compliances on the part of the Company.
APPLICABILITY
According to Section 204 of the Companies Act, 2013 and Rule 9 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Audit is applicable on:
- Every Listed Company and
- Every Public Company having a Paid-Up Share Capital of 50 crore Rupees or more; or
- Every Public Company having a Turnover of 250 crore Rupees or more; or
- Every Company having outstanding loans or borrowings from banks or public financial institutions of 100 crore Rupees or more.
Note: Paid-Up Share Capital, Turnover or outstanding loans or borrowings, existing on the last date of latest audited financial statement shall be taken into account for considering applicability of Secretarial Audit.
ELIGIBILITY OF SECRETARIAL AUDIT
According to Section 204 of the Companies Act, 2013,
Only a Member of the Institute of Company Secretaries of India who is deemed to be in practice under Section 2(2) of the Company Secretaries Act, 1980 are eligible to conduct Secretarial Audit and prepare Secretarial Audit Report in Form No. MR-3.
SCOPE OF SECRETARIAL AUDIT
A) The Secretarial auditor must check compliance of below mentioned laws as applicable to the Company:
(i) The Companies Act, 2013 (the Act) and the rules made there under;.
(ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made there under;
(iii) The Depositories Act, 1996 and the Regulations and Bye-laws Framed there under;
(iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial borrowings.
(v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-
(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
(b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
(f) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client;
(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998
(i) The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (if it is applicable on the Company).
(vi) Other specific laws as are applicable to the Company.
(vii)Compliance to Secretarial Standards issued by The Institute of Company Secretaries of India
B) Besides this, Secretarial auditor must audit:
- Whether Company has maintained proper Secretarial records as are required to be maintained under various laws or not?
- Whether Company has filed Statutory Forms and returns as are required to be filed under various laws or not?
- Whether Company has maintained Adequate Board Processes, Board Composition and Compliance mechanism which must be maintained or not?
- Whether Company has taken due care for reporting and compliance of specific events having a major bearing on the affairs of the Company and its shareholders or not?
FORMAT OF SECRETARIAL AUDIT REPORT
According to Rule 9 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Auditor must give its report in Form No. MR.3.
Link to Form No. MR.3
https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTMzNDY=&docCategory=Forms&type=open
DUTIES OF COMPANY IN SECRETARIAL AUDIT
According to Section 204(1), (2) and (3) of The Companies Act, 2013:
- The Company must provide all assistance and facilities to the Company Secretary in practice during the audit process.
- It shall annex Secretarial Audit Report as given in Form No. MR-3 with the Board Report made under Section 134(3)
- It must explain in detail about qualifications or observations or other remarks made by the Secretarial auditor in the Board Report made under Section 134(3).
PENALTY ON NON- COMPLIANCE OF SECTION 204
According to Section 204(4) of the Companies Act, 2013, on non- compliance of Section 204, by a company or any officer of the company or the company secretary in practice:
Every officer of the company or the company secretary in practice, who is in default, shall be liable to a penalty of two lakh rupees.
APPOINTMENT, RESIGNATION, REMUNERATION AND TENURE OF SECRETARIAL AUDITOR
1. According to Section 179(3) read with Rule 8 of The Companies (Meetings of Board and its Powers) Rules, 2014 :
Board of directors has the power to appoint Secretarial Auditor by passing Board Resolution.
Further, since its report has to be attached with the Board report, so practically it is preferable to be appointed before finalisation of Board Report for the Financial Year.
2. At present, Law is Silent on provisions of Resignation, Remuneration and Tenure of Secretarial Auditor. So it can be made as decided by Board of directors.
SECRETARIAL AUDIT AND SECRETARIAL COMPLIANCE REPORT UNDER THE SEBI (LODR) REGULATIONS, 2015
SECRETARIAL AUDIT
APPLICABILITY
According to Regulation 24A of the regulations, it is applicable on:
Every Listed Entity and its material unlisted subsidiaries incorporated in India
FORMAT OF SECRETARIAL AUDIT
The form of Secretarial audit will be the same as it is under Companies Act, 2013 i.e. Form No. MR-3 as mentioned in Circular No. CIR/CFD/CMD1/27/2019 dated 8 February, 2019.
Link for the Circular is:
https://www.sebi.gov.in/legal/circulars/feb-2019/format-for-annual-secretarial-audit-report-and-annual-secretarial-compliance-report-for-listed-entities-and-their-material-subsidiaries_42015.html
SECRETARIAL COMPLIANCE REPORT
APPLICABILITY AND OBJECTIVE OF INTRODUCING THE REPORT
- According to Regulation 24A of the regulations, it is applicable only on Every Listed Entity.
- The Objective behind its introduction is to maintain an additional check on the functioning of Listed entities and enhancing their corporate governance of these entities.
TIME LIMIT FOR SUBMISSION
According to Regulation 24A of the regulations, it is applicable only on:
It has to be submitted within sixty days from end of each financial year.
FORMAT OF SECRETARIAL COMPLIANCE REPORT
The Institute of Companies Secretaries of India has issued a Revised Format of Secretarial Compliance Report dated 6 May, 2023 which is duly approved by the Council at its meeting held on 4 May, 2023. The said format has been prepared compiling all circulars issued till now by SEBI and Stock Exchanges (NSE and BSE).
Link for the Revised format is given below:
https://www.icsi.edu/media/webmodules/Annual_Secretarial_Compliance_Report_060523.pdf
Note:
Link to all circulars issued till now by SEBI and Stock Exchanges (NSE and BSE) for Secretarial Compliance Report
1. Format of Secretarial Audit and Secretarial Compliance Report from Listed entities and their material subsidiaries dated 8 February, 2019
https://www.sebi.gov.in/legal/circulars/feb-2019/format-for-annual-secretarial-audit-report-and-annual-secretarial-compliance-report-for-listed-entities-and-their-material-subsidiaries_42015.html
2. Resignation of statutory auditors from Listed entities and their material subsidiaries dated 18 October, 2019
https://www.sebi.gov.in/legal/circulars/oct-2019/resignation-of-statutory-auditors-from-listed-entities-and-their-material-subsidiaries_44703.html
3. NSE and BSE Circulars for Additional confirmations in Secretarial Compliance Report dated 16 March, 2023
https://static.nseindia.com//s3fs-public/inline-files/NSE_Circular_16032023.pdf
https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20230316-14
4. NSE and BSE Circulars for Additional confirmations in Secretarial Compliance Report dated 10 April, 2023
https://static.nseindia.com//s3fs-public/inline-files/NSE_Circular_10042023_0.pdf
https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20230410-41
EXEMPTION TO LISTED ENTITIES FROM REGULATION 24A
Below mentioned listed entities are exempted from Regulation 24A:
(a) Listed entity having paid up equity share capital not exceeding rupees ten crore and net worth not exceeding rupees twenty five crore, as on the last day of the previous financial year:
(b) Listed entity which has listed its specified securities on the SME Exchange:
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