Summary: The Securities and Exchange Board of India (SEBI) has specified disqualifications and prohibited services for Practicing Company Secretaries (PCS) serving as Secretarial Auditors under Regulation 24A of the LODR. Prohibited services include internal audits, compliance system design, investment advisory and banking services, management services, and outsourced compliance management. Disqualifications extend to PCS associated with business relationships, financial interests, or indebtedness with the listed entity beyond specified thresholds. PCS employed full-time elsewhere, convicted of fraud within the past decade, or serving as secretarial auditors for 15 or more companies are also disqualified. SEBI emphasizes independence by restricting PCS from directly or indirectly engaging in activities that compromise audit objectivity. These measures aim to ensure unbiased secretarial audits and enhance regulatory compliance in listed entities.
SEBI has disclosed the list of activities prohibited for a PCS Practicing Company Secretary when he is a Secretarial auditor of an Entity.
These activities are as follows:
i. internal audit;
ii. design and implementation of any compliance management system, information system, policy framework, systems or processes for compliance;
iii. investment advisory services;
iv. investment banking services;
v. rendering of outsourced compliance management, record keeping & maintenance services;
vi. management services; and
vii. any other kind of services as may be specified from time to time.
SEBI has also prescribed the disqualifications for a PCS which are
For Regulation 24A(1A) of the LODR Regulations, the following persons shall not be eligible to be appointed/continue as a Secretarial Auditor of the listed entity, namely: —
a) a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;
b) an officer or employee of the listed entity;
c) a person who is a partner, or who is in the employment, of an officer or employee of the listed entity;
d) a person who, or his relative or partner—
i. is holding security of or interest in the listed entity or its subsidiary, or of its holding or associate entity or a subsidiary of such holding entity to which the listed entity is also a subsidiary, of face value exceeding one lakh rupees;
ii. is indebted to the listed entity, or its subsidiary, or its holding or associate entity or a subsidiary of such holding entity to which the listed entity is also a subsidiary, over five lakh rupees; or
iii. has given a guarantee or provided any security in connection with the indebtedness of any third person to the listed entity, or its subsidiary, or its holding or associate entity, or a subsidiary of such holding entity to which the listed entity is also a subsidiary, over one lakh rupees;
e) a person or a firm who, whether directly or indirectly, has a business relationship with the listed entity, its subsidiary, or its holding or associate entity or subsidiary of such holding entity;
Explanation I — For this clause, the term “business relationship” shall be construed as any transaction entered into for a commercial purpose, except –
i. commercial transactions which are like professional services permitted to be rendered by a secretarial auditor or secretarial audit firm under the Companies Act, 2013, Securities and Exchange Board of India Act, 1992, Companies Secretaries Act, 1980, and the rules or the regulations made under those Acts;
ii. commercial transactions which are in the ordinary course of business of the company at arm’s length price – like the sale of products or services to the secretarial auditor, as a customer, in the ordinary course of business, by companies engaged in telecommunications, airlines, hospitals, hotels and similar businesses.
Annexure 2
DISQUALIFICATIONS FOR A SECRETARIAL AUDITOR
1. For the purpose of Regulation 24A(1A) of the LODR Regulations, the following persons shall not be eligible to be appointed / continue as a Secretarial Auditor of the listed entity, namely: —
a) a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;
b) an officer or employee of the listed entity;
c) a person who is a partner, or who is in the employment, of an officer or employee of the listed entity;
d) a person who, or his relative or partner—
i. is holding security of or interest in the listed entity or its subsidiary, or of its holding or associate entity or a subsidiary of such holding entity to which the listed entity is also a subsidiary, of face value exceeding one lakh rupees;
ii. is indebted to the listed entity, or its subsidiary, or its holding or associate entity or a subsidiary of such holding entity to which the listed entity is also a subsidiary, in excess of five lakh rupees; or
iii. has given a guarantee or provided any security in connection with the indebtedness of any third person to the listed entity, or its subsidiary, or its holding or associate entity or a subsidiary of such holding entity to which the listed entity is also a subsidiary, in excess of one lakh rupees;
e) a person or a firm who, whether directly or indirectly, has business relationship with the listed entity, or its subsidiary, or its holding or associate entity or subsidiary of such holding entity;
Explanation I — For the purposes of this clause, the term “business relationship” shall be construed as any transaction entered into for a commercial purpose, except –
i. commercial transactions which are in the nature of professional services permitted to be rendered by a secretarial auditor or secretarial audit firm under the Companies Act, 2013, Securities and Exchange Board of India Act, 1992, Companies Secretaries Act, 1980, and the rules or the regulations made under those Acts;
ii. commercial transactions which are in the ordinary course of business of the company at arm’s length price – like sale of products or services to the secretarial auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.
Explanation II — For the purpose of this clause, the term “directly or indirectly” shall mean, —
i. in case of an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual;
ii. in case of a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.
f) a person whose relative is a director or is in the employment of the listed entity as a director or key managerial personnel;
g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its secretarial auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as secretarial auditor of 15 or more than 15 companies;
h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction;
i) a person who, directly or indirectly, renders any service prohibited under sub- regulation (1B) of regulation 24A to the listed entity or its holding or its subsidiary
Annexure 3
SERVICES NOT TO BE RENDERED BY THE SECRETARIAL AUDITOR
1. For the purpose of Regulation 24A(1B) of the LODR Regulations, a secretarial auditor appointed under the LODR regulations, shall not provide any of the following services (whether such services are rendered directly or indirectly) to the listed entity, or its holding entity or subsidiary entity, namely:
i. internal audit;
ii. design and implementation of any compliance management system, information system, policy framework, systems or processes for compliance;
iii. investment advisory services;
iv. investment banking services;
v. rendering of outsourced compliance management, record keeping & maintenance services;
vi. management services; and
vii. any other kind of services as may be specified from time to time.
Explanation:- The term “directly or indirectly” shall include rendering of services by the secretarial auditor, —
iii. in case of secretarial auditor being an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual;
iv. in case of secretarial auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.
Author Bio
