Comprehensive Guide to Secretarial Audit

> Secretarial audit is conducted to audit non-financial aspects of the company. It involves an independent verification of the records, books, papers and documents by a Company Secretary to check the compliance status of the company according to the provisions of various statutes, laws and rules & regulations. It helps to accomplish the organization’s objectives by improving effectiveness of risk management, control, and governance processes of the company.

• APPLICABILITY OF SECRETARIAL AUDIT UNDER COMPANIES ACT, 2013 AND SEBI (LODR) REGULATIONS, 2015

1. Section 204(1) of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that

a) Every listed company;

b) Every public company having a paid-up share capital of 50 crore rupees or more; or

c) Every public company having a turnover of 250 crore rupees or more

d) Every company having o/s loans or borrowings from banks or PFI of 100 rupees or more.

• • • Shall attach the Secretarial report given by a practising company secretary along with its board report in form MR-3.

2. Regulation 24 A of SEBI(LODR) Regulation, 2015 provides that:

• • Every listed company and its unlisted material subsidiary incorporated in India shall annex a secretarial audit report given by a practising company secretary with its annual report,
    • Material subsidiary mean a subsidiary, whose income or net worth exceeds 10 % of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding financial year.
  • Exemption: As per regulation 15 of the SEBI (LODR) Regulations, 2015 the compliance specified in regulations 24A, shall not apply, in respect of

a) The listed entity having paid up equity share capital not exceeding rupees 10 crore and net worth not exceeding rupees 25 crore.

b) The listed entity which has listed its specified securities on the SME Exchange.

3. Provisions of Section 204 are applicable to a private company which is a subsidiary of a public company, and which falls under the prescribed class of companies.

• SCOPE OF SECRETARIAL AUDIT: The Secretarial auditor needs to examine and report the compliance of the following:

1. Companies Act, 2013

2. Securities Contract (Regulation) Act, 1956

3. The Depositories Act, 1996

4. Foreign Exchange Management Act, 1999

5. SEBI Act

6. Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):

a. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

b. The SEBI (Prohibition of Insider Trading) Regulations, 2015

c. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

d. The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

e. The SEBI (Issue and Listing of Debt Securities) Regulations, 2008

f. The SEBI (Buy back of Securities) Regulations, 2018

7. Other laws as may be applicable specifically to the company

8. Secretarial Auditor also needs to examine and report whether the company is in compliance with clauses of the following:

a. Secretarial Standards issued by The Institute of Company Secretaries of India.

b. The Listing Agreements entered into by the Company with Stock Exchange.

♦ PROFESSIONAL RESPONSIBILITY AND PENALTY FOR INCORRECT SECRETARIAL AUDIT REPORT:

• Section 448 of the Companies Act provides that if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder or any person makes a statement,
  • which is false in any material particulars, knowing it to be false or,
  • which omits any material fact, knowing it to be material
    • He shall be liable under section 447.
• If a company or any officer of the company or the company secretary in practice contravenes the provisions of section 204 of Companies Act, 2013, the company, every officer of the company or the company secretary in practice, who is in default, shall be liable to a penalty of 2 lakh rupees.
• The Company Secretary in Practice shall be liable for professional or other misconduct mentioned in 1^st or 2^nd or in both the Schedules to the Company Secretaries Act, 1980.

♦ Who can conduct secretarial audit:

• 259^th meeting of the Council held on 16^th March, 2019: in case of the following, Secretarial Audit/ Secretarial Compliance Report to be done by Peer Reviewed Units only:

a) Top 100 companies as per market capitalization w.e.f April 1, 2020

b) Top 500 companies as per market capitalization w.e.f April 1, 2021

c) All listed companies w.e.f April 1, 2022

d) All companies w.e.f April 1, 2023

♦ How many secretarial audit reports can be given by a practising company secretary..?

a) 235^th meeting of the Council held on 11^th February, 2016 Limits for the issue of Secretarial Audit Reports:

i. 10 Secretarial Audits per partner/ PCS, and

ii. An additional limit of 5 Secretarial Audits per partner/PCS in case the unit is peer reviewed.

> In conclusion, the significance of Secretarial Audit, as stipulated by Section 204 of the Companies Act, 2013, cannot be overstated. It serves as a cornerstone for ensuring corporate transparency, adherence to legal and regulatory frameworks, and bolstering investor confidence. By entrusting this critical task to competent Company Secretaries equipped with the requisite knowledge and expertise, companies can not only mitigate risks but also pave the way for sustainable growth and long-term success. Embracing the principles of good corporate governance through regular Secretarial Audits underscores a firm’s commitment to integrity, accountability, and stakeholder value, thereby fostering a culture of trust and resilience in today’s dynamic business landscape.