Abstract: This article delves into the essential concept of Secretarial Audit, as defined under Section 204 of the Companies Act 2013 in India. It explains the audit’s meaning, objectives, legal framework, and various questions related to the appointment, resignation, or removal of the secretarial auditor. Moreover, it includes a comprehensive checklist for the secretarial audit and emphasizes its significant role in enhancing corporate governance and transparency.
Introduction: Secretarial Audit is an essential part of corporate governance that aids in ensuring compliance with all relevant laws, rules, regulations, and procedures. Under Section 204 of the Companies Act 2013, the audit deals with the non-financial aspects of a company, focusing on lawful conduct, record-keeping, and adherence to good governance practices.
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Meaning of Secretarial Audit:
Secretarial audit is the audit of non-financial aspects of the company and process of checking compliance with provisions of all applicable laws/rules/regulations and procedures for adherence to good governance practices with regard to the system and policies followed by the organization and to ensure that activities are being carried out in lawful manner and proper records and minutes of such activities are being maintained.
Objective of Secretarial Audit:
1. Effective mechanism to ensure that legal and procedural requirements are duly complied with.
2. Provides confidence to the directors, promoters & key managerial personnel of company.
3. Directors can concentrate on main business of the company rather than ensuring compliance part in the company.
4. Strengthen the image and goodwill of company in the eyes of the stakeholders.
5. It is a effective compliance management and governance tool.
6. It helps the investor in analyzing compliance level of companies and about corporate governance practices being followed.
Legal Framework of Secretarial Audit:
| UNDER COMPANIES ACT 2013 | UNDER SEBI (LODR) REGULATIONS 2015 |
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As per Section 204 (1) of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Audit is applicable to the following companies: 1. Every listed company 2. Every public company having paid up share capital of Rs. 50 crore or more. 3. Every public company having a turnover of Rs. 250 crore or more. 4. Every company having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more. 5. These companies shall annex with their Board’s Report , a Secretarial Audit Report in form MR-3. |
As per Regulation 24A of SEBI (LODR) Regulations, 2015, Every listed entity and its material subsidiaries incorporated in India shall undertake secretarial audit and shall annex secretarial audit report with its annual report ,given by a practicing company secretary in form and manner as may be prescribed. “Material Subsidiary” means a subsidiary whose income or net worth exceeds ten percent of the consolidated income or net worth, respectively, of the Company and its Subsidiaries in the immediately preceding accounting year. |
Some questions relation to secretarial auditor :
1. What will be the tenure of secretarial auditor appointed in the company?
Companies act 2013 and SEBI(LODR)Regulations 2015 does not provide any provisions pertaining to term of appointment of secretarial auditor in the company and law is silent with regard to this provision hence it totally depends upon the discretion of Board of directors of company and policies of the company with regard to it.
2. Whether the secretarial auditor shall be appointed in the Board meeting or Annual general meeting of the members of the company?
As per section 179 of the Companies Act 2013 read with Companies (meeting of board and its powers) rules 2014 which provides for powers of the board of directors states that it is the power of the BOD to appoint secretarial auditor in the company hence the secretarial auditor shall be appointed in the board meeting of the company by passing board resolution only statutory auditors of the company are appointed in AGM of members of the company as ordinary business by passing ordinary resolution.
3. Whether Form MGT -14 is to be filed after appointment of the secretarial auditor?
Form MGT-14 is filed within 30 days of passing special resolution or ordinary resolution as the case may be but in certain cases MGT-14 is filed for board resolutions as well and appointment of secretarial auditors is one of them.
4. What is the process for resignation or removal of secretarial auditor?
The law does not have any provision as regards the removal or resignation of the secretarial auditor. It does not provide for any procedure or reporting for either resignation or removal. Since he is appointed by the board we can say that he can be removed by the board. Requirement of notice to be served has also not been provided under the law, the law is silent on provisions relating to resignation of secretarial auditor. Hence, the resignation also has to be served on the Board only.
Checklist for Secretarial Audit:
The list of laws as provided under the MR 3 provides for regulations that have to be checked by the secretarial auditor.
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Companies Act 2013 |
| Equity Listing Agreements / debt listing agreement |
| Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 |
| SEBI (Depositories and Participants) Regulations, 1996 |
| Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; |
| Securities Contracts (Regulation) Act, 1956 (SCRA) and the Rules made under that Act |
| The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 |
| FEMA Regulations |
| Environmental laws |
| Labour laws |
| Environmental laws |
| Board composition and its process |
| Special laws |
|
Secretarial standards |
Conclusion
Secretarial audit plays a vital role towards enhancing corporate governance practices and transparency in the process and activities carried out by the corporates and also important for creating a level of confidence among shareholders/creditors and other stakeholders of the company By mandating independent and thorough examinations of company records, processes, and compliance procedures, Secretarial Audit acts as a proactive tool in identifying and rectifying potential non-compliances in the company.
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