A secretarial audit is a comprehensive review of the company’s records and documents by an independent auditor or a firm specializing in such audits. The primary objective of a secretarial audit is to ensure compliance with various laws, rules, regulations, and guidelines applicable to the company’s operations. These may include corporate laws, securities laws, labour laws, environmental laws, taxation laws, and other regulatory requirements.
The audit typically focuses on the company’s adherence to legal and regulatory obligations concerning corporate governance, management practices, disclosure norms, and procedural requirements. It examines various documents such as minutes of meetings, resolutions, statutory registers, filings with regulatory authorities, contracts, agreements, and other relevant records to verify compliance.
The findings of a secretarial audit help stakeholders, including shareholders, regulators, and management, to assess the company’s compliance status and governance practices. It also assists in identifying any areas of non-compliance, potential risks, or areas for improvement.
Overall, a secretarial audit plays a crucial role in ensuring transparency, accountability, and adherence to legal and regulatory requirements in corporate operations. This comprehensive guide aims to shed light on the significance, scope, and application of secretarial audits, alongside outlining the governing laws and benefits derived from such audits.
Page Contents
Governing Section for Secretarial Audit
Section 204 of The Companies Act, 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Applicability of Secretarial Audit – Section 204(1)
According to Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the following companies are required to comply with this section:
- Every Listed Company; or
- Every public company having a paid-up share capital of fifty crore rupees or more; or
- Every public company having a turnover of two hundred fifty crore rupees or more; or
- Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.
NOTE: For the purposes of this rule, it is hereby clarified that the paid-up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of the latest audited financial statement shall be taken into account.
Form of Secretarial Audit Report
According to Rule 9(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the format of the Secretarial Audit Report shall be in Form No. MR. 3.
Scope of Secretarial Audit
In terms of Form MR.3, the Secretarial Auditor needs to examine and report the compliance of the following five specific laws:
- The Companies Act, 2013 and the rules made thereunder;
- The Securities Contracts (Regulation) Act, 1956 (‘SCRA’), and the rules made thereunder;
- The Depositories Act, 1996, and the rules made thereunder;
- Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings;
- The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
i. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011
ii. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992
iii. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009
iv. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
v. The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008
vi. The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
vii. The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009
viii. The Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998
Other areas which need to be checked
- Secretarial standards issued by the Institute of Company Secretaries of India;
- The SEBI (Listing and Other Disclosure Requirements) Regulations, 2015, if applicable.
- Any other sector-specific law if applicable like:
- Agriculture Laws
- Aviation Laws
- Banking and Financial Services Laws
- Cement Laws
- Construction Laws
- Education and Training Laws
- Food Laws
- FMCG Laws
- Gems and Jewellery Laws
- General Laws manufacturing
- General Laws service industry
- Insurance Laws
- Marine, Shipping and Port Laws
- Media and entertainment Laws
- Oil and Gas Laws
- Pharmaceuticals Biotechnology health care Laws
- Power Laws
- Railway Laws
- SEZ Laws
- Sugar Laws and Regulations
- Tea Laws
- Telecom Laws
- Textile Laws
- Tobacco Laws
- Tourism and Hospitality
Secretarial Auditor
According to Section 204(1) of the Companies Act 2013, a Company Secretary in Practice is required to be appointed as the Secretarial Auditor.
In terms of Section 204(1), only a member of the Institute of Company Secretaries of India holding a Certificate of Practice can conduct a Secretarial Audit and furnish the Secretarial Audit Report to the Company.
Appointment of Secretarial Auditor
According to Rule 8(4) of the Companies (Meeting of Board and its power) Rules, 2014, a secretarial auditor shall be appointed by means of a resolution passed at a duly convened Board meeting of the company.
i. Obtain the consent of secretarial Auditor.
ii. Appoint & fix remuneration of the Secretarial Auditor in the Board Meeting.
iii. File Form MGT – 14 with the ROC along with a certified true copy of the resolution passed in the Board Meeting.
NOTE: It is advisable that the secretarial auditor is appointed at the beginning of the year since secretarial audit is an ongoing process and entails checking of compliances on a continuous basis.
Benefits of Secretarial Audit
Some of the benefits of Secretarial Audit are as follows:
i. To ensure compliance with the legal and procedural requirements & to minimize the possibility of legal issues disrupting the company’s progress.
ii. To provide a level of confidence to the promoters, directors, investors, government authorities, regulators and other investors.
iii. To ensure the company’s goals, structures and ongoing operations are consistent with the latest developments in business and the law governing them.
iv. To strengthen the goodwill of a company for its regulators and stakeholders.
v. To mitigate any risk from regulatory authorities and act as a governance and compliance risk management tool.
vi. To help investors in analyzing the compliance level of companies and making informed investment decisions.
According to Section 204(4) of the Companies Act 2013, if a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, 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.
Conclusion: The secretarial audit is a cornerstone of corporate governance and compliance, offering a clear lens through which the adherence of a company to the legal and regulatory requirements is assessed. Its role in enhancing transparency, accountability, and governance practices cannot be overstated. As the corporate landscape evolves, the significance of secretarial audits in maintaining the integrity and credibility of business operations continues to grow, making it an indispensable tool for companies across the spectrum.
*****
DISCLAIMER:- This Blog is for the purposes of information/knowledge and shall not be treated as solicitation in any manner or for any other purposes whatsoever.
Feel free to contact the author for further clarification at 9953808432 or via mail at [email protected]. The author is the founder of SINGHANIA & ASSOCIATES (Practicing Company Secretaries Firm) based in Delhi.
Author Bio
