SECRETARIAL AUDIT- GAINING WIDER ACCEPTANCE

Brief Intro

Section 204 of Companies Act, 2013 provides for Secretarial audit for bigger companies. It was hailed as an important step in improving corporate governance and ensure effectives compliances of the rules and regulations applicable on the company.

Secretarial Audit is an audit to check Compliances of various legislations applicable to the company i.e. including Company law but not limited to that only.

In one simple line: its compliance audit

But the bigger question is that whether its applicable on every company.

Before 03.01.2020

Section 204 of the act provides that the Every Listed Company need to carry out the audit and also Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) species certain classes of companies which also requires Secretarial Audit to be carries out. 

Secretarial Audit Applicability

PUBLIC COMPANY: having Having Paid up share capital of Rs. 50 Crore or more

PUBLIC COMPANY: Having Turnover of Rs. 250 Crore or more

Current Situation

But the recent amendment notified on 03rd January, 2020 has provided for new scope which states in addition to above companies, a new Rule 9(C) of the abovesaid rules is also applicable on:

Every Company having outstanding loans or borrowings from banks or public financial institutions of ONE HUNDRED CRORE Or More.

Thus, in addition, to listed co. and public company having certain thresholds, the provisions of Section 204 also will apply to every company i.e both private and public having loans or borrowings from Banks or PFI of Rs. 100 Cr or more. Thus, the amendment increased the scope of Secretarial Audit.

Note: Only Company Secretary in practice is authorized to conduct Secretarial Audit.

Some Questions that need to be answered:

Q 1. Why this requirement of this provision?

Ans. As the current situations of the economy wherein Banks or public finacial institution are facing challenges on NPA and its recovery front. The challenges for them is that the financial audit is not only has certain shortcomings of its own but they solely cannot rely on the reports of statutory auditor.

Thus, the Government realizing that public money is at stake hence the need for secretarial audit to ensure they are complying with the legislations.

 Recent Cases of PMC Cooperative bank, DHFL and Private Lender Yes Bank necessitated the need.

Q 2. Is Secretarial audit is coming on par with Financial Audit?

Ans. As on date its very early to say that but surely sensing future challenges with respect to Corporate Governance and maintaining public trust in Companies its surely on that path.

Q 3. from when will be the new amendment applies

Ans. The new Rules shall apply from the financial year commencing on or after 01.04.2020

4. How can we identify the applicability of this new rules.

Ans. The biggest aid in identification of such companies is their Audited Financial Statements i.e. via the help of Balance sheet where the information with regards to loans whether secured or not is made available.

5. Does the provisions covers the companies which crosses such limit with the financial year but the same is repaid before closure of FY.

Ans. The notification clearly mentions that the threshold limit will be taken as on the last date of audited financial statements.

6. Does it will also apply in case of inter-corporate borrowing or loans?

Ans. The Loans or borrowings should be from BANK or PUBLIC FINANCIAL INSTITUTION not inter-corporate loans or borrowing.

Reference: http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=21268

https://taxguru.in/company-law/companies-appointment-remuneration-managerial-personnel-amendment-rules-2020.html

Author Bio

Qualification: CS
Company: N/A
Location: hyderabad, Telangana, IN
Member Since: 16 Feb 2020 | Total Posts: 2

My Published Posts

More Under Company Law

Leave a Comment

Your email address will not be published. Required fields are marked *