Secretarial Audit under the Companies Act, 2013- Things to Know

An attempt has been made from my side to share my knowledge and experience regarding Secretarial Audit under the Companies Act, 2013 in the form of an Article. This Article contains the introduction, clarification, applicability, appointment and its procedure, required e-forms and other important points under Companies Act, 2013. I hope this article would be given some help to our professional working.

Secretarial Audit:

Secretarial Audit is a mechanism which gives necessary comfort to the management, regulators and the stakeholders, as to the compliance by the company of applicable laws and the existence of proper and adequate systems and processes in the company. It postulates verification on a test basis of records, books, papers and documents to check compliance with the provisions of various statutes, laws and rules & regulations by a Company Secretary in Practice to ensure compliance of legal and procedural requirements and processes.

Applicable Sections And Rules:

Section 204(1) of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014.

Applicability Of Secretarial Audit:

The applicability of the Secretarial Audit is on the bigger Companies as per the 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:

1. Every listed company; OR

2. Every public company having a paid-up share capital of fifty crore rupees or more; OR

3. Every public company having a turnover of two hundred fifty crore rupees or more

shall annex with its Board’s Report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a Company Secretary in practice, in such form (Form No. MR-3) as may be prescribed.

Note:

– Secretarial Audit is not applicable on the Private Company provided that it is applicable to a private company which is a subsidiary of a public company.

– Paid Up Capital: the paid up share capital as per latest audited financial statement,

– Turnover: means the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.

Appointment Of Secretarial Auditor:

In terms of section 204(1), only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the company.

The secretarial Auditor is required to be appointed by the Board Resolution passed by the Board of Director of the Company in their Board Meeting.

Note: If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section (section-204), the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupee.

Required E-Form:

The Board Resolution for the Appointment of the Secretarial Auditor is required to be filed with Registrar of the Companies in E-form MGT-14 within a period of 30 days from the date of appointment.

Time Of Appointment Of Secretarial Auditor:

It is advisable that Secretarial Auditor is appointed at beginning of the financial year as secretarial audit entails checking of compliances on a continuous basis. As a good practice, the Secretarial Auditor should submit a report to the Board at the end of each quarter as to the compliances of the company.

Secretarial Audit Report (Mr-3)

The report of secretarial audit shall be in the prescribed format in the Form No. MR-3 (SECRETARIAL AUDITOR REPORT) and annex with Board’s Report.

Scope Of Secretarial Audit:

In terms of Form No.MR-3, the Secretarial auditor needs to examine and report the compliance of the following five specific laws:

(i) The Companies Act, 2013 (the Act) and the rules made thereunder;

(ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;

(iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

(iv) 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;

(v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-

(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

(b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992*;

(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;

(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999**;

(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;

(f) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client;

(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and

(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;

In addition, the form MR-3, point (vi) also refers to ‘Other laws as may be applicable specifically to the company.’

It may be noted that the scope of MR- 3 includes ‘The Securities and Exchange Board of India (Listing obligations and Disclosures requirements) Regulations, 2015’.

‘Other areas’ which need to be checked- Secretarial Auditor needs to examine and report on the compliance with the applicable clauses of the following:

i) Secretarial Standards issued by The Institute of Company Secretaries of India.

ii) The Listing Agreements entered into by the Company with ….. Stock Exchange(s), if applicable;

All Readers are advised to refer relevant provision of law before applying or accepting any of the point mentioned above or not. Author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the contents of this write up.

I hope that this article would be helpful to our professional working and endeavors under Companies Act, 2013. Thank you to visit and read this article. Kindly share your opinion.

(Author can be reached at Email: csjyotiarya@gmail.com)