Secretarial Audit- Objective and Scope

Secretarial Audit is a compliance audit and it is a part of total compliance management in an organization. The Secretarial Audit is an effective tool for corporate compliance management. It helps to detect non-compliance and to take corrective measures.

Secretarial Audit is a process to check compliance with the provisions of various laws and rules/ regulations/procedures, maintenance of books, records etc., by an independent professional to ensure that the company has complied with the legal and procedural requirements and also followed the due process.

Section 204 of the Companies Act, 2013 mandates every listed company to annex a Secretarial Audit Report, given by a company secretary in practice with its Board’s report.

As per rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the prescribed class of companies is as under:

• every public company having a paid-up share capital of fifty crore rupees or more
• every public company having a turnover of two hundred fifty crore rupees or more
• every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.

The format of the Secretarial Audit Report shall be in Form No. MR.3.To point out non-compliances and inadequate compliances;

Secretarial Audit is also applicable to a private company which is a subsidiary of a public company, and which falls under the prescribed class of companies as indicated above.

The Objectives of Secretarial Audit

The objectives of Secretarial Audit may be summarized as under:-

• To check & report on compliances of applicable laws and Secretarial Standards;
• To point out non-compliances and inadequate compliances;
• To protect the interest of various stakeholders i.e. the customers, employees, society etc;
• To avoid any unwarranted legal actions/penalties by law enforcing agencies and other persons as well.

Scope of Secretarial Audit

The scope of Secretarial Audit comprises verification of the compliances under the following enactments, rules, regulations, notifications and guidelines:

The Companies Act, 2013 (the Act)

• Maintenance of registers and records
• Filing of forms, returns and documents
• Memorandum and/or Articles of Association.
• Meetings of directors/committees, shareholders and other stakeholders.
• Secretarial Standards.
• Directors and Key Managerial Personnel (“KMP”).
• Issue of shares and other securities.
• Transfer and transmission of shares and other securities and related matters.
• Dividend
• Deposits
• Borrowings
• Loans, investments, guaranties and securities
• Loans to directors etc. and Related party transactions
• Charges
• Corporate Social responsibility

2. Other major Acts and Regulations

-The Securities Contracts (Regulation) Act, 1956

-The Depositories Act, 1996

-The Foreign Exchange Management Act, 1999

-The regulations and guidelines made under the Securities and Exchange Board of India Act, 1992

• • SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
  • SEBI (Prohibition of Insider Trading) Regulations, 2015;
  • SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
  • SEBI (Share Based Employee Benefit) Regulations, 2014;
  • SEBI (Issue and Listing of Debt Securities) Regulations, 2008;
  • SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
  • SEBI (Delisting of Equity Shares) Regulations, 2009;
  • SEBI (Buyback of Securities) Regulations, 1998
  • SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015

3. Other Applicable Laws

Other laws as may be applicable specifically to the company’ shall mean all the laws which are applicable to specific industry for example for Banks- all laws applicable to Banking Industry; for insurance company-all laws applicable to insurance industry; likewise for a company in petroleum sectoral laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement industry etc.

SS-1 requires every company to specify list of laws applicable specifically to the company at its Board Meeting.

• To examine and report on the compliance with Secretarial Standards issued by ICSI.
• Adherence to board process and compliance mechanism.

In preparing the Audit Report, the secretarial auditor shall consider the following matters

1. Instances of non-compliance during the defined audit period,

2. Significant litigation(s) initiated by the company or filed against the company with brief details of the cases;

(a) Board structure

• • Composition of the Board
  • Is there a stated process to ascertain the suitability of directors?
  • Is there a stated process in place for succession planning?

(b) Deficiencies in the Board systems and processes –

• • In convening meetings.
  • In the circulation of agenda
  • In conducting the meetings
  • In the decision making process of the Board.
  • Adequacy and integrity of minutes recorded.
  • In the functioning of Board constituted Committee