CS Koushik Das
“Precaution is better than cure” is the main mantra being followed by the regulatory authorities lately. The duty of a regulator does not come to an end by just framing laws. To ensure that such laws have been adequately followed is also the responsibility of a regulator. In order to exist in the industry, a company needs to follow numerous laws and statutes. A Secretarial audit report reflects the compliance position of the company with respect to all the laws applicable upon the company. While the Companies Act, 2013 specifically provides for such secretarial audit, now, the Securities Exchange Board of India has also come up with similar provisions.
SEBI vide its circular dated February 8, 2019 has brought in the concept of “annual secretarial compliance report”. The Circular deals with two aspects-
ii. Annual secretarial compliance report
This write-up deliberates upon the above mentioned reports and the motive behind bringing in the same.
The SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) Amendment Regulations, 2018 based on the recommendation of the Kotak Committee brought many changes to strengthen the corporate governance of an organization. The Committee recommended for Secretarial Audit to be mandatory for all listed entities and its material unlisted subsidiaries. These changes included the requirement of annexing a secretarial audit report for both the listed entity and its material unlisted subsidiary in a specified format.
Although the provisions spoke about the requirement of an annual secretarial audit report, it is only in the Circular that SEBI stated the prescribed format to be MR-3 in conformity with section 204 of the Companies Act, 2013. It states that every listed entity’s and their material unlisted subsidiaries can continue to follow the format given under section 204 of the Companies Act, 2013 read with its rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
A new form has been prescribed which requires every listed company whose equity shares are listed to submit an “annual secretarial compliance report to the stock exchanges within 60 days of closure of financial year. The said report must be signed by a practicing company secretary. The Circular also prescribes the format in which such report is to be submitted to the stock exchange.
While, the secretarial audit report goes into an in depth study of all the applicable laws of the company, the annual secretarial compliance report requires an elaborative study of the compliances met under the SEBI laws by the listed entity.
Accordingly, the following shall be complied with by a listed entity whose equity shares are listed on the stock exchange:
A. Annual secretarial compliance report:
I. While the annual secretarial audit shall cover a broad check on compliance with all laws applicable to the entity, listed entities shall additionally, on an annual basis, require a check by the PCS on compliance of all applicable SEBI Regulations and circulars/ guidelines issued there under, consequent to which, the PCS shall submit a report to the listed entity in the manner specified in this circular.
II. The format for the annual secretarial compliance report is placed at Annex-A.
III. The annual secretarial compliance report in the aforesaid format shall be submitted by the listed entity to the stock exchanges within 60 days of the end of the financial year.
This circular shall come into force as under:
a) With respect to the “ASAR”, in the annual reports of the listed entities and the material unlisted subsidiaries from the financial year ended March 31, 2019 onwards.
b) With respect to the “ASCR”, applicable to listed entities, with effect from the financial year ended March 31, 2019 onwards
|Sr. No||Basis of comparison||ASAR||ASCR|
|1.||Laws covered for reporting||> Companies Act, 2013 and its Rules;
> Secretarial Standards;
> FEMA and its applicable regulations (FDI, OCD and ECB);
> Depositories Act, 1996 and its Bye- laws;
> Securities Contracts (Regulation) Act, 1956 and its Rules;
> SEBI Act and Regulations and Guidelines made there under as applicable to the company.
> Labour laws
> NBFC Master Directions
> Any other company specific applicable laws
|2.||Specific reporting||> Board constitution and changes made therein;
> Sending of notices and agenda for meetings;
> Capturing of dissenting views of the board member, if any;
> Presence of adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guideline; and
> Specific events and their compliance.
|> Deviations from compliance requirements under various SEBI laws;
> Maintenance of proper records;
> List of actions taken by SEBI or stock exchange for any non- compliance with respect to compliance of SEBI laws either on the company, its directors, promoters and material subsidiaries;
> Action taken by the listed entity and comments on such actions taken by the PCS for the reporting year as well as for the past financial years.
|3.||Reporting Authority||Ministry of Corporate Affairs||> Securities and Exchange Board of India (SEBI)|
|4.||Applicability||> Listed companies; or >
> Public companies with paid-up share capital of Rs. 50 crores; or
> Public companies with turnover of Rs. 250 crores or more.
|Companies whose specified securities are listed.|