Introduction
Corporate governance practice of listed companies and its subsidiary companies are governed through Regulation 24 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Considering the importance of secretarial functions, the Committee on Corporate Governance, constituted under the Chairmanship of Shri Uday Kotak, in its report dated October 05, 2017 has recommended below given to strengthen the corporate governance practice:
- Secretarial audit to be made compulsory for all listed entities under the SEBI (LODR) Regulations, 2015 in line with the provisions of the Companies Act, 2013.
- Secretarial audit to be extended to all material unlisted Indian subsidiaries on strengthening group oversight and improving compliance at a group level for listed entities
Further to this recommendation of above mentioned committee regulation 24A was inserted by the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 which becomes effective from the year ended March 31, 2019.
Regulation 24A of SEBI (LODR) 2015
Regulation 24A of SEBI (LODR) 2015 mandates listed companies and its material unlisted subsidiaries incorporated in India to conduct secretarial audit given by a company secretary in practice, and shall annex with its annual report, a secretarial audit report, with effect from the year ended March 31, 2019.
Clarification on Regulation 24A of SEBI (LODR) 2015 by SEBI
After introduction of Regulation 24A, listed entities and Company Secretaries were in dubiety regarding the manner of secretarial audit, as Companies Act, 2013 (“Act”) has already mandated the Secretarial Audit for Listed Companies in accordance with section 204 of the Act.
To clarify the perplexity, SEBI has issued a circular dated February 08,2019 vide CIR/CFD/CMD1/27/2019 addressing to all Listed Entities (whose equity shares are listed) and their material subsidiaries, all the Recognized Stock Exchanges and the Institute of Company Secretaries of India (ICSI). This circular clearly states that Companies has to submit report in below manner:
The practicing company secretary will conduct the audit and submit the report in the format prescribed by SEBI through this circular.
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.
Scope of Secretarial Compliance Report
A practicing company secretary appointed for submission of annual compliance report needs to examine and report for below given compliance:
- The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;
- Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-
- The Securities and Exchange Board of India (Listing Obligation and Disclosure Requirement) Regulations, 2015
- The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
- The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
- The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009
- The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
- The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008
- 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
- The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009;
- The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
- Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014
The aforesaid list of Regulations is only illustrative. The list of all SEBI Regulations, as may be relevant and applicable to the listed entity for the review period, shall be added.
Reporting by Practicing Company Secretary
Practicing Company Secretary (PCS) have to examine all the documents and records, filings/ submissions made by the listed entity to the stock exchanges and any other document/ filing, as may be relevant, for this certification.
PCS has to specifically state its observation for any non-compliance by the Company and the deviations from the regulations.
PCS should also state weather any actions has been taken against the listed entity/ its promoters/ directors/ material subsidiaries either by SEBI or by Stock Exchanges(including under the Standard Operating Procedures issued by SEBI through various circulars) under the aforesaid Acts/ Regulations and circulars/ guidelines issued thereunder.
Furthermore, if in any previous annual compliance report, any observation was given then PCS should specify in its report the actions taken by the Company to comply with those observations which were made in previous report.
What Records/Documents should be reviewed for annual compliance report
It is advisable to refer all the relevant and updated amendments and circulars issued by SEBI w.r.t the SEBI Listing Regulations while conducting the Annual Secretarial Compliance of a listed entity.
Below given is an illustrative list, not exhaustive, for documents which the Auditor must consider while conducting the Audit.
- Minute Books of Board Meeting, General Meeting and Committee Meeting;
- Notice, agenda, notes to agenda for all Meetings conducted by the Company;
- Attendance Sheet of Directors attending Board and Committee Meeting;
- Leave of Absence request by director if any;
- Records if postal ballot done at general meeting;
- Attendance Sheet of Members for any General Meeting;
- Documents with respect to fund transfer to Investor Education Protection Fund.
- Documents pertaining to quarterly and half yearly compliances.
- Documents pertaining to event basis compliances
- All other documents and intimations submitted to stock exchange;
- Newspaper publications made by the Company;
- Any correspondence made to stock exchange pertaining to any compliance;
- Statutory Registers of the Company;
- Documents pertaining to the Annual General meeting of the Company;
- Notices, Letter if any received by the Company. etc.
- Declarations of director pursuant to listing regulations.
- Composition of Board of Directors
- Content of website of the Company
- Disclosures of material event by the Company
- Policies of the Companies .etc.
Difference between annual secretarial audit and annual secretarial compliance report
| Particular | Annual secretarial audit | Annual secretarial compliance report |
| Applicability | All listed Company and its Material Unlisted Subsidiary | All listed Company |
| Provision and Regulation | Section 204 of Companies Act,2013 read with Regulation 24A of SEBI (LODR) 2015 | Regulation 24A of SEBI (LODR) 2015 |
| Scope | Cover a broad check on compliance with all laws applicable to the entity | Cover a check on compliance of all applicable SEBI Regulations and circulars/ guidelines issued there under |
| Submission | To be submitted to the members along with its Annual Report | To be submitted to the stock exchange within 60 days of end of financial year i.e. 31st May of any year |
| Format | MR-3 as given under Companies Act,2013 | Format is specifically prescribed under SEBI circular dated February 08,2019 vide CIR/CFD/CMD1/27/2019 |
Both the reports have to be submitted by a practicing company secretary.
Generally, Secretarial Auditor appointed under section 204 of the Act, also provides the Annual Secretarial Compliance Report, as the auditor is already well acquainted with the compliance status of the Company.
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