Ensure your organization’s compliance with statutory and regulatory requirements with our professional Secretarial Audit Services.
Our secretarial audit services provide a thorough examination of your company’s compliance with statutory and regulatory requirements, ensuring transparency and governance.
Meaning
Secretarial Audit is the process of independent verification, examination of level of compliance of applicable Corporate Laws to a company. The audit process if properly devised, ensures timely compliance and eliminates any un-intended non-compliance of various applicable rules and regulations. An action plan of the corporate secretarial department is to be designed so as to ensure that all event based and time-based compliances are considered and acted upon. Secretarial audit is to be designed on the principle of “Prevention is better than cure” rather than post mortem exercise and to find faults.
Need for Secretarial Audit
Secretarial Audit is the process of independent verification, examination of level of compliance of applicable Corporate Laws to a company. The audit process if properly devised, ensures timely compliance and eliminates any un-intended non-compliance of various applicable rules and regulations. An action plan of the corporate secretarial department is to be designed so as to ensure that all event based and time-based compliances are considered and acted upon. Broadly, the need for Secretarial Audit is:
- Effective mechanism to ensure that the legal and procedural requirements are duly complied with.
- Provides a level of confidence to the Directors & Key Managerial Personnel etc.
- Directors can concentrate on important business matters as Secretarial Audit ensures legal and procedural requirements.
- Strengthen the image and goodwill of a company in the minds of regulators and stakeholders.
- Secretarial Audit is an effective governance and compliance risk management tool.
- Secretarial Audit helps the investor in analyzing the compliance level of companies and thus evaluate the quality of its governance/ decision making process, thereby increases the reputation.
Secretarial Audit & Company Secretary in Practice (PCS)
A Company Secretary in practice is a professional who is well-versed in matters of statutory, procedural and practical aspects of laws applicable to companies, both listed and unlisted public and private companies. A strong knowledge base makes him a competent professional to conduct Secretarial Audit. 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 issue the Secretarial Audit Report to the company.
Applicability of Secretarial Audit under Companies Act, 2013
- Every listed company
- 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; or
- Every Company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.
Applicability of Secretarial Audit under SEBI (LODR) Regulations, 2015.
The Committee on Corporate Governance, constituted under the Chairmanship of Shri Uday Kotak, in its report dated October 05, 2017, recommended the following in view of the criticality of secretarial functions to efficient board functioning:
(a) Secretarial audit to be made compulsory for all listed entities under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in line with the provisions of the Companies Act, 2013.
(b) Secretarial audit to be extended to all material unlisted Indian subsidiaries in line with the recommendations of the Committee on strengthening group oversight and improving compliance at a group level for listed entities.
Further secretarial compliance report is mandated for every listed entity w. e. f. 5th May, 2021.On the basis of the aforesaid recommendations, the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 have been amended to include the following Regulation 24A:
24A: Secretarial Audit and Secretarial Compliance Report
Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex a secretarial audit report given by a company secretary in practice, in such form as specified, with the annual report of the listed entity.
Every listed entity shall submit a secretarial compliance report in such form as specified, to stock exchanges, within sixty days from end of each financial year.Applicability of Section 204 to a Company which is a Subsidiary of a Public Company
Section 2(71) of the Companies Act, 2013 defines a “Public Company” as a company which –
(a) is not a private company; and
(b) has a minimum paid-up share capital as may be prescribed.
The proviso to the definition states that “Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.”
In view of this, it is clear that Section 204 is applicable to a private company which is a subsidiary of a public company, and which falls under the prescribed class of companies. Although, the companies which are not covered under section 204 may opt for conducting Secretarial Audit voluntarily as it provides an independent assurance of the compliances of applicable laws by the company.
With the SEBI (Listing Obligations and Disclosure Requirement) (Amendment) Regulations, 2018 being notified, subject to the exemptions available under Regulation 15 thereof, the Secretarial Audit is mandatory for listed entities and their material unlisted subsidiaries incorporated in India (Public or Private) and such entities are required to annex secretarial audit report with their annual report.
Format of Secretarial Audit Report
Every Secretarial Audit Report is to be submitted in a format prescribed under sub-rule (2) of rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the format of the Secretarial Audit Report shall be in Form MR-3 which shall be issued by a Company Secretary in Practice.
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.
As per rule (4) 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, secretarial auditor is required to be appointed by means of resolution passed at a duly convened meeting of the Board of Directors of the company.
As secretarial audit entails checking of compliances on a continuous basis, the appointment of the Secretarial Auditor should be at the beginning of the financial year. 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.
Benefits of Secretarial Audit
A secretarial non-compliance, a legal suit or other legal, ethical and governance problems can give rise to catastrophic effects on the continuing viability of the company. The statute prescribes mandatory secretarial audits of bigger companies to provide necessary assurance and comfort to the stakeholders. Many companies voluntarily conduct secretarial audit to minimize the possibility of various issues which may disrupt the progress of their companies.
The secretarial audit lays the groundwork for the establishment of an ongoing secretarial and legal compliances system and a non-compliance prevention program to ensure the goals of the company, structure and ongoing operations are consistent with the latest developments in business and the law governing the corporate entities.
A comprehensive secretarial audit would examine a wide range of issues which may be as important as to whether or not the company is qualified to do business in various jurisdictions or as complex as an analysis of the company’s board compliances in order to ensure consistency with applicable requirements under the Companies Act, 2013 and that all the events/ corporate action occurred during the year are in compliance with the Companies Act, 2013. Audit would include choice and structure of the entity; the decisions of the board of directors and documentation (or lack thereof) relating to those decisions; observance of the secretarial standards and board processes, protection of intellectual property; forms and methods of maintaining records, pending and threatened litigation, insurance coverage; listing under securities laws and compliance, and related trade regulations; labour laws, environmental laws; and a review of compliance of all industry specific laws such as laws relating to cement sector, fertilizer sector, sugar sector and so on.
The extent and complexity of the secretarial audit would vary depending on the size of the company in terms of the horizontal and vertical scales i.e., Size of business, area of operations, turnover, product line, age of the company and type of businesses, such as trading, services, manufacturing, the number of shareholders and employees, the extent to which the company does business as a “regulated industry,” and a host of other factors.
A dispensation with such an independent secretarial audit can lead to significant problems for the company and its stakeholders.
What is included in this
FAQs
No, Secretarial Audit is only mandatory for companies mentioned under Section 204(1) of the Act and Rule 9 of Company Rules 2014.
Yes, whenever a Practicing Company Secretary is appointed as Secretarial Auditor in place of the existing Secretarial Auditor, he/she should communicate the appointment to the earlier incumbent in writing, in view of the provisions of clause (8) of Part I of the First Schedule to the Company Secretaries Act, 1980 and the relevant pronounced judgments.
On contravention to provisions of Secretarial Audit, every company, its officer or company secretary, people who are in default shall be punishable with a penalty of Rs 2 lakh.
On furnishing a false audit report, the secretarial auditor is punishable with imprisonment of 6 months upto 10years with fine upto three times the amount misappropriated.
applicable or so required, to other specified persons.
Para 1.2.1 of Secretarial Standard on General Meetings requires that the notice in writing of every Meeting shall be given to every Member of the company. Such Notice shall also be given to the Directors and Auditors of the company, to the Secretarial Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other specified persons.
