Secretarial Audit for Companies

A secretarial audit is a mechanism that focuses on the non-financial aspects that affect the performance of the company. It is an independent verification of the records and documents done by a Company Secretary to check the compliance status of the company.  

Objectives 

The objectives of the secretarial audit are as follows: 

• Verify and report compliance of applicable laws, regulations and guidelines. 

• Helps detect non-compliance and facilitates taking corrective measures to avoid future risks. 

• Protect the interest of the stakeholders of the company that the compliances are being adhered to. 

• Ensures an effective compliance management program so as to minimize chances of penalties and legal actions. 

As per Section 204 (1) of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Audit is applicable to every company that is:

• A listed company 

• A public company having paid-up share capital of Rs. 50 crore or more. • A public company having a turnover of Rs. 250 crore or more. 

• A company having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more. 

All companies to which the Secretarial Audit Report is applied shall be:

• Prepared by a Practising Company Secretary.

• Prepared in Form M-3.R.  

• Annexed with the Board’s Report of the Company.

How to appoint a Secretarial Audit?

The steps for the appointment of the Secretarial Auditor are as follows: 

• Obtain the consent and eligibility letter of the Secretarial Auditor. • Appoint the Secretarial Auditor in Board Meeting. 

• Fix the remuneration of Secretarial Auditor in Board Meeting. 

• File certified a true copy of a resolution passed in Board Meeting with the Registrar of companies as an attachment in MGT – 14. 

Scope of Secretarial Audit 

It is defined as per Form M-3.R which requires secretarial auditors to examine and report in compliance with, specifically, five statutes: 

• The Companies Act, 2013 and the rules made thereunder; 

• The Securities Contracts (Regulation) Act, 1956 and the rules made thereunder; 

• The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder; 

• The 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; 

• The Securities and Exchange Board of India Act, 1992 and the Regulations and guidelines made thereunder. 

• Compliance of secretarial standards issued by the Institute of Company Secretaries of India; 

• Other laws, which means all the laws that are applicable to a specific industry.

Non-Compliance of Secretarial Audit

This further results into: 

1. According to Section 204(4) of the Companies Act, 2013, if a company or any officer of the company or the company secretary in practice contravenes the provisions related to secretarial audit, the company, every officer of the company or the company secretary in practice, who is in default, shall be liable to a penalty of two lakh rupees.  
2. According to Section 448 of the Companies Act, 2013, if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purpose of any of the provisions of this Act or the rules made thereunder, any person makes a statement 

• which is false in any material particulars, knowing it to be false, or, 
• which omits any material fact, knowing it to be material, he shall be liable under Section 447. 

3. According to Section 447 of the Companies Act, 2013, if any person is found guilty of fraud, they shall be punishable with 
   • imprisonment for a term which shall not be less than six months but which may extend to ten years, and 
   • fine which shall not be less than the amount involved in the fraud but which may extend to three times the amount involved in the fraud.