Updated: Nov 7, 2021
Secretarial audit is an audit to check the compliance and adherence made by the corporates towards laws applicable to them, other than the Tax Laws. A secretarial Audit is conducted by a Practicing Company Secretary. The Secretarial Audit concept is introduced with the implementation of Companies Act, 2013, under old Companies Act, 1956 there was no provision for Secretarial Audit.
Which types of Companies should get Secretarial Audit Done?
Following types of Companies are required to get a Secretarial Audit done:
Every Public companies having a paid up share capital of Rs. 50 cr or more.
Every Public Company having a turnover of Rs. 250 cr or more.
every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more
The Secretarial Audit Report must be prepared by the company secretary in practice in Form MR-3. It must also be annexed with the Board's report.
The scope of the Secretarial Audit is as follows -
Following enactments are to be reviewed by Secretarial Auditor:
Companies Act, 2013 and the rules made thereunder;
Securities Contracts (Regulation) Act, 1956 (‘SCRA’), and the rules made thereunder;
Depositories Act, 1996, and the rules made thereunder;
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;
Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
Reporting on the compliance of secretarial standards issued by the Institute of Company Secretaries of India;
Reporting on Compliances with the Listing Agreement;
Reporting on compliance of ‘Other laws as may be applicable specifically to the company which shall include 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 sector- all laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement industry etc.
Appointment of the Secretarial Auditor
The Secretarial Auditor must be appointed at the Board meeting and the salary must be fixed during the same. The true cope of the resolution passed at the Board meeting must be filed with the Registrar of Companies as an attachment in MGT-14.
Process of Secretarial Audit
Obtain Documents Required - Company must assist with all documentation requirements.
Duty of the Board with respect to qualifications - It is the Boards duty to furnish explanations regarding any qualification or observations or remarks made by the company secretary in practice.
Contravention/Punishment - If there is any contravention on behalf of the company or any officer of the company or the company secretary in practice, then the persons in default are punishable with a fine of minimum of Rs. 1 Lakh and maximum of Rs. 5 Lakh.
Benefits of Secretarial Audit
It brings a better Corporate Governance system in place.
It is an effective measure to ensure compliance legally and procedural.
Instills confidence in the directors and Key Management personnel.
Strengthens the goodwill of the company amongst shareholders and regulators.
Helps potential investors analyze the risk level of the company.
It assures management, statutory Authorities and stakeholders that the company is statutorily complied, that good governance is in place, and more ever it assures that there is an adequate system in place.
Frequency of Secretarial Audit:
The Secretarial Audit report must be enclosed along with the annual Financial statement and Directors Report. Based on the Size of Business, number of Laws applicable Audit can be conducted periodically.
Secretarial Audit on Voluntary basis:
Irrespective of the applicability any company can get Secretarial Audit done from a Company Secretary in Practice to make sure the company is in compliance with all applicable laws.