Item: Applicability of Secretarial Audit under Companies Act, 2013
Author: Muhammed Fasil K

Applicability of Secretarial Audit under Companies Act, 2013

SECRETARIAL AUDIT

Secretarial audit is a comprehensive audit to check whether the concerned company is complying with the provisions of rules, regulations and procedures mentioned in various laws. Secretarial audit is carried out by an independent professional to ensure that the company has complied with the legal and procedural requirements and keeps proper books, records etc. It is essentially a mechanism to monitor compliance with the requirements of stated laws and processes.

Timely examination of compliance reduces risks as well as potential cost of non-compliance and also builds better corporate image. Secretarial audit establishes better compliance platform by checking the compliances with the provisions of various statutes, laws, rules & regulations, procedures by an independent professional to make necessary recommendations/remedies. The primary objective of compliance management backed secretarial audit is to safeguard the interest of the Directors & officers of the companies, shareholders, creditors, employees, customers etc.

The Companies Act, 2013 has introduced the Secretarial Audit as a new class of audit in addition to Statutory Audit, Internal Audit and Cost Audit prescribed in the Act. Section 204 of the Act read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 deals with provisions relating to Secretarial Audit.

APPLICABILITY

According to Sub-Section (1) of Section 204 of the Act, every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board’s report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed.

Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 prescribes the other class of companies as under:

(a) every public company having a paid-up share capital of rupees fifty crore or more; or

(b) every public company having a turnover of rupees two hundred fifty crore or more.

The format of Secretarial Audit Report shall be in Form MR.3. Thus private companies have been exempted from the provisions of the concept of secretarial audit. Secretarial Audit is extensively discussed in the paper ‘Secretarial Audit, Due Diligence and Compliance Management’’.

Duties, Rights and Powers of Company Secretary in Practice conducting Secretarial Audit:

According to Section 204 (2) of the Act, it shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for auditing the secretarial and related records of the company. Further, a company secretary in practice conducting secretarial audit has been granted similar powers and rights as that granted to statutory auditor. [Section 143(14) of the Act].

The report of Board of Directors prepared under Section 134(3) of the Act shall include explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the company secretary in practice in his secretarial audit report. [Section 204 (3) of the Act].

PUNISHMENT FOR DEFAULT

According to Section 204(4) of the Act, if a company or any officer of the company or the company secretary in practice, contravenes the provisions of section 204 of the Act, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than rupees one lakh but which may extend to rupees five lakh.

DUTY TO REPORT FRAUD

The provision of Section 143 mutatis mutandis apply to company secretary in practice in conduct of secretarial audit, if the company secretary in practice, in the course of the performance of his duties as secretarial auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed. If company secretary in practice conducting Secretarial Audit under section 204 of the Act do not comply with such provisions, he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty five lakh rupees. [Section 143(15) of the Act].

REPORTING REQUIREMENTS

Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that the format of the Secretarial Audit Report shall be in Form No.MR. 3. The scope of reporting is very broad and the Company Secretary in practice has to ensure compliances of following statutory provisions in addition to Secretarial standards issued by The Institute of Company secretaries of India.

(1) The Listing Agreement;

(2) The Companies Act, 2013 (including the rules made thereunder);

(3) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;

(4) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

(5) 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;

(6) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):

(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

(b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;

(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;

(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;

(f) 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;

(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and

(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;

(7) any other laws as may be applicable specifically to the company.

Related Post :

Ordinary Resolution For Appointment of Secretarial Auditor

Procedure For Appointment of Secretarial Auditor

E-book on draft resolutions and procedures

Applicability of Secretarial Audit under Companies Act, 2013

Applicability of Secretarial Audit under Companies Act, 2013

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