Applicability of Secretarial Audit under Companies Act, 2013
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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.
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.
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.
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.
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:
(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
crore or more; or
(b) every public company having a turnover of rupees two hundred fifty crore
or more.
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’’.
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:
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].
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].
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.
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].
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.
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);
(including the rules made thereunder);
(3) The Securities Contracts
(Regulation) Act, 1956 (‘SCRA’) and
the rules made thereunder;
(Regulation) Act, 1956 (‘SCRA’) and
the rules made thereunder;
(4) The Depositories Act, 1996
and the Regulations and Bye-laws framed thereunder;
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;
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’):
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;
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;
Board of India (Prohibition of Insider Trading) Regulations, 1992;
(c) The Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2009;
Disclosure Requirements) Regulations, 2009;
(d) The Securities and Exchange Board of India (Employee Stock Option
Scheme and Employee
Stock Purchase Scheme)
Guidelines, 1999;
Scheme and Employee
Stock Purchase Scheme)
Guidelines, 1999;
(e) The
Securities and Exchange Board of India (Issue and Listing of Debt Securities)
Regulations, 2008;
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;
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
Board of India (Delisting of Equity Shares) Regulations, 2009; and
(h) The Securities and Exchange
Board of India (Buyback of Securities) Regulations, 1998;
Board of India (Buyback of Securities) Regulations, 1998;
(7) any other laws as may be
applicable specifically to the company.
applicable specifically to the company.
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