Secretarial Audit under Sec.204 of Companies Act, 2013
Secretarial Audit is the thorough examination and verification of compliances that has been followed by the company in order to check any non-compliance. The non-adherences to various laws can put the company into various risky situations. Hence the secretarial audit acts as an important tool to check and assess various risk factors involved.
The secretarial auditor is required to report on whether the company has followed all the applicable laws or not and whether effective systems are implemented to monitor and assure compliance under all the sectors. He shall also list out the non-compliances and take corrective measures in order to make it legitimate.
Applicability of Secretarial Audit
Section 204 Companies Act 2013 read along with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 mandates the following companies to conduct a secretarial audit:
- Every Listed Company
- Every Public Limited Company having paid-up share capital of 50 crore rupees or more
- Every Public Limited Company having a turnover of 250 crore rupees or more.
- Every Company (including a Private Limited Company) having outstanding loans or borrowings from banks or public financial institutions of ₹100.00 Crore or more
The secretarial audit shall be carried out by a company secretary in practice and the report shall be given in Form No.MR-3. The company shall assist and provide all the information as may be required by the company secretary in order to do the audit process expeditiously.
Whether Secretarial audit can be undertaken voluntarily?
Companies not mandated as per section 204 of companies act, 2013 may voluntarily undergo secretarial audit process which shall ensure an independent and effective compliance mechanism for the company.
Who can conduct the Secretarial Audit?
Only a member of the Institute of Company Secretaries of India holding Certificate of practice (company secretary in practice) can conduct the Secretarial Audit and make secretarial audit report.
How to appoint a Secretarial Auditor?
The secretarial auditor shall be appointed as per Rule 8 of the Companies (Meeting of the board and its powers) Rules, 2014 by a resolution passed at a Board Meeting and the resolution shall be filed with ROC in Form No.MGT-14.
An engagement letter shall be send by the Company pertaining to appointment of secretarial auditor and the acceptance shall be formally communicated back to the company by the secretarial auditor.
Benefits of Secretarial Audit
The secretarial audit being a compliance check on all the statutory regulations of the company protects the company from any troublesome in future. The major benefits of secretarial audit include:
- Ensuring effective compliance mechanism,
- Reducing the risk of non-compliances and any consequences that may come
- Ensuring effective management by the top level management by ensuring appropriate governance policies
- Acts as a continuous due diligence mechanism
- The shareholders stake is not exposed to unwanted risks
- Reduces the burden of investigation authorities in case of any inspection that may happen
When is Secretarial Audit carried out?
The Secretarial Audit has to be carried out on annual basis by the Company. The Secretarial Audit Report is required to be annexed to the Directors Report of Company. Also, the Board is required to comment on the qualification and remarks given by Secretarial Auditor. Hence the audit report shall be submitted before the preparation of Board’s report.
Penalty for contravention
If the company or any officer of the company or the company secretary in practice, defaults in any of the provisions, every officer of the company or the company secretary in practice who is in default shall be punishable with fine Rs.1 Lakhs – Rs.5 Lakhs.