Introduction to Secretarial Audit

What's Secretarial Audit?

Secretarial Audit is an independent and objective assurance activity intended to add value and improve operations of a company. It helps to accomplish the organization’s objectives by bringing a systematic, disciplined approach to evaluate and improve effectiveness of risk management, control, and governance processes.

Why was Secretarial Audit needed?

It's like having a rulebook buddy.

Secretarial Audit ensures that the company is following all the legal and procedural rules. Directors and important folks in the company can relax knowing that secretarial audit gives them a thumbs-up on following the rules. With secretarial audit taking care of the nitty-gritty legal stuff, directors can focus on their overall business strategy’s clean report from a secretarial audit builds up the company's image and makes regulators and stakeholders happy. It's not just about following the rules; it's also about making sure that the company's governance and compliance game is strong.

Who needs Secretarial Audit?

As per Section 204 of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, it is applicable on the following:

1. Every listed company;

2. Every public company having a paid-up share capital of fifty crore rupees or more;

3. Every public company having a turnover of two hundred fifty crore rupees or more; or

  4.Every Company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.

5. As per the SEBI(Listing Obligations and Disclosure Requirements) Regulations, 2015, secretarial audit is compulsory for all the listed entities (in line with the provisions of Companies Act, 2013) and is extended to all material unlisted Indian subsidiaries.

Key points:

(1)   ‘Listed entity’ means an entity which is listed, on a recognized stock exchange(s), the designated securities issued by it or designated securities issued under schemes managed by it, in accordance with the listing agreement entered into between the entity and the recognized stock exchange(s).

(2)   ‘Material unlisted Indian subsidiaries’ mean a subsidiary, whose income or net worth exceeds ten percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.

What is the due date for the Secretarial Audit?

Every listed entity shall submit a secretarial compliance report in Form MR-3 with the stock exchange within sixty days from end of each financial year.

Further, the due date for the secretarial audit for companies other than listed companies is generally aligned with the deadline for submitting the annual report of the company, which is often within a certain period after the end of the financial year.

Format of Secretarial Audit Report

A practicing company secretary conducts the audit and submits a report in Form MR-3, with all the findings. This report is like a report card for the company, showing how well it's following the rules. Secretarial Audit is like a guardian angel for companies, making sure they're on the right track and playing by the rules. It's a win-win for everyone involved from the company to its stakeholders.

Penal Provisions

If a company or any officer of the company or the company secretary in practice, contravenes the provisions of Section 204 of the Companies Act, 2013, 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.

Conclusion

Secretarial Audit under the Companies Act, 2013 serves as a vital mechanism for ensuring regulatory compliance, enhancing corporate governance, and fostering investor confidence. By mandating the audit for listed companies and certain public companies, the legislation underscores the importance of transparency, accountability, and adherence to legal frameworks in corporate operations. Embracing secretarial audit as a proactive measure not only mitigates regulatory risks but also reinforces the credibility and integrity of the corporate sector, thereby contributing to sustainable growth and investor protection.

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