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Secretarial Audit under the Companies Act, 2013- Things to Know

Secretarial Audit under the Companies Act

Secretarial Audit under the Companies Act, 2013- Things to Know

My side has made an attempt to share my knowledge and experience in Secretarial Audit in the form of an article Secretarial Audit under the Companies Act, 2013. The article includes the definition, explanation, applicability, appointment and process, relevant e-forms and other important points under the 2013 Companies Act. I hope that this article will help us

Secretarial Audit:

A secretarial Audit is a tool that provides the management, regulators and shareholders with the required confidence as to the company’s compliance with applicable laws and the presence in the company of proper and sufficient systems and processes. It postulates confirmation on a test basis of records, books, papers and reports to confirm compliance by a company director in operation with the provisions of specific legislation, laws and rules and regulations to ensure compliance with legal and procedural standards and processes.

Applicable Sections And Rules:

Section 204(1) of the Companies Act, 2013 read Rule 9 of the Rules of the Companies (Appointment and Remuneration of Managerial Personnel), 2014 and Rule 8 of the Rules of the Companies (Council Meetings and Powers), 2014.

Applicability Of Secretarial Audit:

According to Section 204(1) of the Companies Act, 2013 read with Rule 9 of the Companies Rules (Appointment and Remuneration of Managerial Personnel), 2014, the applicability of the Secretarial Audit extends to the larger companies.

1. Every listed company; OR

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

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

Annex the Secretarial Audit Report submitted by the Company Secretary in effect in the form (Form No. MR-3) referred to in subsection (3) of section 134.

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Secretarial Audit does not apply to the Private Company if it applies to a private company that is a public company subsidiary.

Paid-up equity: the stock capital paid up in compliance with the most recent audited financial statement,

Turnover: means the net amount of revenue earned by a corporation in the profit and loss account from the purchase, supply or distribution of goods or services rendered, or both, during a financial year.

Appointment Of Secretarial Auditor:

With regard to section 204(1), only a member of India’s Institute of Company Secretaries holding a certificate of practice (company secretary in training) may perform Secretarial Audit and provide the business with the Secretarial Audit Report.

The secretarial auditor is expected to be named in their board meeting by the board resolution passed by the company’s board of directors.

Note: If, in fact, a company or any officer of the company or company secretary contravenes the provisions of this section (section 204), the company, any officer of the company or company secretary in action, who is in default, shall be punished with a fine not less than one lakh rupee but which may extend to five lakh rupees.

Required E-Form:

The Secretarial Auditor’s Board Resolution is required to be filed with the Companies ‘ Registrar in E-form MGT-14 within 30 days of the date of appointment.

Time Of Appointment Of Secretarial Auditor:

It is recommended that Secretarial Auditor be named as Secretarial Audit at the start of the financial year requires continuing compliance tests. The Secretarial Auditor must submit a report on the company’s compliances to the Board at the end of each quarter as a good practice.

Secretarial Audit Report (Mr-3)

The Secretarial Audit Report shall be in Form No in the prescribed format. MR-3 (SECRETARIAL AUDITOR REPORT) and appendix to the Report of the Commission.

Scope Of Secretarial Audit:

With regard to Form No. MR-3, the Secretariat Auditor must audit and report compliance with the following five specific laws:

  • The Companies Act, 2013 (the Act) and the Rules made thereunder;
  •  the Securities Contracts Act of 1956 (‘ SCRA ‘) and its rules;
  • The 1996 Law on Depository and the Regulations and Bye-laws set out below;
  • Foreign Exchange Management Act, 1999 and its rules and regulations to the degree of Foreign Direct Investment, Foreign Direct Investment and Foreign Commercial Borrowing;
  • The following Regulations and Guidelines laid down in the 1992 Securities and Exchange Board Act of India (‘ SEBI Act’):-
  • Regulations of the Indian Securities and Exchange Board (Substantial Stock Acquisition and Takeovers) 2011;
  • India’s Securities and Exchange Board (Insider Trading Prohibition) Regulations, 1992 *;
  • Regulations of the Indian Securities and Exchange Board (Capital and Disclosure Requirements Issue) 2009;
  • Guidelines for the Indian Securities and Exchange Board (Employee Stock Option Scheme and Employee Stock Purchase Scheme) 1999 
  • India’s Securities and Exchange Board Regulations (Debt Securities Issue and Listing), 2008;
  • The Securities and Exchange Board of India Rules, 1993 covering the Companies Act and dealing with customers;
  • The Guidelines of the Indian Securities and Exchange Board (Delisting of Shares), 2009; and
  • Regulations of the Indian Securities and Exchange Board (Buyback of Securities), 1998;

However, point (vi) of the form MR-3 also applies to ‘ other laws as may be directly applicable to the company. ‘ 

It may be noted that the scope of MR-3 includes ‘ India’s Securities and Exchange Board (Listing Obligations and Disclosures Requirements) Regulations, 2015. ‘

Certain areas to be reviewed- The Secretariat Auditor must audit and report on compliance with the following clauses

  • Secretarial Guidelines issued by Indian Secretaries of the Institute of Companies.

(ii)  The Company’s Listing Agreements with Stock Exchange(s) where applicable.

All readers are advised to refer to the relevant legal provision before applying or approving any of the above-mentioned items. The writer admits no responsibility whatsoever and is not responsible for any expenses, complaints or damages that may arise due to the contents of this written up.

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