Secretarial Audit

Secretarial Audit has been mandated by Section 204 of the Indian Companies Act, 2013 for every listed company and other class of companies.

This presentation talks about, introduction, historical background, Objective and Purpose, Scope, Benefits and Beneficiaries of Secretarial Audit. This presentation also talks about offences and penalties as prescribed in Section 204 and 143 of the Companies Act, 2013 for any default committed.

1. SECRETARIAL AUDIT
UNDER THE COMPANIE S ACT, 2013

2. Introduction
SecretarialAuditisaprocesstocheckcompliance
withtheprovisionsofvariouslawsand
rules/regulations/procedures,maintenanceofbooks,
records,etc.,byAnIndependentProfessionalto
ensurethatthecompanyhascompliedwiththe
legalandproceduralrequirementsandalso
followeddueprocesses.Itisessentiallyamechanism
tomonitorcompliancewiththerequirementsofall
thelaws/rules/regulationsapplicableontoa
Company.

3. Historical Background
•TheInstituteofCompanySecretariesofIndia(‘ICSI’)hadforeseenthe
needof‘SecretarialAudit’asearlyas1979i.e.Threedecadesback,when
itvoicedtheneedfortheSecretarialAudit.
•OnDecember21,2009,theMinistryofCorporateAffairs,Govt.ofIndia
released‘CorporateGovernanceVoluntaryGuidelines,2009,which
recommendedtheSecretarialAuditforthefirsttime.ParaVofthesaid
guidelinestates–
“SincetheBoardhastheoverarchingresponsibilityofensuring
transparent,ethicalandresponsiblegovernanceofthecompany,itis
importantthattheBoardprocessesandcompliancemechanismsofthe
companyarerobust.Toensurethis,thecompaniesmaygettheSecretarial
Auditconductedbyacompetentprofessional.TheBoardshouldgiveits
commentsontheSecretarialAuditinitsreporttotheshareholders.”

4. Historical Background
•CorporateGovernanceVoluntaryGuidelines,2009
introducedtheconceptofSecretarialAuditwiththe
followingobjectives–
a)Toensuretransparent,ethicalandresponsiblegovernance
ofthecompany;
a)ToempowertheBoardwithrobustcompliancemechanisms
•InCompaniesBill,2008thestandingcommitteeof
ParliamentrecommendedSecretarialAuditbyapracticing
CompanySecretaryforeverylistedandotherclassesof
companies.

5. CompaniesAct, 2013
•TheCompaniesAct,2013hasnowintroducedtheSecretarialAuditasanewclassofaudit
inadditiontoStatutoryAudit,InternalAuditandCostAuditprescribedintheact.Section
204oftheActreadwithTheCompanies(AppointmentandRemunerationofManagerial
Personnel)Rules,2014notifiedw.e.f.01
st
April,2014dealswithprovisionsrelatingto
SecretarialAudit.
•Section204oftheCompaniesAct,2013saysthateverylistedcompanyanda
companybelongingtootherclassofcompaniesasmaybeprescribedshallannexwithits
Board’sreport,asecretarialauditreport,givenbyacompanysecretaryinpractice,insuch
formasmaybeprescribed.
•Rule 9 of TheCompanies(Appointment and Remuneration of Managerial Personnel) Rules,
2014 prescribes the other class ofcompaniesas under:
(a)every public company having a paid-up share capital of 50 crore rupees or more; or
(b)every public company having a turnover of 250 crore rupees or more.

6. Scope of Secretarial Audit
ThescopeofSecretarialAuditisverybroadandthe
practicingCompanySecretaryhastoreportonthe
complianceofallthelawsapplicableontothecompanyin
additiontoCompaniesAct,2013(includinganyrulesand
regulationsmadethereunder),theListingAgreementand
SecretarialStandardsissuedbytheInstituteofCompany
SecretariesofIndia.
Rule9oftheCompanies(AppointmentandRemuneration
ofManagerialPersonnel)Rules,2014providesthatthe
formatoftheSecretarialReportshallbeinFormNo–MR–
3.

7. Scope of Secretarial Audit
Non Mandatory Need –
SincetheSecretarialAuditofPrivateCompaniesand
smallPubliccompaniesarevoluntary.Itsscopeis
entirelyamanagement’sdiscretion.
ButalltheseCompaniesshouldvoluntaryadoptthe
annualpracticeofsecretarialAuditduetoMultiplicity
andcomplexityoflaws,SecretarialAuditfacilitatesto
ensurecomplianceandavoidriskassociatedwithnon-
compliance.

8. Objectives & Purpose
Objectives:
Tothecheckandreportoncompliances;
Topinpointnon–compliancesandinadequate
compliances;
Toprotecttheinterestsofdirectorsandofficers;
Toavoidanyunwarrantedlegalactionsbythe
law–enforcingagenciesandothersaswell.

9. Objective& Purpose
Purpose
•ToformanopinioninformofAuditreport,based
ontheinspectionofancompany’srecordbya
PracticingCompanySecretary,andtoreporttothe
managementastowhether,andifso,towhatextent,
thecompanyhascompliedwiththelawsandalsoto
helpthecompanytocomplybetter.
•TheSAReportaimsatconfirmingcompliancebythe
companywithalltheapplicableprovisionsofthe
applicablelawsandpointingoutnon-compliances
andrecommendationsforbettercompliance.

10. Objective & Purpose
Thus, Secretarial Audit helps-
toensureeffectivecompliancemechanism;
toimprovequalityandspeedofcompliance;
toreducetheriskofconsequencesofnon-compliance;
toprovidealevelofconfidencetothedirectors,officersin
default,KeyManagerialPersonneletc;

11. Benefits of Secretarial Audit
BenefitsofSecretarialAuditaremanifoldandits
beneficiariesaremany.SecretarialAuditenablesLegal
ComplianceManagement.Ever-increasingcomplexities
oflawsandresponsibilitiesofdirectors(especiallynon-
executiveorindependentdirectors)makeitimperative
thataPCSopineswhetherornotthereexistrobust
compliancemechanismandsystemsinthecorporate
structure.Also,PCShastoverifywhetherdiverse
requirementsunderapplicablelawshavebeenduly
compliedwithornotandifthereisaneedforany
correctivemeasuresorimprovementinthesystem.
SecretarialAuditisbasedontheprincipleof
“Preventionisbetterthancure”ratherthanpost
mortemexerciseandtofindfaults.

12. Benefits of Secretarial Audit
SecretarialAudithelpstheDirectorstoconcentrateon
importantbusinessmattersasSecretarialAudit
ensureslegalandproceduralrequirements.
Itstrengthentheimageandgoodwillofacompanyin
themindsofregulatorsandstakeholders.
Itisaneffectivecomplianceriskmanagementtool.
Ithelpstheinvestorinanalyzingthecompliancelevel
ofcompanies,therebyincreasestheReputation.
Itisaneffectivegovernancetool.

13. Beneficiaries of Secretarial Audit
The major beneficiaries of Secretarial Audit include:
Promoters
SecretarialAuditwillassurethePromotersofacompanythatthosein-chargeofits
managementareconductingitsaffairsinaccordancewithrequirementsoflaws.
Executive Directors & Officers of the Company
SecretarialAuditwillassuretheManagementofacompanythatthosewhoarecharged
withthedutyandresponsibilityofcomplianceareperformingtheirdutiescompetently,
effectivelyandefficiently.
Government authorities / regulators
Beingapro-activemeasure,SecretarialAudithasasalutaryeffectofsubstantially
reducingtheburdenofthelaw-enforcementauthoritiesandenhancegovernanceand
levelofcompliance.

14. Beneficiaries of Secretarial Audit
Non –Executive Directors
SecretarialAuditwillassuretheNon-executiveDirectorsthatappropriate
mechanismsandprocessesareinplacetoensurecompliancewithlaws
applicabletothecompany,thusmitigatinganyriskfromaregulatoryor
governanceperspective;sothatthepeoplenotin-chargeoftheday-to-
daymanagementofthecompanyarenotlikelytobeexposedtopenalor
otherliability(andconsequentialriskandembarrassment)onaccountof
non-compliancewithlaw.
Investors
SecretarialAuditwillassuretheInvestorsthatthecompanyisconducting
itsaffairswithintheapplicablelegalframework.

15. Beneficiaries of Secretarial Audit
Other Stakeholders
FinancialInstitutions,Banks,CreditorsandConsumers
areenabledtomeasurethelawabidingnatureof
Companymanagement.
CorporateactionsmanifestinggoodCorporate
Governancearevitalforthehealthy,vibrantandever
growingcorporatesectoringlobaleconomy.In
developingeconomies,inclusivegrowthofallsegments
ofsocietyismorethanimperative.Suchactions
adoptingeffectivemanagementtoolslikeSecretarial
Auditcangoalongwayinfulfillingtheseobjectives.

16. Offences & Penalties
•Section204(4)oftheCompaniesAct,2013provides
that,ifacompanyoranyofficerofthecompanyor
theCompanySecretaryinpractice,contravenesthe
provisionsofsection204oftheAct,theCompany,
everyofficerofthecompanyortheCompany
Secretaryinpractice,whoisindefault,shallbe
punishablewithfinewhichshallnotlessthanone
lakhrupeesbutwhichmayextendtofivelakh
rupees.

17. Offences & Penalties
ProvisionsofSection143oftheCompaniesAct,
2013mutatismutandisapplyingtoPCSinconduct
ofSecretarialAudit,ifthePCS,inthecourseofthe
performanceofhisdutiesasSecretarialAuditor,has
reasontobelievethatanoffenceinvolvingfraudis
beingorhasbeencommittedagainstthecompany
byofficersoremployees,heshallimmediatelyreport
themattertotheCentralGovt.IfthePCSdonot
complywithsuchprovisions,heshallbepunishable
withfinewhichshallnotbelessthanonelakh
rupeesbutwhichmayextendtotwentyfivelakh
rupees.

18. Question(s) & Suggestion(s)
Thank you 
C S K & CO
Company Secretaries
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