INTRODUCTION

Companies Act, 2013 introduces Secretarial Audit, a check on compliances required under the Companies Act, its allied Laws, Labour Laws and various other Laws such as Economic Laws, FEMA etc. applicable from time to time on to the Company.

Secretarial Audit is a check/create on/a system or process in the Company commensurate with the size and operation of the Company to monitor and ensure compliances with applicable laws, rules, regulation and guidelines. Secretarial Audit helps to detect instances of non-compliances and facilitates corrective measures. This provides adherence to good corporate governance practices in the Company.

It provides an effective multi-prolonged weapon to assure regulator, generate confidence amongst shareholders, the creditors and other stakeholders in Companies. For Companies it is a tool of risk mitigation and facilitates companies to address its compliance risk issue. It helps various stakeholders of the Company such promoters, Directors (executive/non-executive), Government authority/regulators, Investor, Financial Institution, Banks etc.

APPLICABILITY OF SECRETARIAL AUDIT

Section 204 of the Companies Act, 2103 and Rules 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 requires the following class of Companies to conduct Secretarial Audit:

• Every Listed Company;
• Every Public Company having paid up capital of Rs.50 Crores or more;
• Every Public Company having a turnover of Rs.250 Crores or more;
• Every Company having borrowings of Rs.100 Crores or more;
• Secretarial Audit Report is also applicable to a private Company, which is subsidiary of a public company and falls under the prescribed class of companies.
• By virtue of definition of Public Company, any Private Company which is a subsidiary of a Public Company and Secretarial Audit applicable to those Private Company having its paid up capital and turnover more than 50 crore and 250 crore respectively.
• A Company which is a Unlisted Material Subsidiary of a Listed Company as per Regulation 24A of Listing Obligation and Delisting Requirements, 2015

Explanation :- For the purposes of this sub-rule, it is hereby clarified that the paid up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of latest audited financial statement shall be taken into account.

APPOINTMENT OF SECRETARIAL AUDITOR

Pursuant to the provision of Section 204 of the Companies Act 2013, provides that the secretarial audit shall be conducted by the practising company secretary (PCS). No professional other than PCS would issue the Secretarial Audit Report.

As per Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014, Secretarial Auditor is required to be appointed by means of resolution passed at a duly convened Board meeting and resolution for appointment shall be filed with Registrar of Companies within 30 days in E-form MGT-14.

It is advisable for Secretarial Auditor to get the letter of engagement from the company. Secretarial Auditor should formally accept the letter of engagement. Here are Secretarial Audit Services in Delhi

Secretarial Audit report needs to be prepared in FORM MR-3. Secretarial Audit Report shall be annexed to the Board Report and clarification should be provided in the Board on any adverse remarks given by the Secretarial Auditor.

POWER AND DUTIES OF THE SECRETARIAL AUDITOR

Section 143 of the Companies Act, 2013 deals with power and duties of Auditors. Sub-section 14 of the Companies Act, 2013 provides that the provisions of this section mutatis mutandis apply to the Practising Company Secretary conduction Secretarial Audit under section 204 of the Companies Act, 2013. Pursuant to Section 143 of the Companies Act, 2013 the Secretarial Auditor:

• have to access to the Books and records of the Company;
• can seek explanation from the officers of the Company;
• has access to records of all subsidiary companies;
• the Secretarial Audit Report is to be given to the Members as an Annexure to Directors’ Report
• the negative comments/qualifications in Secretarial Audit Report should be supported with reasons;
• Compliances to be checked in purview of Secretarial Standard

Other provisions of Statutory Audit like Section 139 to 142 & 144 are not applicable to Secretarial Audit. This it is possible to a view that Consultant to the Company can act as its Secretarial Auditor.

DISQUALIFICATION OF SECRETARIAL AUDITORS

Section 141 of the Companies Act, 2013 deals with the eligibility and disqualification should be complied with by the Secretarial Auditor. The following person are not eligible for appointment as the Secretarial Auditor of the Company:

1. A body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;
2. An officer or employee of the Company;
3. A person who is partner, or who is in the employment, of an officer or employee of the Company;
4. A person who, or his relative or partner –

• Is holding any security of or interest in the Company or its subsidiary, or its holding or associate company or a subsidiary of such holding company; Provided that the relative may hold security or interest in the Company of face not exceeding one lacs Rupees;
• Is indebted to the Company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of Rs.5 Lacs;
• Has given a guarantee or provided any security in connection with the indebtness of any third person to the Company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for an amount of Rs.1 lacs;
• A person or a firm who, whether directly or indirectly, has business relationship with the Company or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed. – Transaction in ordinary course of business which are at Arm’s Length are exempted;
• A person whose relative is a director or is in the employment of the Company as a Director or Key Managerial Personnel;
• A person who has been convicted by a Court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction.

SCOPE OF SECRETARIAL AUDIT

A secretarial auditor has to check compliances by the company under the following laws and rules made there-under;

1. The Companies Act, 2013 (the Act) and the rules made there-under;
2. The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made there-under;
3. The Depositories Act, 1996 and the Regulations and Bye-laws framed there-under;
4. Foreign Exchange Management Act, 1999 and the rules and regulations made there-under to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;
5. The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’): –

1. The 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;

c. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;

d. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;

e. The 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;

g.  The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and

h. The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;

• Secretarial Standards issued by The Institute of Company Secretaries of India.
• The Listing Agreements entered into by the Company with Stock Exchange(s), if applicable;
• Other laws as may be applicable specifically to the company

Thus the scope of Secretarial audit is not limited to the corporate laws and its allied Laws but it extent to all other laws, such as Labour Laws, Economic Laws, FEMA etc. applicable to the Company.

Reporting on compliance of ‘Other laws as may be applicable specifically to the company’ shall include all the laws which are applicable to specific industry for example; for Banks- all laws applicable to Banking Industry; for insurance company-all laws applicable to insurance industry; likewise for a company in petroleum sector- all laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement industry etc.

Examining and reporting whether the adequate systems and processes are in place to monitor and ensure compliance with general laws like labour laws, competition law, environmental laws etc.

Secretarial Audit Programme

• Understanding Company Operations and Compliances required under various applicable Laws to the Company;
• Collection of Data / Information to carry out the Audit;
• Collection of Responses and Independent evaluation
• Discussion and Conclusion
• Representation from the Management
• Preparation and Submission of Audit Report

Secretarial Auditor shall ensure during the Secretarial Audit

• The Board of Directors of the Company is duly constituted with proper balance of Executive Directors, Non-Executive Directors and Independent Directors.
• The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act.
• Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent at least seven days in advance, and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting.
• Majority decision is carried through while the dissenting members‟ views are captured and recorded as part of the minutes.

• There are adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines.
• Moreover, Secretarial Auditor is required to report and provide details of specific events and actions occurred during the reporting period having major bearing on the affairs of the Company in pursuant to above referred laws/ rules & regulations.

However, in case of financial laws like tax, laws and Customs Act etc., Secretarial Auditor may rely on the Reports given by Statutory Auditors or other designated professional.

CONSEQUENSES

Non filing of Secretarial Audit Report

Pursuant to Section 204 of the Companies Act, 2013, failure to file Secretarial Audit report shall attract a fine on Company and Officer in default which shall not be less than 2 lakh rupees.

Penalty for incorrect audit report

Pursuant to Section 448 and 447 of the Companies Act, 2013 deal with Penalty for False Statement as under:

Any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any provisions of this Act or rules made thereunder, any person makes a statement –

1. which is false in any material particulars, knowing it to be false;
2. which omits any material facts, knowing it to be material, he shall be liable under section 447.

Punishment for Fraud

1. Imprisonment for a term of minimum six months & maximum ten years;
2. Fine which shall not be less than the amount involved in the fraud, but which extend to three times the amount involved in the fraud;
3. In case, the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

ABOUT US

Grover Ahuja and Associates is a practicing Company Secretaries firm of long standing.

The firm is led by Dr. FCS Poonam Ahuja and comprises of three other associates who are hard core professionals and have in-depth knowledge of the various laws applicable to the companies.

Our firm has done many Secretarial Audits of various reputed companies and aims at providing best services to the client including:-

• Being  professional at all times
• Paying close attention to every detail.
• Delivering great results.
• Resolving each and every query of clients in relation to the work.
• Avoid any unwarranted legal actions/penalties by law enforcing agencies and other persons as well.

It will be an honour of ours to render services of our team in the matter w.r.t Secretarial Audit.