Secretarial Audit is a Compliance mechanism that assists Stakeholders and Regulators to determine whether applicable laws are complied by the companies or not and the Adequacy of System process in the company. Submission of Secretarial audit reports for the prescribed companies was mandated from FY 2014-15 onwards under Section 204 of the Companies Act, 2013.
Every Company needs to comply with various rules and regulations relating to Companies Act, RERA, FEMA, Securities Law and other General Laws like Environmental Law, Labour Law, etc. Secretarial Audit covers all Non-financial aspects which could impact the performance of the company and verifies compliances of applicable laws, rules, and regulations.
Applicability of Secretarial Audit:
Section 204(1) of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that the following class of companies shall be required to get Secretarial Audit done by a Practicing Company Secretary:
- every listed company; or
- All public company having a paid-up share capital of 50 crore rupees or more; or
- All public company having a turnover of 250 crore rupees or more.
- Secretarial Audit is also mandatory for a private company which is a subsidiary of a Public Company and falls under the above-mentioned criteria.
Scope of Secretarial Audit:
In terms of Form MR-3, Secretarial Auditor needs to examine and report compliance with the following mentioned five specific laws:
- The Companies Act, 2013 (the Act) along with the prescribed rules;
- The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) along with the prescribed rules ;
- The Depositories Act, 1996 and
- Foreign Exchange Management Act, 1999(FEMA)
- The Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
- Reporting on compliance of ‘Other laws as may be applicable specifically to the company’ shall mean all the laws which are applicable to specific Company for example for Banks.
- Ensure compliance mechanism for Adequate Processes .
How Appointment made of Secretarial Auditor
As per sec 204, Exclusively a member of the Institute of Company Secretaries of India (ICSI)holding certificate of practice (company secretary in practice) can conduct Secretarial Audit. Accordingly, CS will furnish the Secretarial Audit Report to the company. As per the rules of company Act, the secretarial auditor is required to be appointed by means of the resolution called as BR (BOARD RESOLUTION) at a properly convened meeting of the Board of Directors of the company
How to Go ahead or Process of Secretarial Audit
Secretarial Audit is a process to check compliance with the provisions of all laws/ rules/ regulations/standards/procedures applicable to the company including laws/ rules/ regulations/standards/procedures specifically applicable to the company and; adherence to good governance practices with regard to the systems and processes of seeking and obtaining approvals of the Board and/or shareholders, as may be necessary, for the business and other activities of the company
- Intimation to earlier Incumbent
Whenever a practicing company secretary is appointed as Secretarial Auditor in place of the existing Secretarial Auditor, he/she should intimate the appointment to the earlier incumbent in writing
- Acceptance of Appointment
An appointment letter to be issued by the company to the Company secretary along with a copy of the board resolution for an appointment. Accordingly, the secretarial auditor shall confirm acceptance/Rejection (as the case may be) of appointment in writing
- Preliminary Discussions/Surveys
It is important to have relevant information about the company. The secretarial auditor is expected to take an overview of the operations of the company and interact with the personnel involved to know about the nature of the business. He may opt for surveys for generating information about the company.
- Preliminary Meeting
The preliminary meeting with the senior management and the staff involved in the audit will give a fair idea of what is the business and operations of the company
Finalization of Audit Plan and Briefing the Staff
This is the foremost and final step for concluding the Secretarial Audit to briefing the planning and Implementation
The objective of Secretarial Audit is as mentioned below:-
- To establish and maintain effective coordination of functional units and the compliance department under the overall supervision of the Board
- Effective communication of the changes in the regulatory mandates to the applicable functional and other units in a real-time manner.
- To establish effective monitoring and control systems
- To introduce effective whistleblowing mechanism
- To provide training on compliance requirements at regular intervals.
- To establish a proactive compliance risk management culture into the organization.
Benefits of Secretarial Audit
Broadly, the need for the Secretarial Audit is:
- To ensure compliance with the legal and procedural requirements
- Provides assistance to the Top management level ( the directors & Key Managerial Personnel etc.) regarding applicable laws are complied by the company
- Secretarial Audit ensures resolution of disputes regarding the applicability of several laws and removes suspiciousness of Applicability.
In conclusion, it may be pointed out that a Secretarial Auditor has to carry out the necessary checks to verify the records and compliances connected thereto. While the extent of checking is a matter of personal judgment, he should safeguard himself against any possible charge of negligence in respect of inaccurate or incomplete statements, certified by him. A Company Secretary in Practice is advised to exercise reasonable care & due diligence.