Secretarial Audit is a process to check compliance with the provisions of various laws and rules/regulations/procedures, maintenance of books, records, etc., by an independent professional to ensure that the Company has complied with the legal and procedural requirements and also followed due processes.Submission of Secretarial Audit Reports for the prescribed companies was mandated with effect from financial year 2014-15 under section 204 of the Companies Act, 2013.
Secretarial Audit covers non-financial aspects of the business impact on the performance of the company and verifies compliances of applicable laws, regulations and guidelines. Nonetheless, this exercise will enhance the capabilities of the management and also mitigates business & reputation risk to a great extent. It also evaluates the manner in which the affairs of a company are conducted to a great extent.
Secretarial Audit gives assurance to the regulators, stakeholders and management that Company has disciplined approach to evaluate and improve effectiveness of risk management, control, and governance processes.
In accordance with the Section 204 of the Companies Act, 2013 read with Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following Companies shall be required to annex with its Board’s report a secretarial audit report: –
| Criteria | Listed Co. | Unlisted Public Co. | Private Co. |
| Paid up Share Capital | Every Listed Company | 50 Cr. or more* | – |
| Turnover | 250 Cr. or more* | – | |
| Outstanding loans or borrowings from banks or PFIs | 100 Cr. or more* | 100 Cr. or more* |
* As on the last date of latest audited financial statement
Secretarial Audit is also mandatory to a private company which is a subsidiary of a public Company. The Secretarial Auditor shall be a Company Secretary in Practice. The format of Secretarial Report shall be in Form No. MR.3 as prescribed.
The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall explain in full any qualification or observation or other remarks made by the Company Secretary in Practice in his report.
It is advisable that Secretarial Auditor should be appointed at the beginning of the financial year as Secretarial Audit entails checking of compliances on a continuous basis. As a good practice, the Secretarial Auditor should submit a report to the Board at the end of each quarter pertaining to the compliances of the Company.
The Companies which are not covered under section 204 may opt for conducting Secretarial Audit voluntarily as it provides an independent assurance of the compliances of applicable laws by the Company.
The Process to appoint Secretarial Auditor is as follows: –
Step 1: Obtain Written Consent
Take the consent of Secretarial Auditor in writing for appointment and not disqualified for appointment.
Step 2: Hold the Board Meeting
In the Board Meeting, propose the appointment of Secretarial Auditoras per Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014 and take the approval of Directors by passing a Board Resolution and authorise a Director to file the intimation with the Registrar in Form MGT-14.
Step 3: Filing with the Registrar
After passing the Resolution, the Company shall file the intimation with the concerned Registrar in Form MGT-14 along with prescribed fee within 30 days of Board Meeting.
Attachments with Form MGT-14
- Certified copy of the Board Resolution
- Copy of Written consent from Auditor
If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
In terms of Section 448, a Company Secretary in Practice is liable to attract penal provision if, he makes statement in the Secretarial Audit Report which is false is any material particulars, knowing it be false or omits any material fact knowing it to be material.
