SECRETARIAL AUDIT UNDER COMPANIES ACT, 2013.

[Mr. M. GOVINDARAJAN]

The Standing Committee on Finance examined the Companies Bill, 2009.  It gives report to the Ministry. In respect of Secretarial Audit it observed that Secretarial audit gives a necessary comfort to the investors that the affairs of the company are being conducted in accordance with the legal requirements and also protects the companies from the consequences of non compliance of the provisions of the Companies Act and other important Corporate laws.  It is, accordingly, felt and suggested that the Bill may provide for requirement of conduct of secretarial audit by at least bigger companies by a company secretary in practice.

On the basis of the above suggestion the Ministry proposed to introduce a new clause in the Companies Act to have secretarial audit by the company secretary in practice for the companies having a paid up share capital of Rs.5 crores or more.

Section 204 of the Companies Act, 2013 provides for secretarial audit for bigger companies.  According to this section every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board’s report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed.  It shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for auditing the secretarial and related records of the company.  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.   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.

Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that for the purposes of Section 204(1), the other class of companies shall be-

• Every public company having a paid-up share capital of Rs.50 crores or more; or
• Every public company having a turnover of Rs.250 crores or more.

The Secretarial Audit report shall be in Form No. MR3.

The Secretarial audit is addressed to the Members of the particular company.  The following are to be contained in the Secretarial audit-

• The Company Secretary in practice conducted the secretarial audit of the compliance of applicable statutory provisions and the adherence to good corporate governances by the company.  Secretarial audit was conducted in a manner that provided to him a reasonable basis for evaluating the corporate conducts/statutory compliances and expressing any options thereon;
• Based on his verification of the company’s books, papers, minute books, forms and returns filed and other records maintained by the company and also the information provided by the company, its officers, agents and authorized representatives during the conduct of Secretarial audit.  The Company Secretary is to give report whether the company haws during the audit period covering the particular financial year complied with the statutory provisions applicable to the company and also that the company has proper board processes and compliance mechanism in place to the extent, in the manner and subject to the reporting made hereunder:
• The Company Secretary has to give report that he has examined the books, papers, minute books, forms and returns filed and other records maintained by the company for the particular financial year according to the provisions of-
  • The Companies Act, 2013 and the rules made there under;
  • The Securities Contracts (Regulation) Act, 1956 and the rules made there under;
  • The Depositories Act, 1996 and the Regulations and Bye-laws framed there under;
  • 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;
  • The following regulations and guidelines prescribed under SEBI Act, 1992-
• The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
• The SEBI (Prohibition of Insider Trading) Regulations, 1992;
• The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009;
• The SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
• The SEBI (Issue and Listing of Debt Securities) Regulations, 2008;
• The SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act dealing with client;
• The SEBI (Buy Back of Securities) Regulations, 1998.
  • Any other laws specifically applicable to the company.

The Company Secretary is to give report that he has also examined compliance with the applicable clauses of the following-

• Secretarial Standards issued by the Institute of Company Secretaries of India;
• The Listing Agreements entered into by the Company with Stock exchange, if applicable.

He is also to report that during the period under review the company has complied with the provisions of the Act, Rules, Regulations, Guidelines, Standards etc., mentioned above subject to his observations. 

                        The Company Secretary is to further report that-

• 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 7 days in advance, and a system exists for seeking and obtaining further information and clarification 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 per the minutes.

The Company Secretary is to further report that there are adequate systems and processes in the company commensurate with the size and operation of the company to monitor and ensure compliance with the applicable laws, rules, regulations and guidelines.

He is further to give details of specific events/actions having a major impact on the company’s affairs in pursuance of the laws, rules, regulations, guidelines, standards etc., during the audit period.  For example-

• Public/Right/Preferential issue of shares/debentures/sweat equity etc.,
• Redemption/buy-back of securities;
• Major decisions taken by the members in pursuance to section 180 of the Companies Act, 2013;
• Merger/amalgamation/reconstruction etc.,
• Foreign technical collaboration.

Secretarial audit is at the option of the company previously.  Now it has been made mandatory under the Companies Act, 2013 to the listed companies and every public company having a paid up share capital of Rs.50 crores or more and every public companies having a turnover of Rs. 250 crores or more.

The President of Institute of the Company Secretaries of India vide his letter dated 28.04.2014 addressed the Ministry of Corporate Affairs to amend the Rule 9 to provide for Secretarial audit for all listed companies- big or small and every other company which is not a small company.   The President wants to extend the Secretarial audit to those companies which are subject to internal audit under the Rules under Section 138 of the Companies Act, 2013.