Secretarial Audit as per Companies Act 2013
Secretarial audit is concept introduced by the Companies Act 2013.This audit has primary motive of monitoring the compliances as per Companies Act .It monitors implementation of other rules and regulations as per Companies Law. This article will summarize the concept and relevant provisions.
Objectives of Secretarial Audit
- Identification of errors and mistakes in compliances under Companies Act 2013.
- Monitoring the compliances.
- Improving the compliances. It will ensure that company has sophisticated risk management approach. It
also indicates better governance.
- An important indicator for regulators and stakeholders which displays improvised compliance procedure.
Applicability of Secretarial Audit
- Every company whose shares are listed on stock exchange.
- Every public company who has paid up capital of Rs 50 crores or more.
- Every public company having turnover of Rs 250 crores or more.Turnover refers to realized sales or supply or distribution of goods or services in a financial year.
- Every prescribed class private company which is subsidiary of a public company.
Who can perform Secretarial audit?
- Any member of Institute of Company Secretaries of India holding Certificate of Practice.
- This would mean that employed CS (Company Secretary)can’t conduct the audit.
Appointment of CS
- Resolution is required to be passed at the board meeting for appointing the Secretarial auditor.
- Such resolution shall be filed with Registrar Of Companies in form MGT–14 within 30 days.
- Letter of engagement shall also be issued to the auditor.Such engagement shall be accepted by the CS.
- Any change in the secretarial auditor if any, to be reported to the board members.
Scope of Secretarial Audit
Secretarial Audit shall be applicable to compliances required under following :
- Companies Act 2013 and rules therein.
- The Securities Contracts (Regulation) Act 1956 and rules therein.
- The depositories Act and Rules and Regulations therein.
- Compliances under The Foreign Exchange Management Act.This covers Foreign Direct Investment , External Commercial Borrowings etc.
- Securities And Exchange Board of India Act 1992 with respect to following.
a. Substantial Acquisition of shares and takeover rules.
b. Prohibition of insider trading rules.
c. Issue of capital and disclosure requirements regulations.
d. Employees Stock Options and Employee Stock Purchase scheme regulations.
e. Issue and listing of debt securities regulations.
f. Registrars to an issue and Share Transfer Agents regulations.
g. Delisting of equity shares regulations.
h. Buyback of securities regulations.
- Secretarial standards as issued by ICSI.
- Listing agreements required to be entered into by the company with the stock exchange.
- Any other legal compliance as abiding as per nature of business. For e.g. insurance industry regulations for
- Any other general law compliances like labour laws , environmental laws etc.
- Secretarial auditor can rely on reports as given by the statutory auditors for financial law compliances.For e.g. Customs Act etc.
Additional reporting requirements:
- Board constitution with appropriate numbers of Executive , Non Executive and independent directors.
- Whether change in board composition was supported by appropriate compliance.
- Adequate notice was issued to directors for scheduling meeting.
- Agenda and other details were sent in advance.
- Decision making is carried out by majority decision.
- Dissenting members view is captured and recorded.
- Adequacy and efficiency of compliance system within the company.
Punishment for default
Any officer or the company or company secretary in practice contravenes the provisions of secretarial audit.
punishable with fine of Rs. 1lakh to 5 lakhs.
Failure to report any fraud against company by its officers or employees.
CS shall be fined with amount of Rs 1 lakh extending to Rs. 5 lakhs.
False return or report or certificate or financial statement or prospectus or any other document or intentional omission of material fact.
- punishable with imprisonment for not less than 6 months.
- liable to fine which shall not be less than amount of fraud.
- CS shall be punishable with reprimandation , removal of name from members list and prescribed fine.
The companies Act 2013, has hence mandated the Secretarial Audit for certain class of companies. This will ensure efficient and effective compliance system in the company.Efficient compliance system will boost the confidence of the stakeholders and regulators .