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Jan 23, 2024

How to Determine the Applicability of Secretarial Audit for Your Company

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Pooja Lodariya

CA

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Secretarial audit is a process of verifying the compliance of a company with the applicable laws, rules, and regulations. It is conducted by a qualified and independent professional, known as a secretarial auditor, who issues a report on the findings and observations of the audit.

Secretarial audit is not only a tool for ensuring good governance, but also a way of enhancing the credibility and reputation of a company. It helps in identifying and rectifying the gaps and lapses in the compliance framework, and in preventing or minimizing the risks of penalties, fines, or legal actions.

But how do you know if your company needs to undergo a secretarial audit? What are the criteria and conditions for the applicability of a secretarial audit? In this blog post, we will answer these questions and help you understand the applicability of secretarial audit for your company.

Applicability of Secretarial Audit under the Companies Act, 2013

The Companies Act, 2013 is the primary legislation that governs the incorporation, management, and dissolution of companies in India. It also lays down the provisions and requirements for secretarial audits.

According to Section 204 of the Companies Act, 2013, the following types of companies are required to appoint a secretarial auditor and obtain a secretarial audit report for each financial year:

  • Every listed company
  • Every public company having a paid-up share capital of fifty crore rupees or more
  • Every public company having a turnover of two hundred fifty crore rupees or more

The above criteria are based on the financial position of the company as of the last date of the immediately preceding financial year.

The secretarial auditor must be a member of the Institute of Company Secretaries of India (ICSI) and must hold a valid certificate of practice. The secretarial auditor cannot be an employee of the company or its holding, subsidiary, or associate company.

The secretarial audit report must be annexed to the board’s report of the company and must be signed by the secretarial auditor and the director or the company secretary of the company.

The secretarial audit report must contain the following information:

  • A statement that the secretarial auditor has examined the relevant records, documents, and books of the company.
  • A statement that the secretarial auditor has verified the compliance of the company with the applicable laws, rules, and regulations.
  • A statement that the secretarial auditor has obtained the necessary information and explanations from the company.
  • A statement that the secretarial auditor has formed an opinion based on the examination and verification.
  • A statement of the findings and observations of the secretarial auditor, along with the qualifications, reservations, or adverse remarks, if any.
  • A statement of the instances of non-compliance or deviations, if any, along with the reasons and explanations, if any.

Also Read: Understanding Audit Trail under the Companies Act, 2013: A Comprehensive Guide

The secretarial audit report must also cover the compliance of the company with the following laws, rules, and regulations:

  • The Companies Act, 2013 and the rules made thereunder.
  • The Securities and Exchange Board of India Act, 1992 and the rules and regulations made thereunder.
  • The Depositories Act, 1996 and the regulations made thereunder.
  • The Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder.
  • The following regulations and guidelines are prescribed under the Securities and Exchange Board of India Act, 1992(stated as it is):

-- The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

-- The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.

-- The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018.

-- The Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.

-- The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008.

-- The Securities and Exchange Board of India (Issue and Listing of Non-Convertible and Redeemable Preference Shares) Regulations, 2013.

-- The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

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

-- The Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018.

  • Any other law, rule, or regulation as may be prescribed by the central government or the Securities and Exchange Board of India.

Applicability of Secretarial Audit under Other Laws, Rules, and Regulations

Apart from the Companies Act, 2013, there may be other laws, rules, and regulations that require or prescribe secretarial audits for certain types of companies or activities. For example:

  • The Reserve Bank of India (RBI) has issued guidelines for secretarial audits for non-banking financial companies (NBFCs) and housing finance companies (HFCs) that are registered with the National Housing Bank (NHB).
  • The Insurance Regulatory and Development Authority of India (IRDAI) has issued guidelines for secretarial audits for insurance companies and intermediaries.
  • The Ministry of Corporate Affairs (MCA) has issued guidelines for secretarial audits for companies that are engaged in corporate social responsibility (CSR) activities.
  • The Securities and Exchange Board of India (SEBI) has issued guidelines for secretarial audits for mutual funds and asset management companies (AMCs).

The applicability of secretarial audits under these or any other laws, rules, and regulations may vary depending on the nature, size, and scope of the company or the activity.

Therefore, it is advisable to consult a qualified and experienced secretarial auditor or a legal expert to determine the applicability of a secretarial audit for your company.

Also Read: Internal Audit Applicability as per Companies Act 2013: A Brief Overview

Benefits of Secretarial Audit for Your Company

Secretarial audit is not only a statutory obligation, but also a beneficial practice for your company. Some of the benefits of secretarial audit are:

  • It helps in ensuring the compliance of your company with the applicable laws, rules, and regulations, and in avoiding or reducing the risks of penalties, fines, or legal actions.
  • It helps in improving the governance and management of your company, and in enhancing the transparency and accountability of your company.
  • It helps in increasing the confidence and trust of your stakeholders, such as shareholders, investors, creditors, customers, employees, regulators, and the public.
  • It helps in identifying and rectifying the gaps and lapses in the compliance framework, and in implementing the best practices and standards for your company.
  • It helps in creating a positive image and reputation for your company, and in gaining a competitive edge in the market.

Conclusion

Secretarial audit is a process of verifying the compliance of a company with the applicable laws, rules, and regulations. It is conducted by a qualified and independent professional, known as a secretarial auditor, who issues a report on the findings and observations of the audit.

Secretarial audit applies to certain types of companies as per the Companies Act, of 2013, and to certain types of companies or activities as per other laws, rules, and regulations. The applicability of a secretarial audit may vary depending on the nature, size, and scope of the company or the activity.

Secretarial audit is not only a statutory obligation, but also a beneficial practice for your company. It helps in ensuring compliance, improving governance, increasing confidence, identifying and rectifying the gaps, and creating a positive image of your company.

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