Prepared by
Pranay Patel & Associates Company Secretaries, Bhopal (MP)
Secretarial Audit: An Assurance of Good Governance
With the surge of corporate frauds and scams, the importance of Corporate Governance has increased globally. The level of corporate governance has developed manifolds as compared to previous times. The regulators are regularly refining the laws and regulations to achieve the best corporate governance practices. Gone were the days when stakeholders were only bothered about the financials of the company, but the time has changed importance of corporate governance is on equal footing. The global corporate world is also taking numerous steps to enhance the quality of compliances by improving audit mechanism & hiring compliance professionals so as to become a better governed company.
Under the Companies Act, 2013 a new reporting requirement termed as “Secretarial audit for bigger companies” was introduced. Secretarial audit is a well-designed mechanism which ensures that the specified compliances on the company are carried out in a bona fide manner. This is an effective tool which helps the investors, promoters, board members, regulators and all other stakeholders to evaluate the corporate governance & compliance management strength of the company.
Law relating to 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 following companies shall annex with its Board report made in terms of section 134(3), a secretarial audit report given by a company secretary in practice in the prescribed format;
- every listed company;
- every public company having a paid-up share capital of fifty crore rupees or more; or
- every public company having a turnover of two hundred fifty crore rupees or more.
w.e.f. 03.01.2020, following companies are also covered under the scope of secretarial audit;
“Every company having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more.”
Format of Secretarial Audit Report
Section 204 provides that Secretarial Audit Report is to be submitted in a format prescribed under the rules. As per sub-rule (2) of rule 9, the format of the Secretarial Audit Report shall be in Form No. MR-3 which shall be issued by a Company Secretary in Practice only.
Powers/ Duties of Secretarial Auditor
The Act places the secretarial auditor on the same footing as the statutory auditor in terms of powers, duties and responsibilities while conducting the audit. [Section 143(14)(b)]
In terms of section 204(1), only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the company. As per rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, secretarial auditor is required to be appointed by means of resolution at a duly convened meeting of the Board of Directors of the company.
Non-Compliance & defaults
Section 204(4) 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 liable to a penalty of two lakh rupees.
Here the penalty clause is applicable to
- Company
- Any Officer of the company
- Company Secretary in Practice
Here any officer of the company shall mean the Officer in Default as per provisions of section 2(60) of the Companies Act, 2013
Adjudicating Authority: The adjudicating authority in case of defaults committed under section 204 is the respective Registrar of Companies.
CASE LAWS
|
In respect of |
Adjudicating Officer |
Facts of the case |
Action taken by |
Penalty imposed |
Order dated |
|
Welter securities Limited |
ROC, Kolkata |
Company did not furnish the secretarial audit report with Board report since the F.Y. 2016-17 till F.Y. 2021-22 as no secretarial auditor was appointed |
Suo motto application filed by the company in form GNL-2 |
|
22.02.2023 read with corrigendum order dated 21.03.2023 |
|
Essar Shipping Limited |
ROC, Gujarat, Dadara & Nagar Haveli |
The secretarial auditors in its report has not mentioned about the non-compliance of provision of Section 186 of the Companies, 2013. The minutes book of the board meeting and audit committee are not maintained as per secretarial standards and the same is not reported by secretarial auditor |
Adjudication notice by ROC to the Secretarial Auditors for violation of Section 204 |
Rs. 2 Lakhs on Secretarial Auditors |
18.03.2023 |
|
Zyden Gentec Limited |
ROC, Rajasthan |
Company did not furnish the secretarial audit report with Board report in respect of F.Y. 2015-16 & 2016-17 |
Show cause notice given by ROC |
|
11.10.2022 |
|
Interlink Exports Limited |
ROC, Rajasthan |
Company did not furnish the secretarial audit report with Board report since the F.Y. 2015-16 till F.Y. 2020-21 as no secretarial auditor was appointed |
Show cause notice given by ROC |
|
11.10.2022 |
|
AKS Bearings Limited |
ROC, Rajasthan |
Company did not furnish the secretarial audit report with Board report in respect of F.Y. 2015-16 & 2016-17 |
Show cause notice given by ROC |
|
11.10.2022 |
IMPORTANT POINTS FOR PRACTICING COMPANY SECRETARIES
|
AKS Bearings Limited |
ROC, Rajasthan |
Company did not furnish the secretarial audit report with Board report in respect of F.Y. 2015-16 & 2016-17 |
Show cause notice given by ROC |
|
11.10.2022 |
#Source: ROC adjudication orders available on the website of Ministry of Corporate Affairs.
Only Peer Reviewed practicing company secretary/ firm can conduct secretarial audit
w.e.f. 01.04.2023 only a peer reviewed unit from the ICSI can undertake the assignment of conducting secretarial audit.
Limits for the issue of Secretarial Audit Reports
The Council of the Institute at its 235th meeting held on February 11, 2016 reviewed the limits for the issue of Secretarial Audit Reports and decided as below:
- 10 Secretarial Audits per partner/ PCS, and
- An additional limit of 5 secretarial audits per partner/PCS in case the unit is peer reviewed.
Auditing standards issued by the ICSI
The ICSI has released the Auditing Standards for w.e.f. 01.07.2019 (revised w.e.f. 01.04.2020) for the benefit of the members. The standards must be adhered by the company secretaries while rendering the auditing services to the stakeholders. As of now following Auditing Standards are applicable;
- CSAS 1: Auditing Standard on Audit engagement
- CSAS 2: Auditing Standard on Audit Process & Documentation
- CSAS 3: Auditing Standard on Forming if Opinion
- CSAS 4: Auditing Standard on Secretarial Audit
For a practicing company secretary all auditing standards are applicable for all audit assignments, however CSAS 4 is specifically applicable for Secretarial Audit assignment. Hence, CSAS 4 is to be adhered thoroughly by practicing company secretary for secretarial audit assignments.
Best Secretarial audit award by ICSI
The ICSI has introduced Best Secretarial Audit Award in the year 2019 for practicing company secretaries to recognize their efforts and enhancing the significance of Secretarial Audit Report. Here are some winners of the ward till today;
|
Sr. No. |
Award No. |
Year |
Name of the CS |
For secretarial audit report of |
|
1 |
1st ICSI Best Secretarial Audit Report award |
2019 (Joint winners) |
CS Atul Mehta |
The New India Assurance Co. Ltd. |
|
CS (Dr.) CV Madhusudhanan |
Mahindra & Mahindra Financial Services Limited |
|||
|
CS Vinita Nair |
Housing Development & Finance Corporation Limited |
|||
|
2 |
2nd ICSI Best Secretarial Audit Report award |
2020 |
CS Makarand Joshi |
Mahindra Logistics Limited |
|
3 |
3rd ICSI Best Secretarial Audit Report award |
2021 |
CS Pramod Prasad Agarwal |
Bharat Heavy Electricals Limited |
|
4 |
4th ICSI Best Secretarial Audit Report award |
2022 |
CS Sunny Gogiya |
Antony Waste Handling Cell Limited |
|
5 |
5th ICSI Best Secretarial Audit Report award |
2023 |
CS Neetu Poddar |
Vedanta Limited |
#Source: ROC adjudication orders available on the website of Ministry of Corporate Affairs.
Important FAQs
Our power of choice is untrammelled and when nothing preventsbeing able to do what we like best every pleasure.
Ans : No, only outstanding loans/ borrowings from banks or public financial institutions are considered.
Ans : Yes, the board of directors, in their report need to explain in full qualification/observation/remark made by the company secretary in practice in his report.
Ans : Section 117(3) of the Companies Act, 2013 specifies the resolutions to be filed with registrar. Further, Section 117(3)(g) covers the resolutions passed under section 179(3) and Section 179(3)(k) covers the matters prescribed under Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014. Since Section 117(3)(g) is not applicable to private limited companies, hence it can be concluded that private limited companies are exempted from filing MGT-13 for appointment of secretarial auditor but, no such exemption is available to public limited companies. However, companies are free to file any resolution with the registrar as a good governance practice.
Ans : Yes, whenever a Practicing Company Secretary is appointed as Secretarial Auditor in place of the existing Secretarial Auditor, he/she should communicate the appointment to the earlier incumbent in writing, in view of the provisions of clause (8) of Part I of the First Schedule to the Company Secretaries Act, 1980 and the relevant pronounced judgments.
Ans : Para 1.2.1 of Secretarial Standard on General Meetings requires that the notice in writing of every Meeting shall be given to every Member of the company. Such Notice shall also be given to the Directors and Auditors of the company, to the Secretarial Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other specified persons.
Conclusion:
Over the time corporate world has realized the importance of non-financial audits. Good governance is on the chart list of investors and stakeholders, as a tool of gauging their risk of being invested. Secretarial Audit is one of the important tools through which the company as well their stakeholders make sure that the company is complying the specified laws within or outside the time limits. In case any non-compliance is reported in the audit, the board is responsible to disclose the reasons for non-compliances and the measures to eliminate such instances. In any organization transparency in disclosures and disciplines approach towards timely compliances is what a banker, an investor and regulator expect and through secretarial audit these compliances are checked meticulously.
References & sources;
- Companies Act, 2013
- FAQ on Secretarial Audit issued by the ICSI
- Chartered Secretary journal published by ICSI
Disclaimer: This write up is prepared for knowledge sharing purpose. Please read the provisions carefully before making any conclusion.
