SECRETARIAL AUDIT UNDER COMPANIES ACT, 2013
WHAT IS SECRETARIAL AUDIT?
‘Secretarial Audit’ has introduced by recently enacted Companies Act, 2013. It is compliance audit, by independent practicing company secretary. The purpose is to detect the non-compliances by companies under Companies Act 2013 and other allied Laws as applicable to the companies.
TO WHICH COMPANIES SECRETARIAL AUDIT IS MANDATORY?
As per section 204 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, following companies are required to obtain ‘Secretarial Audit Report’ form independent practicing company secretary;
(1) Every listed company
(2) Every public company having a paid-up share capital of Fifty Crore rupees or more; or
(3) (b) Every public company having a turnover of Two Hundred Fifty Crore rupees or more.
WHO CAN BE APPOINTED AS SECRETARIAL AUDITOR?
Only a practicing company secretary be appointed as Secretarial Auditor of the Company.
SCOPE OF SECRETARIAL AUDIT
A secretarial auditor has to check compliances by the company under the following laws and rules made there-under;
i. The Companies Act, 2013 (the Act) and the rules made there-under;
ii. The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made there-under;
iii. The Depositories Act, 1996 and the Regulations and Bye-laws framed there-under;
iv. 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;
v. The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-
a. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
b. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
c. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
d. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
e. The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
f. The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client;
g. The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
h. The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
vi. Secretarial Standards issued by The Institute of Company Secretaries of India.
vii. The Listing Agreements entered into by the Company with Stock Exchange(s), if applicable;
viii. Other laws as may be applicable specifically to the company
Thus the scope of Secretarial audit is not limited to the corporate laws applicable to company but it extent to all laws applicable to Company.
POWER TO SECRETARIAL AUDITOR
The Companies Act, 2013 has empowered secretarial auditor and has given him all rights and powers as given to statutory auditor. As per section 204 of the Companies Act, 2013, the secretarial auditor company shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor.
IS SECRETARIAL AUDIT MANDATORY FOR FINANCIAL YEAR 2013-14?
The secretarial audit report shall annex with its Board’s report made in terms of sub-section (3) of section 134, of the Companies Act, 2013.
Ministry of Corporate Affairs, vide its circular No. 08/2014, dated 4th April 2014, has clarified that Board Report of the Company relating to financial year that commenced before 1st April 2014, shall be made in accordance with the relevant provisions of the Companies Act, 1956.
As the secretarial audit report is an annexure to Board’ Report thus the secretarial audit is not mandatory for financial year ended on 31st March 2014.
PUNISHMENT FOR DEFAULT
Sub-Section 4 of Section 204 of the Companies Act, 2013, provides that if a company or any officer of the company or the company secretary in practice, contravenes the provisions of section 204 of the Act, 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 1 lakh rupees but which may extend to 5 lakh rupees.
Moreover as per sub section (15) of section 143 of the Companies Act, 2013, if a secretarial auditor, has reason to believe that an offense involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed. Failure to do so shall attract a fine which shall not be less than 1 lakh rupees but which may extend to 25 lakh rupees.
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KASHIF ALI & ASSOCIATES
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