Secretarial Audit under Companies Act, 2013: The Secretarial Audit is a method to check compliances made by the company under Corporate Law and other laws, rules, regulations, etc. It is a compliance audit. The Companies Act, 2013, introduces it. It is a crucial tool for corporate compliance management, which helps detect noncompliance and take corrective measures accordingly.
Each and every company needs to obey massive amounts of laws, rules, and regulations. These laws are complex, and noncompliance would attract significant risk to the company. Occasionally inspecting the company’s records gives exact information whether, and if that is the case, then, till the extent the company has complied with the laws applicable to the company.
Secretarial Audit gives relief to the regulators, stakeholders, and management by ensuring that the company has a constructive approach meant to evaluating and improving the effectiveness of risk management, control, and governance processes.
- Secretarial Audit is compulsory for which companies?
- Who can be appointed as a Secretarial Auditor?
- Appointment of Secretarial Auditor
- Scope of Secretarial Auditor
- Power to Secretarial Auditor
- Is Secretarial Audit obligatory for the fiscal year 2013-2014?
- Punishment for Default
- Penalty for incorrect audit report
Conferring to Section 204 of the Companies Act, 2013 along with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the companies which are required to attain ‘Secretarial Audit Report’ from independent practising company secretary are:
- Every listed company
- Every public company which has a paid-up share capital of 50 Crore rupees or more
- Every public company that has a turnover of two hundred 50 Crore rupees or more.
“Turnover” means the total value of the attainment of the amount made from the sale, distribution, and supply of goods or on account of services administered, or both, by the company during a financial year. [Section 2(91)]
Secretarial Audit is also compulsory for a private company that is a subordinate of a public company, and that falls under the prescribed class of companies.
A Secretarial Audit can be conducted only by a member of the Institute of Company Secretaries of India holding the certificate of practice and can also furnish the Secretarial Audit Report to the company.
Conferring to Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, Secretarial Auditor must be appointed using tenacity passed at a duly convened Board meeting, and resolution for appointment will be filed along with Registrar of Companies within 30 days in E-form MGT-14.
The letter of engagement given to the Secretarial Auditor should come from the company. They should formally accept the letter of engagement. Further, as a reasonable corporate practice, any change within the Secretarial Auditor during the year should be informed to the members within the Board’s Report.
A secretarial auditor must check compliances by the company under the laws and rules mentioned below;
- The Companies Act of 2013
- The Depositories Act of 1996 and the Regulations
Foreign Exchange Management Act of 1999 and the rules and regulations made under it to the extent of External Commercial Borrowings, Foreign Direct Investment, and Overseas Direct Investment.
- The Securities Contracts (Regulation) Act of 1956 (‘SCRA’) and the Rules made under it
- The subsequent Regulations and Guidelines set under the Securities and Exchange Board of India Act of 1992 (SEBI Act):
- Prohibition of Insider Trading in the Regulations of 1992.
- Substantial Acquisition of Shares and Takeovers Regulations of 2011.
- Issue of Capital and Disclosure Requirements in the Regulations of 2009.
- Registrars to an Issue and Share Transfer Agents of 1993 regarding the Companies Act and dealing with the client.
- Issue and Listing of Debt Securities in the Regulations of 2008.
- Employee option Scheme and Employee Stock Purchase Scheme in the Guidelines of 1999.
- Delisting of Equity Shares in the Regulations of 2009
- Buyback of Securities in the Regulations of 1998.
- The Secretarial Standards published by The Institute of Company Secretaries of India.
- The Listed Agreements that are entered by the corporate with Stock Exchange, if applicable
- Other laws as may apply precisely according to the company
Thus, the scope of the Secretarial Audit is not limited to only corporate laws applicable to companies but extended to all the laws applicable to the companies.
Recently, the Institute of Company Secretaries of India (ICSI) has issued a FAQ on Secretarial Audit and has clarified “other laws,” which is mentioned below:
At its 226th meeting, which was held on November 21st, 2014, the Council of the ICSI decided on the Scope of Secretarial Audit with regards to “point (viii) (other laws may apply specifically to the company),” which is explained below:
- Reporting on agreement of ‘Other laws as may apply specifically to the company’ will embody all the laws applicable to their specific industries. For example, in the case of banks, all laws that apply to the banking system are included; likewise, all laws applicable to the natural oil business are enclosed for an organization in the crude oil sector. The same factor applies to pharmaceutical sectors, cement industries, etc.
- They are reporting and examining whether or not the systems and processes are able to watch the laws and guarantee compliance with general laws like competition law, environmental laws, labour law, etc.
The format of the Secretary Audit Report conjointly needs reports on the following.
- The company’s Board of administrators is punctually grooved with the correct balance of government and non-government administrators and freelance administrators.
- The changes inside the composition of the Board of administrators which passed during the period under review were applied in compliance with the Act’s Provisions.
Adequate notice is given to all or any administrators to schedule the Board conferences. The plan and some careful notes on the agenda were sent at least before a minimum of seven days. A system exists for seeking and getting additional information and clarifications regarding the agenda items before the meeting and for substantive participation at the meeting.
- The majority of the decision is carried through. At the same time, the views of dissident members are recorded as parts of the minutes.
- There are adequate systems and processes within the company that are conterminous with the scale and operations of the corporate to watch and guarantee compliance with applicable laws, rules, and pointers.
Moreover, Secretarial Auditor is needed to report and supply details of certain events and actions that occurred throughout the reportage period having primary behaviour on the corporate affairs inconsistent with the above-referred laws and rules. Few events are provided as examples within the format of an audit report.
However, in the case of monetary laws like tax laws and Customs Act, etc., Secretary Auditor might trust the Reports given by Statutory Auditors or chosen professionals.
The Companies Act, 2013 has authorized the secretarial auditor and has given them all rights and powers as given to the statutory auditor. In keeping with Section 204 of the businesses Act, 2013, the corporate auditor’s secretarial auditor shall be allowed to need information and rationalization from the corporate officers as they will consider necessary for the performance of their duties as auditor.
The secretarial audit report will annex with its Board’s report created in terms of sub-section (3) of section 134 of the Companies Act of 2013.
Ministry of Company Affairs, vide it’s circular No. 08/2014, dated April 4th, 2014, has processed that the Board Report of the corporate associated with the fiscal year that commenced before April 1st, 2014, shall be created following the relevant provisions of the Companies Act of 1956.
Since the secretarial audit report is an annexure to Board’s Report, so the secretary audit is not obligatory for the fiscal year over on March 31st, 2014.
According to Sub-Section 4 of Section 204 of the Companies Act, 2013, suppose a corporate or any company officer or the company secretary in following contravenes the provisions of section 204 of the Act. The corporate, each officer of the company or the company secretary is following, who is in default, will be corrected with a fine of a minimum of Rs one lakh, extending up to Rs five lakh.
Furthermore, as per subsection (15) of section 143 under the Companies Act of 2013, suppose a secretarial auditor finds reasons to believe that any fraudulent offence is being committed against the corporate by staff or officers of the corporate. In that case, they shall instantly report this issue to the Central Government within the prescribed time limit and following the prescribed manner. If not announced, they need to pay a fine of a minimum of Rs one lakh rupees which can extend up to Rs twenty-five lakh.
Penalty for false statements will be dealt with within Section 448 of the Companies Act, 2013. The section declares that if in any return, budget, report, prospectus, certificate, or any alternative document is required for the needs of any of the provisions of this Act or the rules created under it if anyone makes a statement-
- that is fake in any explicit material particulars, knowing it to be false; or
- that omits any material reality, knowing it to be material, shall be liable underneath section 447.
Section 447 deals with the punishment for fraudulent acts. Anyone who is found to be guilty of fraud will be punishable and might be imprisoned for a term of a minimum of six months. However, it can extend up to 10 years, and that they shall even be at risk of a fine which will not be less than the quantity concerned with the fraud. However, it can extend up to 3 times the amount concerned with the fraud. If the scam involves any public interest, then the term of imprisonment should not be less than a span of three years.
In terms of Section 448, any Company Secretary in following is at risk of attracting penalties if he makes a false statement within the secretarial Audit Report in any material particulars, knowing it to be faulty or eliminates any material reality being aware of it to be material.
Besides, the Company Secretary in following shall be accountable for professional or alternative misconduct mentioned in 1st or 2nd Schedule or each of the Schedules to the Company Secretaries Act, 1980 and wherever held guilty, be accountable for the subsequent actions:
- wherever found guilty of professional or alternative misconduct mentioned within the 1st Schedule:
- They will be reprimanded.
- The removal of name from the register of members up to 3 months
- A fine which can extend up to 1 lakh.
- If they are found guilty of professional or other misconduct mentioned in the 2nd Schedule:
- They will be reprimanded.
- The removal of name from the registrar of members permanently or such period as may be thought fit by the Disciplinary Committee;
- A fine which can extend up to 5 lakhs.