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SRP GLOBAL CONSULTANTS
SECRETARIAL AUDIT
IntroductionSecretarial Audit is a process of checking and verifying the records and
documents of the company and to check whether the company is in compliance with the provisions of Companies Act, 2013 and other applicable laws.
The Secretarial Audit Report aims at confirming compliance by the company with all the applicable provisions of the applicable laws and pointing out non-compliances and recommendations for better compliance.
The compliances are verified and checked by an independent professional [a company secretary in practice] to ensure that the company has complied with all the legal, secretarial and procedural requirements as required under various applicable laws.
Section 204 - Secretarial audit for bigger companies
Section 204 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, provides that:
(a) Every Listed Company;
(b) Every Public Company having a paid up share capital of fifty crore rupees or more; and
(c) Every public company having a turnover of two hundred fifty crore rupees or more
shall annex with its Board’s Report, a Secretarial Audit Report, given by a Company Secretary in Practice, in Form MR- 3.
Penalty for Non-Compliance
If the company or any officer of the company or the company secretary in practice, contravenes any provisions of the Section 204 then the Company and every officer of the Company or the Company Secretary in practice who is default, shall be punishable with fine which shall not be less than 1,00,000 (One Lakh Only) but which may extend to 5,00,000 (Five Lakh Rupees).
Appointment of Secretarial auditor
The Secretarial Auditor would be required to be appointed in the board meeting of the Company and the remuneration of the Auditor will also be determined in the aforementioned board meeting [Section 179(3)].
Company is required to file the certified true copy of the resolution passed in the aforementioned board meeting with the Registrar of Companies as an attachment in e-form MGT – 14.
However, prior to the appointment, the Company would be required to obtain the consent of the Secretarial Auditor.
Documents required for audit
Our Firm (Meenarth Corporate Consultants LLP) would provide the checklist for carrying out the Secretarial Audit of the Company (as the same would also depend on the activities carried out by the company).
Acts covered under Secretarial Audit Report
1. The Companies Act, 2013 and the rules made there under;
2. The Securities Contracts (Regulation) Act, 1956 and the rules made there under;
3. The Depositories Act, 1996 and the Regulations and Bye laws framed there under;
4. 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;
5. The following regulations and guidelines prescribed under SEBI Act, 1992:
Contd.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.
Contd.The Report also deals with examination of compliance with applicable clauses of the following:
1. Secretarial Standards issued by the Institute of Company Secretaries of India;
2. The Listing Agreements entered into by the Company with Stock Exchange(s), if applicable.
3. Reporting on compliance of ‘Other laws as may be applicable specifically to the company’ which shall include all the laws which are applicable to specific industry for example for Banks- all laws applicable to Banking Industry; for insurance company-all laws applicable to insurance industry; likewise for a company in petroleum sector- all laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement industry etc.
Other laws as may be specifically applicable to the company
An indicative list of sector specific central laws in respect of some of the sectors is placed below for reference:
Pharmaceutical Industry
Pharmacy Act, 1948 Drugs and Cosmetics Act, 1940 Homoeopathy Central Council Act, 1973 Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954 Narcotic Drugs and Psychotropic Substances Act, 1985 Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 Petroleum Act 1934 Poisons Act 1919 Food Safety And Standards Act, 2006 Insecticides Act 1968 Biological Diversity Act, 2002 The Indian Copyright Act, 1957 The Patents Act, 1970 The Trade Marks Act, 1999 Indian Boilers Act, 1923
Contd.POWER
The Electricity Act, 2003 National Tariff Policy Essential Commodities Act, 1955 Explosives Act, 1884 Indian Boilers Act, 1923 Mines Act, 1952 (wherever applicable) Mines and Mineral (Regulation and Development) Act, 1957
(wherever applicable)
the list provide is indicative only and not exhaustive. The list for other sector specific central laws can be provided as and when required by the client.
Benefits of Secretarial Audit Secretarial Audit can be an effective due diligence exercise for the prospective
acquirer of a company or controlling interest or a joint venture partner. It assures the owners and the management that the affairs of the company are being
conducted in accordance with requirements of laws and that the owners stake is not being exposed to undue risk.
It ensures the management of a company that those who are charged with the duty and responsibility of compliance with the requirements of law are performing their duties competently, effectively and efficiently, so that the people in charge of the day-to-day management of the company are not likely to be exposed to penal or other liability (and consequential risk and embarrassment) on account of non compliance with law.
It ensures them that they have done everything required under law and that the company had complied with the laws and therefore, they are not likely to be exposed to action by law enforcement agencies for non compliance by the company.
The Secretarial audit can assist bodies like SEBI, Stock Exchange, Financial Institutions, banks etc., to gauge or measure the levels of compliance and non compliance by the companies with whom they are concerned.
Duties of Secretarial auditor – Fraud Reporting [Sec 143(12)(14)]
If Company Secretary in Practice, during conduct of Secretarial Audit, has sufficient reason to believe that an offence involving fraud is being committed or has been committed against the company by officers or employees of the company, he shall report the same to the Central Government immediately but not later than 60 days of his knowledge with a copy to the Board / Audit Committee seeking their reply within 45 days;
Board / Audit Committee to reply in writing the steps taken to address the fraud;
The Auditor to forward his report and reply of the Board / Audit Committee with his Comments to the Central Government within 15 days of reply by Board / Audit Committee;
The Report shall be in Form ADT – 4.
Punishment for fraud (Sec 447)
Section 447 states that without prejudice to any liability including for repayment of any debt under the Companies Act, 2013, or any other law for the time being in force, any person who is found guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud but which may extend to three times the amount involved in fraud
The Section further states that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
Fraud in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person,
whether or not there is any wrongful gain or wrongful loss.
Punishment for false statement (Sec 448)Section 448 states that, save as otherwise provided in the Companies Act, 2013, if in any return, certificate, financial statement, prospectus, statement or other document required by the Act or Rules made there under, any person makes a statement:
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material,
then such person shall be liable for punishment under Section 447 of the Companies Act, 2013.
Conclusion Even though the Secretarial Audit is not mandatory for private
companies and small public companies, all these companies should voluntarily adopt the practice of annual secretarial audit to ensure compliance and avoid the risks associated with non compliance. However its scope is entirely a management’s decision. Prevention is better than cure. It strengthens the image and goodwill of a company in the minds of regulators and stakeholders. It is an effective compliance risk management tool. It is a governance tool. The benefits are available to promoters, executive directors and officers of the company, regulators, government authorities, investors, financial institutions, banks, creditors and consumers alike.
Contact Us
SRP GLOBAL CONSULTANTS
D-553,Street No.5 Ashok Nagar, Shahdara,
Delhi-110093.
Ph: 9540601769 ; 9211274295
Email:[email protected]
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