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Secretarial Audits
07 Oct 2013

The Companies Act 2013 of India has first time introduced the concept of Secretarial Audit. The Secretarial Audit as such has not been defined but it means the “ Corporate Legal Due Diligence on yearly basis as to what extent the company has complied with the legal obligations under the Companies Act 2013 and other allied corporate Laws as applicable to the companies.

Pursuant to section 204 (1) of the Companies Act 2013 every listed company on any Stock Exchange of India and further pursuant to Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 Secretarial Audit is mandatory to all the companies having paid up capital of INR 500 Million  (Rs. 50 Crores) or having turnover of INR 2500 Million ( Rs. 250 Crores) or more.

The Secretarial Audit Report shall be in the Form MR-3 as prescribed in the above cited Rules. 

Under Section 204 (1) of the Companies Act 2013 the above categorized companies must attach with their Directors Report under section 134 (1) of CA 2013 a Secretarial Audit Report issued by a Firm of  Practicing Company Secretary of  India.  HPACS Consulting, a Practicing Company Secretary

Under section 134 (3) of the Companies Act 2013 the Directors Report must explain any qualification or adverse comments mentioned in the Secretarial Audit Report,  as why such remarks were necessitated by the Secretarial Auditor and what the Board of the company has its reason to justify or explain the qualification.

The format of the Secretarial Audit and what information it must revel shall be prescribed by the Ministry of Corporate Affairs, Government of India in due course of time.

A practicing company secretary being Secretarial Auditors has all the same powers to verify the books and statutory records as any Financial Auditors do have.  Section 143 (14) of the Companies Act 2013 has specifically empowered Secretarial Auditors to demand and scrutinize the documents and company is obliged to assist the Secretarial Auditors.

The Secretarial Audit was earlier available Under Section 383A of the Companies Act, 1956 but limited to companies having paid up capital between Rs. 10 Lacs to Rs.500 Lacs only.  This was named as “Secretarial Compliance Certificate” and was limited in its scope also.

The companies here need to be cautious about hiring right firm of Practicing Company Secretaries corresponding to their size and structures,  as auditors  quality of service would strengthen and protect the hiring companies and their Board of Directors.

Verification of the compliance at the right time helps to take corrective action early and to save heavy amount of penal fines and prosecutions against its Key Managerial Personnel and Directors.

Author:  Hemant Paliwal- Practicing Company Secretary