The Companies Act, 2013, has left no stone unturned in bringing innovative concepts to the Corporate Law regime in India. Almost every provision of the old Act has undergone a facelift. While some results are draconian, some have been absolute bliss. One such new concept brought about by the Act is the concept of Secretarial Audit. In this Section, we are going to discuss the provisions of the Secretarial Audit as per Companies Act 2013.  

DEFINITION:

Secretarial Audit is mainly a compliance audit, by independent practicing Company Secretaries. The main aim to introduce this concept is to pin point non-compliance by Companies under Companies Act and other allied laws, as applicable to respective companies.

IS SECRETARIAL AUDIT MANDATORY?

Secretarial Audit is mandatory for the following class of companies:

• Every listed Company
• Every public company having a paid-up share capital of Fifty Crore Rupees or more
• Every public company having a turnover of 250 crore rupees or more.

The above class of companies is required to obtain Secretarial Audit Report from Independent Practicing Company Secretaries. Only a practicing CS can be appointed as auditor for this purpose.

SECRETARIAL AUDITOR V/S STATUTORY AUDITORS:

The Companies Act has conferred all the rights and powers to the Secretarial Auditor as that of a statutory auditor. The secretarial auditor has to obtain from the officers of the company all such information and explanation as he may consider necessary for the performance of his duties as auditor. Hence, the status of a Secretarial Auditor and his capacity to act as an Independent Auditor is the same as that of the Statutory Auditor.

APPLICABILITY OF SECRETARIAL AUDIT FOR FY 2013-14:

By way of Circular No. 08/2014, dated 4^th April, 2014, MCA has clarified that the Board’s Report shall be made in accordance with the relevant provisions of the Companies Act, 1956 those companies, whose financial year has commenced before 01^st April, 2014. Since Secretarial Audit Report is a part of the Board’s Report, hence, secretarial audit is not mandatory for FY 2013-14. Click here to download the Circular: General Circular No. 08/2014-MCA

SCOPE OF THE AUDIT:

The work of a Secretarial Auditor does not end with the scrutiny of the Companies Act provisions. 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 & 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;

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;

A Secretarial Standards issued by The Institute of Company Secretaries of India. The Listing Agreements entered into by the Company with Stock Exchange(s), if applicable; Other laws as may be applicable specifically to the company

NON-COMPLIANCE OF THE PROVISIONS:

In case of default, every company or any officer of the company or the Company Secretary in practice, who is in default, shall be punishable with a fine which shall extend upto Rs. 5,00,000 (Five Lakhs). It shall, not, however be less than Rs. 1, 00,000 (one Lakh) [Section 204 (4) of Companies Act, 2013] If a Secretarial Auditor has substantial grounds to believe that an offence 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 extend upto Rs.2 5, 00,000 (Twenty Five Lakhs). It shall, not, however be less than Rs. 1, 00,000 (one Lakh) [Section 143 (15) of Companies Act, 2013] ___________________________________________________________