Secretarial Audit Under Companies Act, 2013 and Listing Regulations By CS Shubham Phule


Introduction:

Secretarial Audit has today regained importance like Statutory Audit. Gone are the days when Companies where not following Secretarial Standards or not doing Secretarial Audit. With Increasing Complexities and New Forms by Government like Form INC-22 A, Form DPT-3, Form MSME-1 the Secretarial Auditor will also need to be vigilant and highlight the non compliance in his secretarial Audit Report  Like non Appointment of Company Secretary, failure to appoint Cost auditor etc, failure to appoint KMP, failure to file Financial Statements etc.

Secretarial Audit is Wider Term as it covers not only the Companies Act, 2013 but all the Acts applicable to companies.

Definition:

Secretarial Audit is an Audit to check the Compliances of Various Laws applicable to Company.

Applicability of Secretarial Audit Report as Per Section 204(1) of Companies Act, 2013:

  1. Listed Company
  2. Public Company having paid up share capital of fifty crore rupees or more;
  3. Every Public Company having a turnover of two hundred fifty crore rupees or more;
  4. Format of Secretarial Audit Report is given in form no MR-3
The Secretarial Audit Report shall be given along with the director’s report of the company. The company shall provide all the assistance, details and documents to PCS to issue the Secretarial Audit Report.

If the company, officer or Practicing company Secretary contravenes default of section 204 the will be punishable with fine which shall not be less than 1 lakh rupees but which may extend to five lakh rupees.

APPOINTMENT OF SECRETARIAL AUDITOR

RULE 8 of the Companies Meeting of Board and its power) rules 2014, Secretarial Auditor is required to be appointed by means of a resolution passed at the Duly convened Board Meeting. The Resolution shall be filed with MCA along with Form MGT-14.

It is advisable to get the engagement letter from Practicing Company Secretary for conducting a secretarial audit. The engagement letter shall include the scope of the work and other details etc.
Companies can also offer bids from PCS for Secretarial Audit giving the Scope of Work, Fees etc to be given.

Whenever the Company Secretary is taking up the Secretarial Audit he should inform the previous company secretary in practice and obtain NOC (No Objection Certificate) from him.
 
RIGHTS AND DUTIES UNDER COMPANIES ACT, 2013

Section 143 sub-section (14) provisions of this act shall apply mutatis mutandis apply to PCS under section 204 of the Companies Act, 2013.

SECRETARIAL AUDIT UNDER LODR REGULATIONS

SEBI (SECURITIES AND EXCHANGE BOARD OF INDIA) Vide Circular CIR /CFD/CMD1/27/2019 dated 08/02/2019 came with the Circular regarding Secretarial Audit for all listed entities (whose equity shares are listed) and their material subsidiaries.

SEBI HAS AMENDED REGULATION 24 A LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS, 2014 FROM THE YEAR ENDED MARCH, 2019

LODR REGULATION 24A: Secretarial Audit
 
Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex with its annual report, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed with effect from the year ended March 31, 2019.”
 
ANNUAL SECRETARIAL COMPLIANCE REPORT

  1. Listed entities shall additionally require a check on annual basis require a check by PCS on all compliances of applicable SEBI Regulations and Circulars/ Guidelines issued thereunder, consequent to which the PCS Shall Submit its report to the listed entity.
  1. The Annual Secretarial Compliance Format shall be submitted by the listed entity to the stock exchanges within 60 days of the end of Financial Year. 
FORMAT OF SECRETARIAL COMPLIANCE REPORT

Annex-A

(On the letterhead of the Practicing Company Secretary)
Secretarial compliance report of [•] [Name of the listed entity] for the year ended_

I/We……………. have examined:
 
  • all the documents and records made available to us and explanation provided by [?] [Name of the listed entity] (“the listed entity”),
  • the filings/ submissions made by the listed entity to the stock exchanges,
  • website of the listed entity,
  • any other document/ filing, as may be relevant, which has been relied upon to make this certification,
for the year ended [•] (“Review Period”) in respect of compliance with the provisions of
 
  • the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and the Regulations, circulars, guidelines issued thereunder; and
  • the Securities Contracts (Regulation) Act, 1956 (“SCRA”), rules made thereunder and the Regulations, circulars, guidelines issued thereunder by the Securities and Exchange Board of India (“SEBI”);
The specific Regulations, whose provisions and the circulars/ guidelines issued thereunder, have been examined, include:-
 
  1. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015;
  2. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;
  3. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
  4. Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018;
  5. Securities and Exchange Board of India (Share-Based Employee Benefits) Regulations, 2014;
  6. Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
  7. Securities and Exchange Board of India(Issue and Listing of Non-Convertible and Redeemable Preference Shares) Regulations,2013;
  8. Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015;
  9. …………(other regulations as applicable)  and circulars/ guidelines issued thereunder;
and based on the above examination, I/We hereby report that during the Review Period:
 
a) The listed entity has complied with the provisions of the above Regulations and circulars/ guidelines issued thereunder, except in respect of matters specified below:-
 

Sr. No

Compliance Requirement (Regulations /Circulars/ guidelines including specific clause) 

Deviations

Observations/ Remarks of the Practicing Company Secretary

 

 

 

 

 

 

 

 

 
b) The following are the details of actions taken against the listed entity/ its promoters/ directors/ material subsidiaries either by SEBI or by Stock Exchanges (including under the Standard Operating Procedures issued by SEBI through various circulars) under the aforesaid Acts/ Regulations and circulars/ guidelines issued thereunder:
 

Sr. No

Compliance Requirement (Regulations /Circulars/ guidelines including specific clause) 

Deviations

Observations/ Remarks of the Practicing Company Secretary

 

 

 

 

 

 

 

 

 
c) The listed entity has taken the following actions to comply with the observations made in previous reports:
 

Sr. No

Observations of the Practicing Company Secretary in the previous reports

 

Observations made in the secretarial compliance report for the year ended…

(The years are to be mentioned)

Observations/ Remarks of the Practicing Company Secretary

 

 

 

 

 

 

 

 

 
(Note:

1. Provide the list of all the observations in the report for the previous year along with the actions taken by the listed entity on those observations.


2. Add the list of all observations in the reports pertaining to the periods prior to the previous year in case the entity has not taken sufficient steps to address the concerns raised/ observations. E.g. In the report for the year ended 31
st Mar, 2021, the PCS shall provide a list of:
 
  • all the observations in the report for the year ended 31st Mar, 2020 along with the actions taken by the listed entity on those observations.
  • the observations in the reports pertaining to the year ended 31st Mar, 2020 and earlier, in case the entity has not taken sufficient steps to address the concerns raised/ observations in those reports.)
 
                                                               Name of the Practicing Company Secretary
                                                                ACS/ FCS No.:
C P No.:                                     
Signature:
Date:
Place
 
Conclusion:  

Company Secretaries in Practice needs to be vigilant in doing the Secretarial Audit Under Companies Act and SEBI Act. Non Compliance of any acts must be reported in the Secretarial Report in Bold and Italics.

PCS Should not come under Pressure of Management for favorable Report or Positive Report and the best part would be to not conduct Secretarial Audit of such companies and put their practice in danger.

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