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Secretarial Audit as per Companies Act, 2013

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Aishwarya Shah

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secretarial audit
Last updated on June 2nd, 2021

What is Secretarial Audit:

Secretarial Audit is the audit of non-financial aspects of the company. Secretarial Audit covers non-financial aspects of the business impact on the performance of the company and verifies compliances of applicable laws, regulations and guidelines.

Basically, Secretarial Audit is an independent verification of the records, books, papers and documents by a Company Secretary to check the compliance status of the company and also to ensure the compliance of legal and procedural requirements and processes followed by the company.

Objectives:

Applicability:

As per Section 204 (1) of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Audit is applicable to the following companies:

  1. Every listed company
  2. Every public company having paid up share capital of Rs. 50 crore or more.
  3. Every public company having a turnover of Rs. 250 crore or more.
  4. Every company having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more.

These companies shall annex with their Board’s Report , a Secretarial Audit Report in form MR-3.

Note: The paid up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of latest audited financial statement shall be taken into account.

Appointment of a Secretarial Auditor:

Only a member of the ICSI holding a certificate of practice can conduct Secretarial Audit and furnish the Report.

As per rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, secretarial auditor is required to be appointed by means of a board resolution. Such resolution shall be filed with the Registrar in e-Form MGT-14 within 30 days of passing the resolution.

It is recommended that a Secretarial Auditor be appointed at the beginning of financial year. The Secretarial Auditor can submit quarterly reports to the Board regarding the compliance of various legislations and regulations.

Secretarial Audit Report

The Secretarial Audit Report shall only be prepared by a Practising Company Secretary appointed for this purpose.

Secretarial Audit Report shall be prepared in Form MR. 3 and shall be annex with the Board’s Report of the Company.

Scope of Secretarial Audit

In terms of Form MR-3, the Secretarial auditor needs to examine and report the compliance of the following five specific laws:

  1. The Companies Act, 2013 (the Act) and the rules made thereunder;
  2. The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;
  3. The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;
  4. Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;
  5. The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-
    1. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
    2. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992/ SEBI (Prohibition of Insider Trading) Regulations, 2015;
    3. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
    4. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999/ SEBI (Share Based Employee Benefits) Regulations, 2014;
    5. The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
    6. 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;
    7. The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
    8. The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
    9. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

In addition, the form MR-3, point (vi) also refers to ‘Other laws as may be applicable specifically to the company.’

Moreover, it may be noted that the scope of MR- 3 includes ‘The Securities and Exchange Board of India (Listing obligations and Disclosures requirements) Regulations, 2015’.

Other Areas that need to be checked

Secretarial Auditor needs to examine and report on the compliance with the 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;

Further, Secretarial Audit report also requires reporting on whether –

Moreover, Secretarial Auditor is required to report and provide details of specific events and actions that occurred during the reporting period having major bearing on the affairs of the company in pursuance of above referred laws/ rules & regulations.

Sample of Form MR.3

Format of Secretarial Audit Report in MR-3
Secretarial Audit Report (MR - 3)
Download the template of MR-3
Download
Secretarial Audit Report (MR - 3)
Download the template of MR-3
Download

Got Questions? Ask Away!

  1. Hello @Heer_Mandaliya

    Secretarial Audit is applicable to the following companies:

    1. Every listed company
    2. Every public company having paid up share capital of Rs. 50 crore or more.
    3. Every public company having a turnover of Rs. 250 crore or more.
    4. Every company having outstanding loans or borrowings from banks or public financial institutions of Rs. 150 crore or more.

    Hence, in your case, if you Company is a public limited company, Secretarial Audit will be applicable.

    You can read more about the provisions, objectives, applicability, etc of Secretarial Audit here:

    Hope this helps!

  2. Hello @sai_sunanda12

    Thank you, we appreciate your valuable feedback. We have updated the article in accordance with Rule 9 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

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