Secretarial Audit as per Companies Act, 2013

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:

  • Ensure compliance of various legislations and regulations
  • Helps detect non-compliance and facilitates taking corrective measures to avoid future risks.
  • Assures the stakeholders of the Company that the compliances are being adhered to.
  • To ensure that the companies have an effective compliance management program so they have a lesser chance of receiving penalties.

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 –

  • The Board of Directors of the Company is duly constituted with proper balance of Executive Directors, Non-Executive Directors, Independent Directors, and Women Director.
  • The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act.
  • Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent at least seven days in advance. A system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting.
  • Majority decision is carried through while the dissenting members’ views are captured and recorded as part of the minutes.
  • There are adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with all applicable laws including general rules like labour laws, competition law, Environmental laws, regulations and guidelines.

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

Secretarial Audit Report (MR - 3)
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Secretarial Audit Report (MR - 3)
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Minutes of First Board Meeting

Minutes of a Board Meeting is a formal written record, in physical or electronic form. In short, board meeting minutes contain a summary of the matters discussed and decisions taken at such meeting. Further, all companies registered in India are required to maintain minutes, except OPC and Section 8 Company,.

The minutes shall be maintained as per the manner prescribed in Section 118 of the Companies Act, 2013 and Secretarial Standard on Meetings of Board of Directors issued by the Institute of Company Secretaries of India (ICSI).

Board Meetings

As per section 173(1) of the Companies Act, 2013, every company is required to hold its first Board Meeting within 30 days of incorporation.

Thereafter, a company is required to hold at least 4 Board Meetings in each Financial Year and the gap between two meetings shall not be greater than 120 days.

Agenda Items for first Board Meeting

The following items must be a part of the minutes of the first board meeting:

  1. Elect the Chairperson of the meeting
  2. Grant leave of absence to the Directors who couldn’t attend the meeting
  3. Authorize a person to record the proceeding of Board Meetings.
  4. Authorize a director of Company to certify and circulate certify copy of Board Minutes.
  5. Note the Certificate of Incorporation of the company, issued by the Registrar of Companies
  6. Take note of the Memorandum and Articles of Association of the company, as registered.
  7. To take note of the Registered Office of the company.
  8. To confirm/note the appointment of the first directors of the Company
  9. Disclosure of interest of Board of Directors of the Company as per the provision of Section 184 of the Companies Act, 2013.
  10. Disclosure of disqualification to act as a Director of the Company as per the provision of Section 164 of the Companies Act, 2013.
  11. Fix the Financial Year of the Company.
  12. Appoint first auditor of the Company.
  13. Take note of subscribers to Memorandum
  14. Authorize the issue of Share Certificates to the Subscribers of Memorandum.
  15. Authorize the directors to file forms with MCA
  16. Approve Preliminary Expenses and preliminary contracts
  17. Authorize a Director to Maintain Books And Registers of the company at registered office.
  18. Any other Items with the Permission of the Chair

Hence, it must be made sure that the above-mentioned agendas are taken in to account in the first board meeting.

Sample Minutes of first Board Meeting

Sample Minutes of first Board Meeting
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Sample Minutes of first Board Meeting
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