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

ROC Compliances for F.Y. 2020-21: Private Limited Companies

In order to run a company, there are certain RoC compliances laid down by the Ministry of Corporate Affairs (MCA) that a company must take care of each year. Failing to comply with these regulations often leads to paying a hefty amount of penalty or late fees.

Hence, in order to avoid such a scenario, it is advisable that companies make sure that these basic provisions are complied with. It must be noted that the due dates mentioned in this article are subject to any extensions/ exemptions as may be made by MCA.

RoC Compliances

Sr. No Particulars e-Form Due Date
1 Return of deposits regarding outstanding receipt of loan or money other than deposits. DPT-3 30.06.2021
2 Any person who has been allotted DIN on or before 31st March, need to file this form to update their details DIR-3 KYC 30.09.2021
3 Return for half year ended 31st March regarding outstanding payments to Micro or Small Enterprises for a period exceeding 45 days MSME-1 31.07.2021*
4 Return for half year ended 30th September regarding outstanding payments to Micro or Small Enterprises for a period exceeding 45 days MSME-1 29.10.2021
5 Notice of appointment of auditor to be given within 15 days of such appointment in AGM ADT-1** 14.10.2021
6 Filing financial statement and other documents with the Registrar AOC-4 29.10.2021
7 Annual Return MGT-7 28.11.2021

*The due date of filing MSME-1 is 30th April, however, MCA vide circular number 06/2021 and 07/2021 dated May 03, 2021, has given a relaxation due to COVID-19, allowing stakeholders to file various forms due for filing during 01/4/2021 to 31/05/2021 under the Companies Act, 2013/LLP Act, 2008 by 31st July, 2021 without payment of additional fees.

**In case the auditor has been appointed in Board Meeting, ADT-1 must be filed within 15 days from the date pf appointment as decided in the Board Meeting.

Other Compliances

Sr No Particulars Companies Act, 2013 Provision
1 Board Meeting Section 173 (1) At least 4 Board Meetings must be held in a financial year in such a way that the gap between two Board Meetings does not exceed 120 days
2 MBP-1 Section 184 (1) and Rule 9 (1) of Meetings of Board and its Powers, 2014 Every Director of the company shall submit a disclosure in MBP-1 in the first Board Meeting he/ she participates in
3 DIR-8 Section 164 (2) and Rule 14 (1) of Appointment and Qualification of Directors, 2014 Every person appointed/ re-appointed as a Director shall submit disclosure of their non-disqualification in form DIR-8 at the time of such appointment/ re-appointment
4 Annual General Meeting Section 96 Every Company other than OPC shall hold an AGM within 6 months of completion of the financial year.
Eg.: If the year ends on 31st March, 2021, the AGM must be held on or before 30.09.2021
5 Statutory Registers   Every Company shall maintain a register of :
– Members
– Share Transfer and Share Transmission
– Charge
– Directors And KMPs
– Directors And KMPs’ shareholding
– Deposits
– Loans/Guarantee
– Contracts or Arrangements in which Directors are interested
What is the due date of AOC-4 for 2020-21?

Due date for AOC-4 is within 30 days of holding AGM. If AGM is held on 30.09.2021, AOC-4 shall be filed on 29.10.2021

What is the due date of MGT-7 for 2020-21?

Due date for MGT-7 is within 60 days of holding AGM. If AGM is held on 30.09.2021, MGT-7 shall be filed on 28.11.2021

When to file MBP-1?

A director must submit disclosure of interest in form MBP-1 in the first Board Meeting that he/she participates in.