SECRETERIAL AUDIT

  Thecompaniesact2013.com     2017-05-05 04:27:50

SECRETARIAL AUDIT is introduced by recently enacted Companies Act, 2013. It Means Verification of Records to Check Compliance with the Provisions of Various laws by an Independent Professional to Ensure that Company has made relevant disclosures.

This Concept of Secretarial Audit was introduced to keep a check on the scams or fraud to ensure all compliances has been made with the provisions of law. Periodically examination of work is necessary to point out errors & mistakes and to make a robust compliance mechanism system in an organization.

Every company needs to comply hundreds of Laws, rules, regulations. These laws are complex and non-compliances would attract major risk to company. Periodically inspecting the records of company gives exact information whether, and if so, to what extent Company has complied with the laws applicable to the Company. Secretarial Audit gives comfort to the regulators, stakeholders and management that company has disciplined approach to evaluate and improve effectiveness of risk management, control, and governance processes.

OBJECTIVES OF SECRETARIAL AUDITOR:

  • To Protect the Interest of Stakeholders like Employees, Customers etc.
  • To Review various statutory Records, Books, Registers maintained under various Acts.
  • To Review Meetings of Board and Shareholders.
  • To Review Penalties imposed by various Authorities under Various Acts.
  • To Ensure Transparency and Responsible Governance of the Organization.

APPLICABILTY UNDER SECTION 204

  1. Every listed company
  2. Every public company
  • Having a paid-up share capital of Fifty Crore rupees or more; or
  • Having a turnover of Two Hundred Fifty Crore rupees or more

“Turnover” means the aggregate value of the Realization of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. [Section 2(91)]

 Note: Secretarial Audit is also mandatory to a private company which is a subsidiary of  a  public company, and which falls under the prescribed class of companies.

 

INDEPENDENT PROFESSIONAL TO BE APPOINTED:

Only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the Company. He is entitled to acquire all necessary information from officers of Company for the Performance of his duties.

Practicing Company Secretary gives a Secretarial Audit Report which shall be annexed to  Board’s Report which shall in the format of Form MR-3.

DUTIES OF SECRETARIAL AUDITOR 

  • If during the period of Conduct of Audit, Practicing Company Secretary gathers sufficient reasons to believe that fraud is Conducted against the Company by the officers, then he shall report to the Central Government immediately but not later than 60 days of his knowledge with a copy to Board seeking their reply within 45 days in Form ADT-4.
  • Board need to reply in writing to explain the steps taken against the fraud occurred..the auditor will forward his report and reply of the board with its comments to the central government within 15 days of reply received by the board.

SCOPE OF SECRETERIAL AUDIT.

A secretarial auditor has to check compliances by the company under the following laws and rules made there-under;

1. The Companies Act, 2013 (the Act) and the rules made there-under;

2. The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made there-under (The Depositories Act, 1996 and the Regulations and Bye-laws framed there-under;

3. 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’):-

  • The Securities and Exchange Board of India (Substantial Acquisition of Shares and     Takeovers) Regulations, 2011;
  • The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
  • . The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
  • The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
  • The Securities and Exchange Board of India (Issue and Listing of Debt Securities)   Regulations, 2008;
  • 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;
  • . The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
  • The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;

 4. Secretarial Standards issued by The Institute of Company Secretaries of India.

 5. The Listing Agreements entered into by the Company with Stock Exchange(s), if applicable;

 6. Other laws as may be applicable specifically to the company.

Thus the scope of Secretarial audit is not limited to the corporate laws applicable to company but it extent to all laws applicable to Company.

 

PUNISHMENT FOR NON-COMPLIANCE  

  • Section 204(4) of the Companies Act provides that if a Company or any officer of the Company or the Company Secretary in practice, contravenes the provisions of Section 204 of the Act, the Company, every officer of the Company or the Company Secretary in practice, who is in default, shall be Punishable with fine which shall not be less than 1 lakh Rupees but may be extend to 5 lakh rupees.
  • Section 143(15) of the Companies Act, 2013, if a Secretarial Auditor , has reason 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 prescribed. If failure occurs then fine will be imposed of not less than one lakh Rupees which may extend to twenty five lakh Rupees.

CONCLUSION

Secretarial Audit act as a pre-emptive check to ensure that the Board processes and compliance mechanisms of the Co. are robust thereby generating confidence amongst the shareholders, the creditors and other stakeholders in the Co., besides instilling self regulation and professional discipline in companies. While conducting secretarial audit our professional duties is just not limited to the adherence of laws but also to observer the ethical standard too .

 

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