Secretarial Audit is a key part of an organisation’s compliance management system. It serves as an effective tool to detect non-compliance and recommend corrective actions.

It checks the company’s adherence to various laws, rules, procedures, records, and book maintenance. An independent professional conducts this audit to ensure all legal and procedural requirements are properly followed. The secretarial audit report helps monitor compliance with applicable laws and regulations.

Secretarial Audit Report

A secretarial audit report, filed by a certified company secretary, confirms a company's compliance with applicable laws, rules, and regulations. It offers an overview of the company's governance and highlights risks or areas needing improvement. The report also suggests corrective measures. Under the Companies Act, 2013, certain classes of companies in India must obtain this report.

Who Can Be Appointed as Secretarial Auditor?

Only members of the Institute of Company Secretaries of India (ICSI) holding a valid certificate of practice are authorised to perform and issue a secretarial audit report.

Secretarial Audit Applicability

Secretarial Audit is mandatory for:

• All listed companies every year.
• Public companies with a paid-up capital of ₹50 crores or annual turnover of ₹250 crores or more.
• Private companies with paid-up capital of ₹50 crores or turnover of ₹250 crores or more.
• Any company with loans or borrowings of ₹100 crores or more from banks or public financial institutions.

Scope of Secretarial Audit

• Reviewing the company's legal, regulatory, corporate governance, secretarial, and procedural compliances.
• Ensuring the company operates within legal boundaries while safeguarding stakeholders’ and shareholders’ interests.
• A certified company secretary conducts the audit, assesses compliance performance, and suggests improvements.
• The audit scope may vary depending on the company’s size, nature, and industry.

Eligibility Criteria for Appointment of a Secretarial Auditor

• Must be a member of the Institute of Company Secretaries of India (ICSI).
• Should hold a valid Certificate of Practice (CoP) from ICSI.
• Must have completed secretarial audit training by ICSI.
• Should not have any conflict of interest with the company being audited.
• Must possess experience in handling corporate secretarial matters.
• Should not have any conviction for offences involving moral turpitude.
• Must not have been found guilty of professional misconduct by ICSI.
• Should uphold a good professional reputation and standards.
• Must have adequate infrastructure and resources for conducting the audit.
• Required to follow ICSI’s ethical guidelines and standards.

Process of Secretarial Audit

1. Prepare a checklist covering all statutory and regulatory requirements.
2. Check the company's compliance against the checklist.
3. Inform management of findings and suggest corrective measures if needed.
4. Management must address and rectify any non-compliances noted.
5. Submit the final audit report to the concerned regulatory authorities.

Benefits of Secretarial Audit (Statutory or Forensic)

• Better Compliance: Identifies and corrects non-compliance, lowering legal risks and penalties.
• Stronger Governance: Encourages transparent and responsible corporate practices.
• Increased Stakeholder Trust: Builds confidence among investors, creditors, and customers.
• Lower Legal Risks: Detects and addresses legal threats early, avoiding disputes.
• Improved Decisions: Offers insights on compliance status to support sound business choices.

Objectives of Secretarial Audit

• Ensure the company complies with all applicable laws, rules, and regulations.
• Assess the effectiveness of the company's governance structure in meeting its objectives.
• Confirm that the board and management follow ethical and moral standards.
• Review internal controls to detect weaknesses or gaps.
• Identify and address cases of non-compliance or potential risks.

Documents Required for Secretarial Audit

Secretarial Audit ensures a company's compliance with applicable laws and regulations. The required documents include:

• Certificate of Incorporation, Memorandum & Articles of Association
• Share Capital Structure
• Board of Directors’ details
• General Meeting minutes
• Financial Statements and Reports
• Register of Members
• Register of Directors & Key Managerial Personnel
• Register of Shareholdings
• Register of Debentures/Bonds
• Register of Charges
• Board Meeting Minutes
• Annual Reports
• Agreements with third parties
• Statutory Compliance Documents
• Internal Policies & Procedures

Features of Company Secretarial Audit

• The key objective is to ensure the company complies with all relevant laws and regulations.
• It provides an independent assessment of the company's legal compliance, offering an unbiased view of its operations.
• Covers various areas like company law, securities law, taxation, labor, and environmental laws.
• The Company Secretary prepares a report detailing observations, qualifications, and suggestions.

Secretarial Audit Checklist

• Check company registration documents
• Verify statutory registers
• Review minutes of board and shareholder meetings
• Check director appointments and resignations
• Verify share capital and related transactions
• Ensure compliance with Companies Act provisions
• Confirm adherence to other applicable laws
• Check filing of statutory returns and documents
• Review related party transactions
• Assess company policies and code of conduct
• Examine risk management practices
• Check sustainability measures
• Review financial statements and disclosures
• Verify compliance with internal controls and policies

Beneficiaries of Secretarial Audit

• The board of directors, shareholders, management, government bodies, and other stakeholders benefit from secretarial audits.
• It ensures the company's operations follow legal and regulatory norms, reduces non-compliance risks, and improves corporate governance.
• The audit report also assists potential investors and creditors in assessing the company's compliance and governance before investing or providing credit.

Key Clauses Regarding Secretarial Audit

Important clauses related to secretarial audit include:

• As per Section 204 of the Companies Act, 2013, every listed company and public company with paid-up share capital of ₹50 crores or more or turnover of ₹250 crores or more must conduct a secretarial audit.
• A qualified company secretary must perform the audit.
• The audit covers compliance with the Companies Act, 2013, and other applicable laws and regulations.
• The secretarial audit report in Form MR-3 must be presented to the company’s board and attached to its report.
• The board’s report, financial statements, and audit report must be filed with the Registrar of Companies (ROC).

Acts Covered Under Secretarial Audit

Depositories Act, 1996

Applicable provisions reviewed.

Companies Act, 2013

• Alteration of Charter Documents
• Share Capital & Debentures Rules – ICDR, issue compliances
• Borrowings – Limits & related compliances
• Public Deposits – Pre & post-compliance
• Board & General Meetings – Notices, Agenda, Minutes
• Dividend – Declaration & payment compliances
• Board – Appointment, resignation
• Internal Audit & Report
• Auditor – Appointment, tenure, rotation
• CSR – Committee, contribution limits
• Related Party Transactions
• Inter-Corporate Loans & Guarantees
• Buy-Back of Shares – Compliances
• Annual Return & Compliance
• Member Register & Shareholding changes
• Secretarial Standards

FEMA, 1999

• FDI, ODI, ECB Compliances

SEBI Act, 1992

• Takeover Regulations
• Insider Trading
• Issue of Capital & Disclosure
• Registrars & Share Transfer Agents
• ESOP & ESPP Guidelines
• LODR Regulations

Labour, Fiscal & Other Laws (Applicable as per company type)

• Factories Act, Industrial Disputes Act
• Wages, Minimum Wages, Bonus, Gratuity Acts
• ESI, EPF Acts
• Contract Labour, Maternity Benefit Acts
• Child Labour, Employment Exchange Acts
• Equal Remuneration, Apprentices, Compensation Acts
• Environment, Water & Air Pollution Acts
• Sexual Harassment of Women at Workplace Act

Taxation

• TDS
• Advance Tax
• GST
• Professional, Property & Dividend Tax

Services Under Secretarial Audit

Secretarial Audit is an independent check of a company’s adherence to legal and regulatory requirements. It helps detect and reduce compliance risks, safeguards the company’s goodwill, and enhances governance and stakeholder trust.

Key Secretarial Audit Services:

• Company Formation & Registration: Verification of incorporation documents and required filings.
• Share Capital Management: Ensuring accurate recording of share capital structure and holdings.
• Board & General Meeting Procedures: Review of board and shareholder meetings for legal and article compliance.
• Regulatory Compliance: Assessment of adherence to Companies Act, SEBI norms, FEMA guidelines, etc.
• Statutory Registers Maintenance: Checking proper upkeep of registers like members, directors, charges.
• Return Filing: Ensuring timely submission of returns to RoC and other authorities.

Secretarial Audit Limit

Under the Companies Act, 2013, certain companies must conduct a Secretarial Audit. The limits are:

• All listed companies and their Indian subsidiaries
• Public companies with paid-up share capital of ₹50 crores or more
• Private companies with paid-up share capital of ₹50 crores or more
• Companies with annual turnover of ₹250 crores or more

Any company meeting these criteria must undergo a Secretarial Audit.

Professional Responsibility and Penalty for Incorrect Audit Report

Section 448 of the Companies Act, 2013, covers false statements. If someone knowingly includes false information or omits a key fact in any document required under the Act, they are penalized under Section 447.

A false statement includes:

• Incorrect facts knowingly provided; or
• Omission of critical facts deliberately hidden.

Section 447 prescribes punishment for fraud:

• Imprisonment: 6 months to 10 years
• Fine: Up to 3 times the fraud amount
• If public interest is involved, minimum imprisonment is 3 years.

A Practicing Company Secretary giving a false or incomplete Secretarial Audit Report can face action under the Company Secretaries Act, 1980:

For misconduct (First Schedule):

• Reprimand
• Removal from member register (up to 3 months)
• Fine up to ₹1 lakh

For misconduct (Second Schedule):

• Reprimand
• Permanent or term-based removal from the register
• Fine up to ₹5 lakh

Punishment for Default in Secretarial Audit

As per Section 204(4) of the Companies Act, 2013, any officer, official, or auditor violating Secretarial Audit provisions can be fined between ₹1 lakh to ₹5 lakh.

If an auditor discovers fraud or deception, they must report it to the Central Government without delay. Failure to report may lead to fines ranging from ₹1 lakh to ₹25 lakh in serious cases.

Other penalties include:

• Fraud-related offenses (Section 448):
  Imprisonment from 6 months to 10 years or a fine up to 3 times the fraud amount, including for false statements in reports, certificates, financial statements, or public documents.
• For Company Secretaries violating rules (Company Secretaries Act, 1980):
  1. Reprimand
  2. Removal from the register of members for up to 3 months
  3. Permanent or specified period removal
  4. Fine from ₹1 lakh to ₹5 lakh

Power of a Secretarial Auditor

Under Section 204 of the Companies Act, 2013, the secretarial auditor holds powers similar to a statutory auditor. They can request any information or explanation from the company’s officers if deemed necessary for performing their audit duties.

Pre-Requisites for a Secretarial Audit

• The company must appoint a qualified company secretary.
• The company secretary should provide all required documents, records, and information necessary for the audit.
• Access must be given to books, records, board members, auditors, and officers.
• The secretarial auditor must remain independent without any conflict of interest with the company.

Important Provisions Pertaining to Secretarial Audit

• Appointment of Secretarial Auditor: The board must appoint a practicing company secretary to conduct the audit.
• Audit Frequency: One secretarial audit is mandatory every financial year.
• Compliance Report: The secretarial auditor’s report is submitted to the board and attached to the Board’s report.

Secretarial Audit – Section 204

Under Section 204 of the Companies Act, 2013, secretarial audits are mandatory for larger companies. This provision enhances corporate governance and ensures compliance with applicable laws, including company law. A practicing company secretary must provide a secretarial audit report in the prescribed form. This report is annexed to the Board Report submitted under Subsection (3) of Section 134 for every listed company and other prescribed classes.

Powers and Duties of Secretarial Auditor

The secretarial auditor plays a key role in auditing and compliance. Their duties include:

• Guiding the company's directors on their duties, rights, and powers
• Accessing the company’s books of accounts and relevant records during the audit
• Seeking clarifications and explanations from company officers on various transactions
• Ensuring the company follows all applicable laws, rules, and regulations

Punishment and Professional Responsibility for a False Secretarial Audit Report

Section 448 of the Companies Act, 2013, covers penalties for false statements in returns, reports, certificates, financial statements, or other required documents. A person is liable if they knowingly:

• Include false information; or
• Omit a material fact knowing its importance.

Under Section 447, fraud offenders face imprisonment between 6 months to 10 years and a fine not less than the fraud amount, which may extend up to three times the involved sum. If public interest is affected, a minimum of 3 years' imprisonment is mandatory.

If a practicing company secretary knowingly includes false or misleading information in the Secretarial Audit Report or omits material facts, they are liable under Section 448.

Additionally, under the Company Secretaries Act, 1980:

First Schedule Misconduct:

• Reprimand
• Removal from the members' register (up to 3 months)
• Fine up to ₹1 lakh

Second Schedule Misconduct:

• Reprimand
• Permanent or term-based removal from the register
• Fine up to ₹5 lakh

Which Companies Cannot Carry Out Secretarial Audit?

Secretarial Audit is limited to specific companies. Traditionally, only publicly listed companies or those with shares on a recognised stock exchange undergo this audit. As per Section 2(71) of the Companies Act, 2013, a public company is one whose shares are listed on a recognised stock market. If a private company is a subsidiary of a public company, it must also follow the audit requirements applicable to the public company.

Non-Compliance Related to Secretarial Audit

The Companies Act, 2013, specifies penalties for non-compliance with secretarial audit requirements:

• Violation of Section 204 (regarding secretarial audit and report attachment with the board report) leads to fines ranging from ₹1 lakh to ₹5 lakh for every responsible company officer, including the company secretary.
• If a company secretary fails to report fraud or offences by company officials to the government, they may face fines between ₹1 lakh and ₹25 lakh.
• As per Sections 448 and 447, knowingly making false statements or omitting material facts in any return, report, or document can result in:
  • Imprisonment from 6 months to 10 years.
  • A fine of at least the fraud amount, up to three times that sum.
  • A minimum 3-year sentence if public interest is harmed.

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Recent Updates

As per the amendment on 3 January 2020 under Rule 9(C), companies with outstanding loans or borrowings of ₹100 crore or more from banks or government financial institutions must also comply.

Earlier (before 03.01.2020), Section 204 of the Act required:

1. Every listed company to conduct a secretarial audit.
2. Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) to specify certain other companies needing this audit.

Applicability Criteria for Secretaries:

1. Public companies with paid-up share capital of ₹50 crore or more.
2. Public companies having revenue of ₹250 crore or more.