Company Secretary & the Audit
Continuous recognition by the various authorities of the Company Secretaries as a compliance officer through which the Company Secretaries can assist, guide, advise, audit, compliance check, report to the directors and a closer stronger link between the owners and management of the company which enhances the reliance on the profession.
The company secretary holds a very crucial position in the organization being in employment or in practice. The Company Secretary in Practice has been given recognition by Section 2(2) of the Company Secretaries Act, 1980 means a company secretary who is deemed to be in practice as such.
The company Secretary in practice will monitor the companies like Public Sector Undertaking, Listed companies and provide Secretarial Audit Report on the basis of findings, the information provided and the clarifications sought to the owners of the company and the government in certain cases.
Section 2(25) Read With Section 204 of Companies Act, 2013 Read with Rule 9 of Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 as amended in January 2020 of the guides the applicability, appointment, scope, power, and responsibility of Company Secretary in Practice.
The Secretarial Audit helps in optimizing corporate governance practices, company performance and compliance practices which is mandatory to be done by the following companies :
- Every Public Company having paid-up share capital of Rs. 50 crore or more;
- Every Public Company having a turnover of Rs. 250 crore or more;
- Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crores or more;
Appointment of Secretarial Auditor
- The company has to obtain the consent of secretarial auditors to assess the company performance in terms of compliance with the different statutes.
- Authorization by the Board of directors invalidly convened board meeting.
- Filing of Copy of resolution with the department within 30 days of appointment in Form MGT -14 with the prescribed fee.
- Convene the Board Meeting which includes Secretarial Auditor and fix remuneration in such meetings.
Whereas to proceed with secretarial audit, the auditor should know the scope of the audit, the required documents contained in the checklist as given by the auditor should be provided to the auditor to assess and question if require to conclude the audit.
It is the responsibility of the management of the company, other officials and provide full disclosure as and when required. The Content of Secretarial Audit Report that is prepared by the Company Secretary in Practice in Form MR -3 (Rule 9) and includes reporting from various prescribed statutes which are as follows:
- Companies Act, 2013 and the rules made thereunder;
- Securities Contracts (Regulation) Act, 1956 (‘SCRA’), and the rules made thereunder;
- Depositories Act, 1996, and the rules made thereunder;
- 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;
- Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
- Reporting on the compliance of secretarial standards issued by the Institute of Company Secretaries of India;
- Reporting on Compliances with the Listing Agreement;
- Reporting on compliance of ‘Other laws as may be applicable specifically to the company which shall include all the laws which are applicable to specific industry for example for Banks- all laws applicable to Banking Industry; for insurance company-all laws applicable to the insurance industry; likewise for a company in petroleum sector- all laws applicable to petroleum industry; similarly for companies in the pharmaceutical sector, cement industry, etc.
- Examines and reports regarding the adequacy and efficiency of the systems and processes with other laws.
- Monitor and ensure compliance with general laws like labor laws, competition law, environmental laws.
- Examines and reports on the specific observations or qualification, reservation or adverse remarks in respect of the Board Structures/system and processes relating to the Audit period.
- Secretarial Auditor may rely on reports given by statutory auditors or other designated professionals to check compliance with other laws like Income Tax, Customs, GST
Duties of Secretarial Auditor
- To provide assistance and facilities to the company management and members.
- To disclose the opinion in full or any other remarks, also where information soughted but not disclosed.
- To disclose that the company’s financial statements, labor laws, corporate laws, and others are apparent or effective compliance.
- To disclose any suspicious error or fraud detected to the owners of the company through the secretarial audit report as an Annexure to Board Report.
Default by Company/ Secretarial Auditor
As per Section 204 (4) of Companies Act, 2013, Where any noncompliance is done by company or officials in disclosing the documents to the secretarial auditor and/or the company secretary in practice shall be punishable with punitive liability as follows:
- Minimum fine – Rs. 1 Lakh
- Maximum fine – Rs. 5 Lakhs
The secretarial audit is a good corporate management practice that ensures regulation and compliance of every statute applicable. Such audits can be done at regular intervals for better reporting and transparency to the shareholders, stakeholders, creditors, and employees.
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