Secretarial Audit is a complied process under Companies Act, 2013 which aims at judging company compliance’s on a professional opinion basis. It is a mechanism to examine compliance’s of a company with the requirements of various laws and processes, highlighting rules & regulations defined under Companies Act. With assistance of a Company Secretary, secretarial audit is a must obligation, especially for listed companies, public companies having paid up capital of about Rs 50 Crore & above and also for companies with an annual turnover of about Rs 250 Crore or more. With authorised audit of a recognised Company Secretary, the stated compliance’s of the company affirms to be error free and admits management to break down possibilities effectively.
Also, delivery of a well analysed Secretarial Audit, gives consent to the stakeholders, regulatory authorities, management and the related group about the disciplined approach of the company towards analysing peek situations, management of risk, and its governance processes.
Requisites of a Secretarial Audit
According to Section 204 of the Companies Act, 2013 as read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following situations seeks for a compulsory Secretarial Audit of a company records essentially by a Company Secretary (CS) :
A>For every government approved listed company ;
B>For every public company having an annual turnover of Rs 250 Crore or more ;
C>For every public company having paid up share capital of Rs 50 Crore or above;
D>For every private company legally recognised to be a subsidiary company of a public company, falling under above class of companies.
Note : ‘Turnover’ as defined by Section 2(91) of the Companies Act, 2013 would mean the aggregate realisation of amount from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year .
Appointment of a Secretarial Auditor
As stated above a company secretary holds secretarial audit for a company, he is authorised to do so only if he holds a valid recognition from Institute of Company Secretaries of India (ICSI) and runs the profession in practise, conducting other timely audits and bringing reports to the company officials.
Also, as per Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014, a secretarial auditor can be legally appointed only by passing a formal resolution in a duly conveyed board meeting and by submitting it to the Registrar of Companies in E-Form MGT-14 within 30 days. On receipt of Letter of Engagement from company, the auditor (CS) formally delivers his acceptance to join and report his working status to members of the board to conduct secretarial audit.
Scope and Powers of a Secretarial Auditor
The Companies Act, put emphasis on employing all such rights and powers to the auditor, to question and receive information from different officers of the company as he considers necessary to be reported and suffice to perform his duties. He as a compliance evaluator, has to check and compare the following rules and laws before drafting a Secretarial Audit Report to the company :-
- Rules and Regulations defined under- Companies Act 2017(Amended), the Securities Contracts (Regulation) Act, 1956 (‘SCRA’), the Depositories Act, 1996, the Foreign Exchange Management Act, 1999 , Securities and Exchange Board of India Act, 1992 (‘SEBI Act’), Securities and Exchange Board of India Regulations, 2011.
- Standards and procedures issued by The Institute of Company Secretaries of India.
- The listing agreements entered into by the company and ;
- All Other laws applicable on Company administration.
Penalty and Punishment For Default in Audit
Section 204(4) of the Companies Act, 2013 specifies that if any officer, official or auditor if found in any case defaulting to provisions related to Secretarial Audit as specified in the Companies Act or any other law, he/she shall be punished with a penalty amount of not less than Rs 1 lakh which may extend to Rs 5 lakh.
Moreover, if an auditor by any how finds any misleading offence or fraud being committed against the company , the matter shall be immediately reported to Central Government within time, any delay or failure in such reporting may call for a penalty of Rs 1 lakh extending to Rs 25 lakh in adverse cases.
Other Penalties :-
- Imprisonment ( for a tenure of 6 months which may extend up to 10 years ) or fine up-to 3 times of amount involved in offence for fraud done against provisions specified in Section 448 including giving false statements in any report, certificate, financial statement or any other documents having statutory importance of public interest or any other provision stated there under.
- Beside this, if the Company Secretary in practise is found guilty for violating any provision as stated under scripted Schedules of Company Secretaries Act, 1980 , he/she may be liable to following actions :
- Removal of name from register of members for upto 3 months ;
- Reprimand ;
- Removal of name from the register of members permanently or such period as may be thought fit by the Disciplinary Committee;
- Fine of not less than 1 lakh which may extend to five lakh rupees.