Secretarial
Audit is basically an audit to check the compliance of various laws applicable
to the Company. Through Secretarial Audit it is ensured that whether there
exist proper and adequate systems and process in the Company commensurate with
the size and operation of the Company to monitor and ensure compliances with
applicable laws, rules, regulation. It is a tool to improve effectiveness
of risk management, control, Corporate
practices by the Company.
Applicability of Secretarial Audit:
As per
Sub-Section 1 of Section 204 of the Companies Act,2013 read with the
Companies(Appointment and Remuneration of Managerial Personnel) Rules, 2014:-
i.
Every
Listed Company,
ii.
Every
Public Company having a paid share capital of 50 Crore or more,
iii.
Every
Public Company having a turnover of 250 Crore or more.
Companies not covered under the ambit
of Section 204(1) of the Companies Act, 2013 may voluntarily opt for
Secretarial Audit, as it provides an independent assurance of the compliances
in the Company.
Secretarial Audit Report:
Ø Section 204(1) of the Companies Act,
2013 read with the Companies(Appointment and Remuneration of Managerial
Personnel) Rules 2014, provides that every listed company and every prescribed
company shall annex with its Board Report, a Secretarial Audit Report, given by
a Practicing Company Secretary in format prescribed in Form MR-3.
Ø Details of specific events and
actions occurred during the reporting period having major bearing on the
affairs of the Company in pursuant to laws, rules and regulation applicable on
the company for the time being in force must be stated in the Secretarial Audit
Report.
Ø Only a Practicing Company Secretary,
engaged by company to conduct Secretarial Audit and holding a valid certificate
of practice number can sign the Secretarial Audit Report.
Ø And in case of firm of Company
Secretaries, the partner of the firm under whose supervision the Secretarial
Audit was conducted can sign the Secretarial Audit Report.
Secretarial Auditor and his Appointment:
i.
Only a member of
the Institute Of Company Secretaries of India holding Certificate of practice
can conduct Secretarial Audit.
ii.
Secretarial
Auditor is required to be appointed by means of a resolution passed at a duly
convened Board Meeting as provided in rule 8 of the Companies (Meetings of
Board and its powers) Rules, 2014.Secretarial Auditor should formally accept
the letter of engagement.
iii.
Secretarial
Auditor is required to get the notice of Annual General Meeting in which his
report
is to be laid before the members.
iv.
Section 143 of
the Companies Act, 2013 deals with powers and duties of Auditors. Further
sub-section (14) of the section provides that the provisions of this section
shall mutatis mutandis apply to the Company Secretary in Practice conducting
Secretarial Audit under section 204.
v.
Practicing company secretary, appointed as Secretarial Auditor
in place of the existing Secretarial Auditor, he/she should communicate the
appointment to the earlier incumbent in writing, in view of the provisions of
clause (8) of Part I of the First Schedule to the Company Secretaries Act, 1980
and the relevant pronounced judgments.
Scope
of Secretarial Audit:
Basically scope of Secretarial Audit
includes reporting compliance of following five specific laws and other laws:
i.
The Companies
Act, 2013 and the rules made there under.
ii.
The Securities
Contracts (Regulation) Act, 1956 and rules made there under.
iii.
The Depositories
Act, 1996 and the Regulation and Bye-laws framed there under.
iv.
Foreign Exchange
Management Act, 1999 and the rules and regulation made there under to the
extent of Foreign Direct Investment, Overseas Direct Investment and External
Commercial Borrowing.
v.
The following
Regulations and Guidelines prescribed under the Securities and Exchange Board
of India Act,1992:-
a)
The Securities
and Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011;
b)
The Securities
and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
c)
The Securities
and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009;
d)
The Securities
and Exchange Board of India (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999;
e)
The Securities
and Exchange Board of India (Issue and Listing of Debt Securities) Regulations,
2008;
f)
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;
g)
The Securities
and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
h)
The Securities
and Exchange Board of India (Buyback of Securities) Regulations, 1998;
In addition to above following other laws
as may be applicable specifically to the Company:
·
Reporting on
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 insurance industry; likewise for a company in
petroleum sector all laws applicable to petroleum industry; similarly for
companies in pharmaceutical sector, cement industry etc.
·
Examining and reporting whether the adequate systems and
processes are in place to· monitor and ensure compliance with general laws like
labour laws, competition law, environmental laws.
·
Examining and reporting specific observations / qualification,
reservation or adverse· remarks in respect of the Board Structures/system and
processes relating to the Audit period.
·
In case of financial laws like tax laws and Customs Act etc.,
Secretarial Auditor may rely on· the Reports given by statutory auditors or other designated professionals.
Secretarial Auditor needs to examine and report on the compliance with the
applicable clauses of the following:
·
(i) Secretarial Standards issued by The Institute of Company
Secretaries of India and approved by the Central Government.
·
(ii) The Listing Agreements entered into by the Company with
Stock Exchange(s), if applicable;
Contributed by Mohd Sharjeel Awasi ( Company Secretary and CA Finalist)
