SECRETARIAL AUDIT
‘Secretarial
Audit’ is introduced by recently enacted Companies Act, 2013. It is a process to check compliances made by
the Company under Corporate Law & other laws, rules, regulations,
procedures etc. It is a mechanism to monitor compliance with the requirements
of stated laws and processes. 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
SECRETARIAL AUDITOR
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.
WHICH COMPANIES ARE
REQUIRED TO APPOINT SECRETARIAL AUDITOR?
As per section 204 of the
Companies Act, 2013 read with Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014, following companies are required to obtain ‘Secretarial Audit Report’ form
independent practicing company secretary;
(1)
Every listed company
(2)
Every public company
having a paid-up share capital of Fifty Crore
rupees or more; or
(3)
Every public company having a turnover of Two Hundred Fifty Crore rupees or more.
·
“Turnover”
means the aggregate value of the realisation 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)]
·
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
APPOINTMENT OF
SECRETARIAL AUDITOR
As per Rule 8 of the Companies (Meetings of Board and
its powers) Rules, 2014, Secretarial Auditor is required to be appointed by
means of resolution passed at a duly convened Board meeting and resolution for
appointment shall be filed with Registrar of Companies within 30 days in E-form
MGT-14.
It is advisable for Secretarial Auditor to get the
letter of engagement from the company. Secretarial Auditor should formally
accept the letter of engagement. Further, as a prudent corporate practice, it
is advisable that change in the Secretarial Auditor during the year is reported
to the members in the Board’s Report.
SCOPE OF SECRETARIAL
AUDIT
Secretarial auditor has to examine,
check and report compliances made by the company under the following laws and
rules made there-under during the period under review;
i.
The Companies Act, 2013 (the Act)
and the rules made there-under;
ii.
The Securities Contracts
(Regulation) Act, 1956 (‘SCRA’) and the rules made there-under;
iii.
The Depositories Act, 1996 and the
Regulations and Bye-laws framed there-under;
iv.
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;
v.
The following Regulations and
Guidelines prescribed under the Securities and Exchange Board of India Act,
1992 (‘SEBI Act’):-
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;
vi.
Secretarial Standards issued by
The Institute of Company Secretaries of India.
vii.
The Listing Agreements entered into by the
Company with Stock Exchange(s), if
applicable;
viii.
Other laws as may be applicable specifically
to the company
Recently Institute of Company Secretaries of India
(ICSI) has issued a FAQ on Secretarial Audit and has clarified “Other Laws”, the
text of the same is reproduced as below:
The Council of the ICSI at its 226th meeting held on
November 21, 2014 decided on the Scope of Secretarial Audit as regards “point
(vi) …….( other laws as may be applicable specifically to the company)”, which
is placed as under:
·
Reporting on compliance of ‘Other laws as may
be applicable specifically to the company’ 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 etc.
Format of
Secretarial Audit Report also requires reporting on whether-
-
The Board of Directors of the
Company is duly constituted with proper balance of Executive Directors,
Non-Executive Directors and Independent Directors.
-
The changes in the composition of
the Board of Directors that took place during the period under review were
carried out in compliance with the provisions of the Act.
-
Adequate notice is given to all
directors to schedule the Board Meetings, agenda and detailed notes on agenda
were sent at least seven days in advance, and a system exists for seeking and
obtaining further information and clarifications on the agenda items before the
meeting and for meaningful participation at the meeting.
-
Majority decision is carried
through while the dissenting members‟ views
are captured and recorded as part of the minutes.
-
There are adequate systems and
processes in the company commensurate with the size and operations of the
company to monitor and ensure compliance with applicable laws, rules,
regulations and guidelines.
Moreover Secretarial Auditor is required to report and
provide details of specific events and actions occurred during the reporting
period having major bearing on the affairs of the Company in pursuant to above
referred laws/ rules & regulations. Few events were also given as example
in the format of audit report.
However 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 professional.
POWERS TO SECRETARIAL
AUDITOR
The Companies Act, 2013 has
empowered secretarial auditor and has given him all rights and powers as given
to statutory auditor. As per section 204 of the Companies Act, 2013, the
secretarial auditor company shall be entitled to require from the officers of
the company such information and explanation as he may consider necessary for
the performance of his duties as auditor.
PUNISHMENT FOR DEFAULT
Sub-Section 4 of Section 204 of
the Companies Act, 2013, 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 which may extend to 5 lakh rupees.
Moreover as per sub section (15)
of section 143 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 may be prescribed. Failure to do so shall attract a fine which
shall not be less than 1 lakh rupees but which may extend to 25 lakh rupees.
PROFESSIONAL
RESPONSIBILITY AND PENALTY FOR INCORRECT AUDIT REPORT
Section 448 of Companies Act, 2013 deals with penalty for
false statements. the section provides that if in any return, report,
certificate, financial statement, prospectus, statement or other document
required by, or for the purposes of any of the provisions of this Act or the
rules made thereunder, any person makes a statement,
(a) Which is false in any material particulars, knowing it to be
false; or
(b) Which omits any material fact, knowing it to be material,
he shall be
liable under section 447.
Section 447 deals with punishment for fraud which provides
that any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which
may extend to ten years and shall also be liable to fine which shall not be less
than the amount involved in the fraud, but which may extend to three times
the amount involved in the fraud. In case, the fraud in question involves
public interest, the term of imprisonment shall not be less than three years.
In terms of Section 448, a Company Secretary in Practice
is liable to attract penal provision if, he makes statement in the Secretarial
Audit Report which is false is any material particulars, knowing it be false or
omits any material fact knowing it to be material.
Besides, the Company Secretary in Practice shall be liable
for professional or other misconduct mentioned in First or Second Schedule or
in both the Schedules to the Company Secretaries Act, 1980 and where held
guilty, be liable for the following actions:
(i)
where found guilty of professional or
other misconduct mentioned in the First Schedule:
(a)
reprimand;
(b)
removal of name from the register of
members upto a period of three months;
(c)
fine which may extend to one lakh
rupees.
(ii)
where found guilty of professional or
other misconduct mentioned in the Second Schedule:
(a)
reprimand;
(b)
removal of name from the register of
members permanently or such period as may be thought fit by the Disciplinary
Committee;
(c)
fine which may extend to five lakh
rupees.
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Thanks &
Regards:
KASHIF ALI & ASSOCIATES
Company Secretaries
268, Business India Complex,
Uday Park, New Delhi-110049
Call us: +91 9718483209
Mail:-
cs.kashifali@gmail.com
Note: Kindly note that the entire contents of this
article have been developed on the basis of relevant statutory provisions and
as per the information existing at the time of preparation i.e. Act,
notification, clarifications & circular issued by MCA. Though we have made
upmost efforts to provide authentic information, however we do not undertake
any liability in any way whatsoever, to any person in respect of anything
arising by reliance upon the content of this article. It shall not be
used as a legal opinion and not to be used for rendering any professional
advice.
