Thursday, 4 December 2014

Secretarial Audit - Companies Act 2013

Sec 204 of Companies act 2013

Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014 (Chapter XIII)


Secretarial Audit can be considered as a regulatory tool that helps to pool together all the compliance requirements under various laws applicable to the respective companies accordingly.  We would consider it to be an ambitious move towards corporate governance And ensuring compliance and protection of the companies, shareholders, customers and safeguarding public interest at large. It appears as if the regulators have tried to bring in the “BIG PICTURE” by drafting it in such a manner to encompass all compliance requirements and bring it in line with the Listing Agreement.

In short Secretarial Audit:

-          Ensures compliance of all applicable laws.
-          Tries to bring it to the notice of the management in case of any non-compliance or inadequate compliance.
-          Protects the interest of various stakeholders in the company


Financial year:   

                                  From the FY 2014-15 onwards

Kinds of Companies:

- All Listed Companies

- Public Companies:
                     Paid up Capital > = 50 Crs
                    Turnover           > = 250 Crs


Currently all Private Limited Companies are exempted. 


Does the exemption cover Pvt companies which are subsidiaries of Pub Co?

Secretarial Audit (SA) Procedure


                                                                                                   Act does not specify BM or GM


By when should the Auditor be appointed? As the periodicity is not specified can we appoint him before the approval of the Directors’ report of the respective financial year from this year on wards. (Directors’ Report 2014-15 onwards)


Is it sufficient if SA is conducted once in a year or should it be continuous exercise?

What “OTHER ACTS” Do we need to ensure compliance of? Would it cover areas like Direct and Indirect Taxation, covered under financial / tax audit / govt. audits like excise audit?

Can we look forward towards the Auditors to provide a Complete Master checklist of all the acts that are applicable to the respective companies?

What are the precautions that an Auditor needs to take to protect him/her self from legacy issues/violations of company being construed as professional misconduct?


Sec 204 (4): in case of contravention

Company, any person in default or PCS: Rs. 1 Lac – Rs. 5 Lac

Sec 447: in case of fraud: (Any failure or lapse on the part of Auditor)

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: Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years
List of Acts covered in Secretarial Act as per CA 2013

(i)     The Companies Act, 2013 (the Act) and the rules made thereunder;

(ii)    The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;

(iii)   The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

(iv)   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;

(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;
(i)   Other acts as may be applicable.

(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;


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