Corporate Secretarial Audit-It’s Significance
What is a Corporate Secretarial Audit?
Corporate Secretarial Audit is a mechanism which involves investigation to check whether a Company is complying with all its regulatory obligations in terms of laws, rules and regulations applicable to it.
It is a mechanism which ensures compliance with laws and manages and mitigates risks, thus ensuring proper corporate governance.
Which Companies have to conduct Corporate Secretarial Audit?
Section 204 of the Companies Act 2013 –“Secretarial Audit for Big Companies” and Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as amended from time to time specifies that the following companies are required to annex with its Board’s report a Secretarial Audit report given by a company secretary in practice in form MR3: .
- Every Listed Company;
- Every public Company having paid up share capital of Rs 50 crores or more, or
- Every public Company having turnover of Rs 250 crores or more, or
- Every Company (both public and private) having outstanding loans or borrowings of Rs. 100 crore or more from banks or public financial institutions.
As per Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) all the limits viz., paid up share capital, turnover, or outstanding loans or borrowings shall be considered as per last date of latest audited Financial statement.
Who can conduct Corporate Secretarial Audit?
As per Section 204 of the Companies Act 2013, the above mentioned Companies will have to get such audit done by a Company Secretary in Practice, who holds a membership no. and certificate of practice no. under the Institute of Companies Secretaries of India (ICSI).
What shall be the contents of a Corporate Secretarial Audit Report?
1. The Audit Report shall be prepared in MR-3
2. Corporate Secretarial Audit ensures compliance with several Acts, Bye Laws and Regulations. The Acts and Regulations covered under this are mentioned as below:
- The Companies Act, 2013 and the Rules made there under
- The Securities Contract (Regulation) Act, 1956 and the Rules made there under
- The Depositories Act, 1996 and the Rules made there under
- Foreign Exchange Management Act, 1999 and the Rules made there under to the extent of FDI, ODI and ECBs.
- All the Regulations under the Securities Exchange Board of India, 1992 (also known as SEBI Act) which are listed as follows:
- The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
- The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
- The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
- The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
- The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
- 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;
- The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
- The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
- Secretarial standards issued by the Institute of Company Secretaries of India
- Listing Agreements entered into by the Company with Stock Exchanges (if any)
The Report further points out the following important points:
- If there are qualifications or any adverse remarks given by the Auditor in their Audit Report;
- Whether the Board’s composition is adequate and any change that has been made in its composition is as per the Act;
- Notices of meetings along with agenda notes etc, are given in proper manner to the Directors maintaining proper timelines;
- Whenever any meeting is conducted those are recorded in minutes;
- Whether adequate systems and processes in the company commensurate with the size and operations of the company;
- Whether there is proper disclosure of all the corporate actions that has taken place during the year such as buy-back, right issue, merger, amalgamation or any overseas alliance etc.
What are benefits of Corporate Secretarial Audit? Or, What is the need to conduct Corporate Secretarial Audit?
Corporate Secretarial Audit ensures security and comfort to the management of the Company where owner of company is being protected from any kind of non-compliance. It gives comfort to Regulatory Bodies as to how diligent the Company is when it comes to complying with regulatory obligations.
Corporate Secretarial audit can be termed as an effective compliance risk management and governance tool.
The benefits or advantages of Corporate Secretarial Audit are listed below:
- It instills confidence in the minds of the Promoters, Directors, Shareholders and other Stakeholders about the good management and governance of the Company. It ensures the promoters or owners of the Company that they can carry on the business seamlessly keeping the legal compliances in place.
- It checks whether there has been any noncompliance, and if so how can that be corrected.
- It helps in maintaining goodwill and brand image of the Company.
- If legal compliances are already met, then directors or promoters can focus on their businesses.
- From investors point of view, it will help them to understand whether the Company is compliant or not.
- It can also be a very effective due diligence mechanism for any acquirer or investor Company in case of any acquisition or merger etc. It will also help investors have a thorough background check as to whether invest or not.
- Corporate Secretarial Audit keeps in place the corporate practices of the Company, thus ensuring timely compliances.
- Thus, it ensures good corporate governance by avoiding remarks or qualifications in the statutory auditor’s Report and ensuring all the applicable laws and regulations are complied with.
What are the consequences that a Company has to face if Corporate Secretarial Audit is not conducted?
When there is contravention of provisions of section 204 of Companies Act 2013, the Company, every officer of the Company or the Company Secretary in Practice who is in default shall be liable to a penalty of Rs 2 lakhs.
Considering all the advantages that a Company derives from Corporate Secretarial Audit, like avoiding regulatory penalizations, maintaining a good corporate governance, having the best interest of investors, we can conclude that it is extremely important to be compliant with the provision of the Act regarding Corporate Secretarial Audit. Being compliant and diligence ready at any point of time becomes very important. Secretarial Audit work can be outsourced to a professional team, with the required skill set.
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