Secretarial Audit ... A dream come true

Secretarial Audit ... A dream come true

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What are the Legislations that Secretarial audit will cover?

What is the penalty for Incorrect Secretarial audit report?

Need to lower the limit for Secretarial audit...

Please read.....

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Secretarial Audit ... A dream come true

CS. Ragul Ramesh, PCS, Coimbatore

One of the key features of the Companies Act 2013 is Secretarial Audit, which will certainly pave way for better corporate Governance besides increasing the scope for Company Secretary in Practice.

History and legislation:

There has been a long past history for Secretarial Audit. Institute of Company Secretaries (ICSI) and its various office bearers have advocated this concept for the last few decades.

On Dec 21, 2009, The Ministry of Corporate Affairs, Government of India released “Corporate Governance Voluntary Guidelines”. The preamble to these Guidelines stated that “These guidelines provide for a set of good practices which may be voluntarily adopted by the Public companies. As regards Private companies, the bigger ones may also like to adopt these guidelines.”

This could be the first step for Secretarial audit and now with Companies Act going to be implemented soon, Secretarial audit is soon to be a reality.

Section 204 of The Companies Act, 2013 :

Sec. 204 of the Companies Act 2013 along with its Rules deals with Secretarial Audit.



Every listed company and a company belonging to other class of companies {having paid up share capital Rs.100 crores or more as may be prescribed shall annex with its Board’s report a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed.

Objectives of Secretarial Audit:

The objectives of Secretarial Audit may be briefed as under.

• To check & Report on Compliances, legal and procedural requirements

• To Point out Non-Compliances and Inadequate Compliances

• To Protect the interest of the Customers, employees, investors

• To avoid any unwarranted legal actions by law enforcing agencies

• Provides a level of confidence to the directors, officers in default, Key Managerial Personnel etc.

Unlike the concept of Compliance certificate , the secretarial audit has wider concept of reporting ; it includes a part of sec 383 A but that is limited only to reporting. If we look at objectives of Secretarial Audit , we can notice that secretarial audit points out both Compliances , non compliances and also by seeing the scope it can be understood that it covers a myriad of various laws.

What does Secretarial Audit cover?

Secretarial Audit report will be addressed to the members and form part of the Annual Report.

The scope of Secretarial Audit comprises verification of the compliances under the following enactments, rules, regulations and guidelines which essentially forms the report

(i) The Companies Act, 1956 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 & regulations made there under;

(v) SEBI Guidelines

(vi) The Listing Agreement(s) entered into by the Company with Stock Exchange

(vii) Secretarial Standards issued by The Institute of Company Secretaries of India.

(viii) Competition Act, 2002 and the rules and regulations made under that Act;

(ix) Corporate Social Responsibility Voluntary Guidelines, 2009 issued by the Ministry of Corporate Affairs, Government of India;

(x) The Reserve Bank of India Act, 1934 and the rules/regulations/directions made under that Act;

(xii) Other corporate laws

However some of the professionals are of the view that the list of laws which are to be checked and confirmed is quite large and the Secretarial audit shall restrain itself to Companies Act, Listing requirement, SEBI laws and other related legislation only.

Company Secretary in Practice (PCS) in Secretarial Audit :

A Company Secretary in Practice has been assigned the role of Secretarial Auditor.

Out of the many services which is already rendered by PCS, this is one more feather in the cap. . A Company Secretary, to be more precise PCS is expected to be more proficient in statutory, procedural and practical aspects involved in proper compliances under corporate laws and hence the PCS is considered as the competent professional to conduct Secretarial Audit.

Reporting with Qualification

While giving his report, the adverse remarks, if any, should be stated by the PCS at the relevant places in his report in bold type or in italics in the Secretarial Audit Report.

If the PCS is unable to form an opinion on any matter, he should mention that he is unable to form an opinion on that matter and the reasons for the same to be mentioned.

If there are any limitations that are material as to render the PCS incapable of expressing any opinion, the PCS should state that:“In the absence of necessary information and records, we are unable to report compliance(s) by the Company”.

Professional Responsibility and Penalty for Incorrect Audit Report

PCS is put on par with the Statutory auditor & any lapse on his part including failure to report fraud of the Company will attract penalty.

Where any default is made in complying with the provisions of secretarial audit:

(a) the company and every officer who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees;

(b) The Company Secretary in practice (undertaking the secretarial audit) who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Thus, penal provisions shall be attracted for all i.e., the company, officers in default and company secretary in practice.

Conclusion:

The draft rules suggest that secretarial audit shall be compulsory for every public company having a paid up share capital of Rs. 100 crore or more. The limit needs to be lowered since the need for secretarial audit is there for medium sized Companies as well. Also we are sure a cap on number of Companies a PCS can do Secretarial audit will also be imposed, so that quality service will be provided.

Let us look forward to this new opportunity and embrace it with open arms, diligence and we shall excel in our role as Secretarial auditor.