Scope of Secretarial Audit

A Secretarial Audit primarily focuses on compliance with the following key legislations:

• Companies Act, 2013: Compliance with the Act and its accompanying rules.
• Securities Contracts (Regulation) Act, 1956: Ensuring adherence to regulations related to securities.
• Depositories Act, 1996: Compliance with rules governing depositories.
• Foreign Exchange Management Act, 1999 (FEMA): Monitoring compliance concerning Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings.
• Securities and Exchange Board of India (SEBI) Act, 1992: Adherence to guidelines prescribed under SEBI regulations.

Additionally, Secretarial Auditors evaluate compliance with secretarial standards and any other industry-specific laws relevant to the organization.

Who Needs a Secretarial Audit?

Secretarial Audits are mandatory for:

• Every Listed Company
• Every Public Company with:
• Paid-up share capital exceeding ?50 crore, or
• Turnover exceeding ?250 crore

If a company meets any of these criteria, it is required to conduct a Secretarial Audit, which must be carried out by a practicing Company Secretary.

Secretarial Audit Report

A Secretarial Audit Report must be prepared by a Company Secretary in Practice and is annexed to the Board's Report. The report should be in Form M-3.R and reflects the company's compliance status, emphasizing the importance of Corporate Governance

Benefits of Secretarial Audit

1. Confidence for Directors: Provides assurance to directors and key managerial personnel regarding compliance.
2. Focus on Core Business: Allows directors to concentrate on strategic business matters instead of compliance issues.
3. Strengthened Goodwill: Enhances the company’s reputation with regulators and stakeholders.
4. Effective Governance Tool: Serves as a vital compliance risk management tool.
5. Investor Insights: Helps investors gauge the compliance level of companies, boosting their trust.

Appointment of Secretarial Auditor

The appointment of a Secretarial Auditor involves several steps:

1. Obtain Consent: Secure consent from the Secretarial Auditor.
2. Board Resolution: File a certified true copy of the Board resolution with the Registrar of Companies (MGT-14).
3. Fix Remuneration: Determine the remuneration for the Secretarial Auditor in the Board Meeting.

Consequences of Non-compliance

If a company or any officer contravenes the provisions related to Secretarial Audit, the consequences can be severe, including fines ranging from a minimum of ?1 lakh to a maximum of ?5 lakh.

Note: Secretarial Audit serves as an independent, objective assurance mechanism aimed at enhancing an organization’s operations. By adopting a systematic approach to evaluating compliance, risk management, and governance processes, it plays a pivotal role in safeguarding the interests of various stakeholders.

Though Secretarial Audit is not mandatory for private companies and small public companies, they are encouraged to adopt these practices to mitigate compliance risks effectively.