In corporate governance, compliance and transparency are paramount. The Companies Act, 2013 introduced several provisions to enhance accountability and ensure regulatory adherence among companies operating in India. One such provision is Secretarial Audit, which plays a pivotal role in assessing a company's compliance with various statutory and regulatory requirements. This article delves into the intricacies of Secretarial Audit under the Companies Act, 2013, and its alignment with other pertinent regulations governing listed companies.

The Companies Act, 2013 and Secretarial Audit

The Companies Act, 2013 mandates Secretarial Audit under Section 204, which requires certain classes of companies to conduct a secretarial audit of their records and compliances. Following classes of companies are required to obtain a secretarial audit report from a practicing company secretary.

1. Every listed company
2. Every public company having a paid-up share capital of 50 crore rupees or more; or
3. Every public company having a turnover of 250 crore rupees or more;
4. Every company having outstanding loans or borrowings from banks or public financial institutions of 100 crore rupees or more.

The primary objective of Secretarial Audit is to ensure compliance with the provisions of the Act and other applicable laws, rules, regulations, and guidelines. It encompasses a comprehensive review of the company's statutory registers, records, documents, and processes to ascertain compliance with corporate governance norms.

The secretarial audit report provides insights into the company's compliance framework, identifies areas of non-compliance, if any, and offers recommendations for corrective actions. It serves as a crucial tool for stakeholders, regulators, and management to evaluate the company's governance practices and adherence to regulatory requirements.

Who Can Conduct Secretarial Audits

According to the Companies Act, 2013, only a practicing company secretary, who is a member of the Institute of Company Secretaries of India (ICSI), is eligible to conduct a secretarial audit. The requirement for a qualified professional ensures that the audit is conducted by an individual with specialized knowledge and expertise in corporate laws, governance practices, and regulatory compliance.

A practicing company secretary possesses the necessary skills and experience to assess the company's compliance with statutory and regulatory requirements comprehensively. They are well-versed in the intricacies of corporate governance norms, disclosure requirements, and procedural compliances prescribed under various laws and regulations.

The appointment of a practicing company secretary for conducting secretarial audits reinforces the credibility and reliability of the audit process. It instills confidence among stakeholders regarding the accuracy and thoroughness of the audit findings and recommendations.

Scope of Audit

The scope of Secretarial Audit extends beyond mere compliance with the Companies Act, 2013. It encompasses a wide range of regulatory frameworks and statutes that impact the operations of listed companies. The audit typically covers:

1. SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015
2. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
3. SEBI (Prohibition of Insider Trading) Regulations, 2015
4. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
5. The Securities Contracts (Regulation) Act, 1956
6. The Depositories Act, 1996
7. Foreign Exchange Management Act, 1999

Significance for Stakeholders

Secretarial Audit plays a crucial role in ensuring corporate governance, regulatory compliance, and transparency within organizations. Its significance extends to various stakeholders involved in the company, including shareholders, regulators, management, and the broader investor community. Here's a detailed overview of the importance of Secretarial Audit for each stakeholder:

Shareholders:
Transparency and Accountability: Shareholders rely on Secretarial Audit reports to gauge the company's adherence to regulatory requirements and corporate governance standards. It provides them with assurance regarding the transparency and accountability of the company's operations.
Protection of Interests: Secretarial Audit helps in safeguarding the interests of minority shareholders by ensuring that the company complies with legal and regulatory provisions. It enables shareholders to make informed decisions based on accurate and reliable information.

Regulators:
Compliance Monitoring: Regulators use Secretarial Audit reports to monitor compliance with the Companies Act, 2013, and other relevant regulations. It assists regulators in identifying instances of non-compliance and taking necessary enforcement actions to maintain market integrity.
Enhancing Regulatory Oversight: Secretarial Audit contributes to strengthening regulatory oversight by providing regulators with insights into corporate governance practices, disclosure norms, and adherence to statutory requirements.

Management:
Risk Mitigation: Secretarial Audit helps management identify areas of non-compliance and potential risks associated with governance practices. It enables management to proactively address compliance issues and implement corrective measures to mitigate risks.
Improving Corporate Governance: By evaluating internal controls, processes, and documentation, Secretarial Audit assists management in enhancing corporate governance practices and fostering a culture of compliance within the organization.

Investors:
Informed Decision-making: Investors rely on Secretarial Audit reports to assess the governance structure, regulatory compliance, and risk management practices of the company. It provides them with valuable insights to make informed investment decisions and evaluate the company's long-term sustainability.
Enhancing Investor Confidence: Transparent and accurate disclosure of compliance status through Secretarial Audit enhances investor confidence in the company's operations, financial reporting, and management practices.

Creditors and Lenders:
Risk Assessment: Creditors and lenders use Secretarial Audit reports as part of their due diligence process to assess the creditworthiness and risk profile of the company. It assists them in evaluating the company's ability to meet its financial obligations and manage regulatory compliance risks.
Protecting Financial Interests: Secretarial Audit helps creditors and lenders protect their financial interests by ensuring that the company complies with legal and regulatory requirements, thereby reducing the risk of default and financial losses.

Beyond the Applause: Consequences of Non-Compliance

Failure to comply with the secretarial audit requirement can lead to consequences for both the company and its officers:

Penalties
The company and officers may face penalties as stipulated in the Act and relevant regulations.

Reputational damage
Non-compliance can damage the company's reputation and stakeholder trust, impacting its market standing and investor confidence.

Regulatory action
Serious non-compliances may invite regulatory action such as investigations or restrictions on operations.