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.
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.
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.
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
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.