Who Must Undergo Secretarial Audit Under Companies Act 2013

Understanding the mandatory requirements for a secretarial audit is crucial for corporate governance and regulatory compliance in India. This specialized audit ensures companies adhere to statutory provisions and good corporate practices under the Companies Act, 2013.

A secretarial audit is an independent examination performed by a Practicing Company Secretary (PCS) to verify a company's compliance with various laws, rules, regulations, and standards. It acts as a robust mechanism to enhance corporate transparency and accountability, mandated by Section 204 of the Companies Act, 2013, and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Statutory Framework: Legal Provisions Governing Secretarial Audit

The legal foundation for secretarial audit is enshrined in Section 204 of the Companies Act, 2013. This section mandates specific classes of companies to obtain a secretarial audit report from a Practicing Company Secretary, which must be annexed to the Board's Report.

Non-compliance with Section 204 can attract penalties and other regulatory consequences under the Companies Act, 2013. Companies and officers responsible for non-compliance may face adjudication proceedings, regulatory action, and additional compliance obligations. The Institute of Company Secretaries of India (ICSI) prescribes the professional standards governing secretarial audits.

• Section 204 of the Companies Act, 2013, governs the applicability and reporting format.
• Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, specifies the classes of companies.
• The audit report is submitted in Form MR-3.

Companies Mandatorily Required to Undergo Secretarial Audit

The Companies Act, 2013, along with its rules and SEBI regulations, defines the specific entities that must undergo a secretarial audit. These criteria primarily focus on the company's legal structure and financial thresholds.

As per Section 204 of the Companies Act, 2013, and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following companies are mandated to conduct a secretarial audit:

• Listed Companies: Every company whose securities are listed on any recognized stock exchange in India must undergo a secretarial audit, irrespective of its paid-up capital or turnover. This requirement is reinforced by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Public Companies with Paid-up Share Capital of Rs.50 Crore or More: This threshold is determined based on the latest audited financial statements.
• Public Companies with Turnover of Rs. 250 Crore or More: Turnover is calculated as per the profit and loss account for the immediately preceding financial year.
• Companies having outstanding loans or borrowings from banks or financial institutions of Rs.100 Crore or More: This threshold applies as of the last date of the latest audited financial statements.

For example, a public company with a paid-up capital of Rs. 60 crore and a turnover of Rs.200 crore in the preceding financial year would be required to conduct a secretarial audit due to exceeding the paid-up capital threshold.

The most notable recent development for listed companies is the strengthening of governance requirements under SEBI LODR Regulation 24A, which extends to their material unlisted subsidiaries.

Here is a comparison of different company categories and their secretarial audit obligations:

Step-by-Step Assessment: Is Your Company Required to Conduct a Secretarial Audit?

Determining secretarial audit applicability can be complex. We recommend using the CAPITAL Framework for Secretarial Audit Assessment to systematically evaluate your company's obligations.

This framework acts as a decision tree, guiding companies through six checkpoints to identify their compliance status. VS Associates provides comprehensive compliance triggers to help businesses navigate these complexities.

• Company Classification: Identify your company type (listed, public, private, OPC). Listed companies automatically require an audit.
• Annual Financials Review: Obtain the latest audited financial statements. The thresholds are assessed using the last date of the latest audited financial statement.
• Paid-up Capital Verification: Calculate your company's paid-up share capital. If a public company's paid-up share capital is Rs. 50 crore or more, it triggers the audit requirement.
• Investor/Borrowing Status: Check for outstanding loans or borrowings from banks or public financial institutions. If these exceed Rs. 100 crore as of the last date of the latest audited financial statements, the audit is mandatory for companies.
• Timing of Thresholds: Remember that thresholds are based on the immediately preceding financial year's audited figures.
• Legal Entity Structure: Consider any holding-subsidiary relationships, especially for listed entities where material unlisted subsidiaries may also be covered under SEBI regulations.

For private limited companies, the general rule is exemption, but it's vital to confirm no specific notifications or rules extend applicability to them based on unique circumstances or group structures.

Scope and Coverage: What Does a Secretarial Audit Examine?

A secretarial audit goes beyond mere checklist compliance; it provides an independent assurance of a company's adherence to a wide array of corporate laws and governance standards. The scope is broad, encompassing various legal and procedural aspects. Explore Learn more.

The audit aims to confirm that the company has complied with the provisions of various laws and Secretarial Standards. VS Associates offers extensive secretarial audit services to ensure thorough coverage.

• Companies Act, 2013: Verification of compliance with all applicable sections, rules, and regulations.
• SEBI Regulations: For listed companies, adherence to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and other SEBI-issued rules.
• Secretarial Standards (SS-1 and SS-2): Compliance with the revised SS-1 (Meetings of the Board of Directors) and SS-2 (General Meetings), effective from April 1, 2024.
• Other Applicable Laws: Examination of compliance with other specific laws relevant to the company, such as FEMA, SCRA, and industry-specific regulations.
• Board Processes: Review of board and committee meetings, including notices, agendas, minutes, and resolutions.
• Statutory Records: Verification of the maintenance of statutory registers, records, and books.
• Filings: Assessment of timely and accurate filings with the Registrar of Companies (ROC) and other regulatory bodies.

The auditor also checks for the adequacy and effectiveness of the systems and processes for compliance management within the company.

Appointment Process and Qualifications of Secretarial Auditor

The appointment of a secretarial auditor is a formal process that requires adherence to specific legal and professional criteria. This ensures the independence and competence of the auditor.

Only a Practicing Company Secretary (PCS) who is a member of the Institute of Company Secretaries of India (ICSI) can be appointed as a secretarial auditor. The appointment is typically made by a resolution of the Board of Directors.

• Who can be appointed: A Company Secretary in Practice holding a valid Certificate of Practice.
• Board Resolution: The appointment is formalized through a Board Resolution, often at the beginning of the financial year.
• Independence Criteria: The PCS must be independent of the company and its management to ensure an unbiased audit.
• Disqualifications: Certain relationships or roles, such as being an officer or employee of the company, disqualify a PCS from acting as its secretarial auditor.

For listed entities, SEBI has introduced a stricter framework for secretarial auditor appointments, requiring the auditor to be a Peer Reviewed Company Secretary and specifying prohibited services to avoid conflicts of interest.

Compliance Timeline and Filing Requirements

Adhering to the prescribed timelines for secretarial audit is critical to avoid penalties and maintain a compliant status with the Ministry of Corporate Affairs (MCA).

The secretarial audit report is an integral part of a company's annual compliance documentation. The report, in Form MR-3, must be annexed to the Board's Report.

• Form MR-3 Filing: The secretarial audit report in Form MR-3 must be filed with the Registrar of Companies (ROC) within 30 days from the date of the Annual General Meeting (AGM).
• Board Report Annexure: The secretarial audit report forms a mandatory annexure to the Board's Report under Section 134(3) of the Companies Act, 2013.
• Late Fees: Delayed filing of Form MR-3 can attract significant late fees, impacting the company's financial health and compliance record.

The MCA has also enhanced reporting requirements, with a 2025 amendment to the accounts rules requiring a board-report disclosure line asking whether the secretarial audit is applicable and if the report has qualifications or remarks.

Penalties and Consequences of Non-Compliance

Failure to comply with secretarial audit requirements can lead to significant financial penalties and reputational damage for the company and its officers.

The Companies Act, 2013, prescribes stringent penalties for non-compliance with Section 204. These penalties are designed to enforce adherence to corporate governance standards.

• Monetary Penalties: Failure to comply with mandatory secretarial audit requirements may attract penalties under the Companies Act, 2013. Depending on the nature and duration of the default, regulatory authorities may initiate adjudication proceedings against the company and the responsible officers.
• Officer in Default Liability: Directors and the Company Secretary can be held personally liable for non-compliance, with penalties imposed on individuals, not just the company.
• Impact on Compliance Status: Non-compliance can lead to a negative compliance status with the MCA, potentially affecting future business operations, credit ratings, and investor confidence.

Recent regulatory actions by the Ministry of Corporate Affairs (MCA) demonstrate that authorities actively monitor compliance with secretarial audit requirements. Companies that fail to obtain and file the required Secretarial Audit Report may face adjudication proceedings, financial penalties, regulatory notices, and increased compliance scrutiny. Maintaining timely compliance helps avoid unnecessary legal and operational risks.

Conclusion: Ensuring Timely Secretarial Audit Compliance

Proactive and timely adherence to secretarial audit requirements is not just a regulatory obligation; it is a cornerstone of robust corporate governance. Companies must diligently assess their applicability and engage qualified professionals to navigate these complex requirements.

By understanding the thresholds, timelines, and potential penalties, businesses can foster a culture of compliance and avoid adverse consequences. VS Associates specializes in providing end-to-end secretarial audit and compliance services, ensuring your company remains fully compliant with the Companies Act, 2013, and other relevant regulations.

Our expertise in Corporate Governance & Risk Management, Corporate Filings, and Regulatory Compliance helps businesses maintain impeccable records and uphold transparency. We assist companies across India with their Secretarial Audit needs, from applicability assessment to report filing.

Key Takeaways

• Secretarial audit is mandatory for listed companies, public companies exceeding specific paid-up capital or turnover thresholds, and those with significant borrowings.
• The primary legal framework is Section 204 of the Companies Act, 2013, and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
• Only a Practicing Company Secretary (PCS) can conduct a secretarial audit, ensuring independence and professional expertise.
• The audit report, Form MR-3, must be annexed to the Board's Report and filed with the ROC within 30 days of the AGM.
• Non-compliance can result in substantial monetary penalties on the company and its officers, alongside reputational damage.
• Proactive use of frameworks like CAPITAL helps companies accurately determine their secretarial audit obligations.