Secretarial Audit has been mandated by Section 204 of the Indian Companies Act, 2013 for every listed company and other class of companies. This presentation talks about, introduction, historical background, Objective and Purpose, Scope, Benefits and Beneficiaries of Secretarial Audit. This presentation also talks about offences and penalties as prescribed in Section 204 and 143 of the Companies Act, 2013 for any default committed.

1. SECRETARIAL AUDIT
UNDER THE COMPANIE S ACT, 2013

2. Introduction
Secretarial Audit is a process to check compliance
with the provisions of various laws and
rules/regulations/procedures, maintenance of books,
records, etc., by An Independent Professional to
ensure that the company has complied with the
legal and procedural requirements and also
followed due processes. It is essentially a mechanism
to monitor compliance with the requirements of all
the laws/rules/regulations applicable onto a
Company.

3. Historical Background
• The Institute of Company Secretaries of India (‘ICSI’) had foreseen the
need of ‘Secretarial Audit’ as early as 1979 i.e. Three decades back, when
it voiced the need for the Secretarial Audit.
• On December 21, 2009, the Ministry of Corporate Affairs, Govt. of India
released ‘Corporate Governance Voluntary Guidelines, 2009, which
recommended the Secretarial Audit for the first time. Para V of the said
guideline states –
“Since the Board has the overarching responsibility of ensuring
transparent, ethical and responsible governance of the company, it is
important that the Board processes and compliance mechanisms of the
company are robust. To ensure this, the companies may get the Secretarial
Audit conducted by a competent professional. The Board should give its
comments on the Secretarial Audit in its report to the shareholders.”

4. Historical Background
• Corporate Governance Voluntary Guidelines, 2009
introduced the concept of Secretarial Audit with the
following objectives –
a) To ensure transparent, ethical and responsible governance
of the company;
a) To empower the Board with robust compliance mechanisms
• In Companies Bill, 2008 the standing committee of
Parliament recommended Secretarial Audit by a practicing
Company Secretary for every listed and other classes of
companies.

5. Companies Act, 2013
• The Companies Act, 2013 has now introduced the Secretarial Audit as a new class of audit
in addition to Statutory Audit, Internal Audit and Cost Audit prescribed in the act. Section
204 of the Act read with The Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014 notified w.e.f. 01st April, 2014 deals with provisions relating to
Secretarial Audit.
• Section 204 of the Companies Act, 2013 says that every listed company and a
company belonging to other class of companies 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.
• Rule 9 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 prescribes the other class of companies as under:
(a) every public company having a paid-up share capital of 50 crore rupees or more; or
(b) every public company having a turnover of 250 crore rupees or more.

6. Scope of Secretarial Audit
The scope of Secretarial Audit is very broad and the
practicing Company Secretary has to report on the
compliance of all the laws applicable onto the company in
addition to Companies Act, 2013 (including any rules and
regulations made thereunder), the Listing Agreement and
Secretarial Standards issued by the Institute of Company
Secretaries of India.
Rule 9 of the Companies (Appointment and Remuneration
of Managerial Personnel) Rules, 2014 provides that the
format of the Secretarial Report shall be in Form No – MR –
3.

7. Scope of Secretarial Audit
Non Mandatory Need –
Since the Secretarial Audit of Private Companies and
small Public companies are voluntary. Its scope is
entirely a management’s discretion.
But all these Companies should voluntary adopt the
annual practice of secretarial Audit due to Multiplicity
and complexity of laws, Secretarial Audit facilitates to
ensure compliance and avoid risk associated with non-
compliance.

8. Objectives & Purpose
Objectives:
To the check and report on compliances;
To pinpoint non – compliances and inadequate
compliances;
To protect the interests of directors and officers;
To avoid any unwarranted legal actions by the
law – enforcing agencies and others as well.

9. Objective & Purpose
Purpose
• To form an opinion in form of Audit report, based
on the inspection of an company’s record by a
Practicing Company Secretary, and to report to the
management as to whether, and if so, to what extent,
the company has complied with the laws and also to
help the company to comply better.
• The SA Report aims at confirming compliance by the
company with all the applicable provisions of the
applicable laws and pointing out non-compliances
and recommendations for better compliance.

10. Objective & Purpose
Thus, Secretarial Audit helps-
 to ensure effective compliance mechanism;
 to improve quality and speed of compliance;
 to reduce the risk of consequences of non-compliance;
 to provide a level of confidence to the directors, officers in
default, Key Managerial Personnel etc;

11. Benefits of Secretarial Audit
Benefits of Secretarial Audit are manifold and its
beneficiaries are many. Secretarial Audit enables Legal
Compliance Management. Ever-increasing complexities
of laws and responsibilities of directors (especially non-
executive or independent directors) make it imperative
that a PCS opines whether or not there exist robust
compliance mechanism and systems in the corporate
structure. Also, PCS has to verify whether diverse
requirements under applicable laws have been duly
complied with or not and if there is a need for any
corrective measures or improvement in the system.
Secretarial Audit is based on the principle of
“Prevention is better than cure” rather than post
mortem exercise and to find faults.

12. Benefits of Secretarial Audit
Secretarial Audit helps the Directors to concentrate on
important business matters as Secretarial Audit
ensures legal and procedural requirements.
It strengthen the image and goodwill of a company in
the minds of regulators and stakeholders.
It is an effective compliance risk management tool.
It helps the investor in analyzing the compliance level
of companies, thereby increases the Reputation.
It is an effective governance tool.

13. Beneficiaries of Secretarial Audit
The major beneficiaries of Secretarial Audit include:
Promoters
Secretarial Audit will assure the Promoters of a company that those in-charge of its
management are conducting its affairs in accordance with requirements of laws.
Executive Directors & Officers of the Company
Secretarial Audit will assure the Management of a company that those who are charged
with the duty and responsibility of compliance are performing their duties competently,
effectively and efficiently.
Government authorities / regulators
Being a pro-active measure, Secretarial Audit has a salutary effect of substantially
reducing the burden of the law-enforcement authorities and enhance governance and
level of compliance.

14. Beneficiaries of Secretarial Audit
Non – Executive Directors
Secretarial Audit will assure the Non-executive Directors that appropriate
mechanisms and processes are in place to ensure compliance with laws
applicable to the company, thus mitigating any risk from a regulatory or
governance perspective; so that the people not in-charge of the day-to-
day management of the company are not likely to be exposed to penal or
other liability (and consequential risk and embarrassment) on account of
non-compliance with law.
Investors
Secretarial Audit will assure the Investors that the company is conducting
its affairs within the applicable legal framework.

15. Beneficiaries of Secretarial Audit
Other Stakeholders
Financial Institutions, Banks, Creditors and Consumers
are enabled to measure the law abiding nature of
Company management.
Corporate actions manifesting good Corporate
Governance are vital for the healthy, vibrant and ever
growing corporate sector in global economy. In
developing economies, inclusive growth of all segments
of society is more than imperative. Such actions
adopting effective management tools like Secretarial
Audit can go a long way in fulfilling these objectives.

16. Offences & Penalties
• Section 204(4) of the Companies Act, 2013 provides
that, if a company or any officer of the company or
the Company Secretary in practice, contravenes the
provisions of section 204 of the Act, the Company,
every officer of the company or the Company
Secretary in practice, who is in default, shall be
punishable with fine which shall not less than one
lakh rupees but which may extend to five lakh
rupees.

17. Offences & Penalties
Provisions of Section 143 of the Companies Act,
2013 mutatis mutandis applying to PCS in conduct
of Secretarial Audit, if the PCS, in the course of the
performance of his duties as Secretarial Auditor, has
reason to believe that an offence involving fraud is
being or has been committed against the company
by officers or employees, he shall immediately report
the matter to the Central Govt. If the PCS do not
comply with such provisions, he shall be punishable
with fine which shall not be less than one lakh
rupees but which may extend to twenty five lakh
rupees.

18. Question(s) & Suggestion(s)
Thank you 
C S K & CO
Company Secretaries
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