Presentation on Secretarial Audit

1. Section 204 of the Companies Act, 2013

2. Introduction
 Secretarial Audit is a process of checking and verifying the records
and documents of the company and to check whether the company is
in compliance with the provisions of Companies Act, 2013 and other
applicable laws.
 The Secretarial Audit 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.
 The compliances are verified and checked by an independent
professional [a company secretary in practice] to ensure that the
company has complied with all the legal, secretarial and procedural
requirements as required under various applicable laws.

3. Section 204 - Secretarial audit for bigger
companies
 Section 204 of the Companies Act, 2013 read with the Companies
(Appointment and Remuneration of Managerial Personnel) Rules,
2014, provides that:
(a) Every Listed Company;
(b) Every Public Company having a paid up share capital of fifty
crore rupees or more; and
(c) Every public company having a turnover of two hundred fifty
crore rupees or more
shall annex with its Board’s Report, a Secretarial Audit Report, given
by a Company Secretary in Practice, in Form MR- 3.

4. Penalty for Non-Compliance
 If the company or any officer of the company or the company
secretary in practice, contravenes any provisions of the Section
204 then the Company and every officer of the Company or the
Company Secretary in practice who is default, shall be
punishable with fine which shall not be less than 1,00,000 (One
Lakh Only) but which may extend to 5,00,000 (Five Lakh
Rupees).

5. Appointment of Secretarial auditor
 The Secretarial Auditor would be required to be appointed in
the board meeting of the Company and the remuneration of the
Auditor will also be determined in the aforementioned board
meeting [Section 179(3)].
 Company is required to file the certified true copy of the
resolution passed in the aforementioned board meeting with the
Registrar of Companies as an attachment in e-form MGT – 14.
 However, prior to the appointment, the Company would be
required to obtain the consent of the Secretarial Auditor.

6. Documents required for audit
 Our Firm (Meenarth Corporate Consultants LLP) would
provide the checklist for carrying out the Secretarial Audit of
the Company (as the same would also depend on the
activities carried out by the company).

7. Acts covered under Secretarial Audit
Report
1. The Companies Act, 2013 and the rules made there
under;
2. The Securities Contracts (Regulation) Act, 1956 and the
rules made there under;
3. The Depositories Act, 1996 and the Regulations and Bye
laws framed there under;
4. Foreign Exchange Management Act, 1999 and the rules
and regulations made there under to the extent of Foreign
Direct Investment, Overseas Direct Investment and
External Commercial Borrowings;
5. The following regulations and guidelines prescribed
under SEBI Act, 1992:

8. Contd.
a) (The Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011;
b) The Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 1992;
c) The Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009;
d) The Securities and Exchange Board of India (Employee Stock Option
Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
e) The Securities and Exchange Board of India (Issue and Listing of Debt
Securities) Regulations, 2008;
f) The Securities and Exchange Board of India (Registrars to an Issue and
Share Transfer Agents) Regulations, 1993 regarding the Companies Act and
dealing with client;
g) The Securities and Exchange Board of India (Delisting of Equity Shares)
Regulations, 2009; and
h) The Securities and Exchange Board of India (Buyback of Securities)
Regulations, 1998.

9. Contd.
The Report also deals with examination of compliance with applicable
clauses of the following:
1. Secretarial Standards issued by the Institute of Company Secretaries
of India;
2. The Listing Agreements entered into by the Company with Stock
Exchange(s), if applicable.
3. Reporting on compliance of ‘Other laws as may be applicable
specifically to the company’ which shall include all the laws which
are applicable to specific industry for example for Banks- all laws
applicable to Banking Industry; for insurance company-all laws
applicable to insurance industry; likewise for a company in
petroleum sector- all laws applicable to petroleum industry; similarly
for companies in pharmaceutical sector, cement industry etc.

10. Other laws as may be specifically
applicable to the company
An indicative list of sector specific central laws in respect of some of the sectors is placed
below for reference:
 Pharmaceutical Industry
 Pharmacy Act, 1948
 Drugs and Cosmetics Act, 1940
 Homoeopathy Central Council Act, 1973
 Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954
 Narcotic Drugs and Psychotropic Substances Act, 1985
 Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
 Petroleum Act 1934
 Poisons Act 1919
 Food Safety And Standards Act, 2006
 Insecticides Act 1968
 Biological Diversity Act, 2002
 The Indian Copyright Act, 1957
 The Patents Act, 1970
 The Trade Marks Act, 1999
 Indian Boilers Act, 1923

11. Contd.
 POWER
 The Electricity Act, 2003
 National Tariff Policy
 Essential Commodities Act, 1955
 Explosives Act, 1884
 Indian Boilers Act, 1923
 Mines Act, 1952 (wherever applicable)
 Mines and Mineral (Regulation and Development) Act, 1957
(wherever applicable)
the list provide is indicative only and not exhaustive. The list for other
sector specific central laws can be provided as and when required by
the client.

12. Benefits of Secretarial Audit
 Secretarial Audit can be an effective due diligence exercise for the prospective
acquirer of a company or controlling interest or a joint venture partner.
 It assures the owners and the management that the affairs of the company are being
conducted in accordance with requirements of laws and that the owners stake is not
being exposed to undue risk.
 It ensures the management of a company that those who are charged with the duty
and responsibility of compliance with the requirements of law are performing their
duties competently, effectively and efficiently, so that the people 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.
 It ensures them that they have done everything required under law and that the
company had complied with the laws and therefore, they are not likely to be exposed
to action by law enforcement agencies for non compliance by the company.
 The Secretarial audit can assist bodies like SEBI, Stock Exchange, Financial
Institutions, banks etc., to gauge or measure the levels of compliance and non
compliance by the companies with whom they are concerned.

13. Duties of Secretarial auditor – Fraud
Reporting [Sec 143(12)(14)]
 If Company Secretary in Practice, during conduct of Secretarial Audit, has
sufficient reason to believe that an offence involving fraud is being committed or
has been committed against the company by officers or employees of the
company, he shall report the same to the Central Government immediately but not
later than 60 days of his knowledge with a copy to the Board / Audit Committee
seeking their reply within 45 days;
 Board / Audit Committee to reply in writing the steps taken to address the fraud;
 The Auditor to forward his report and reply of the Board / Audit Committee with
his Comments to the Central Government within 15 days of reply by Board / Audit
Committee;
 The Report shall be in Form ADT – 4.

14. Punishment for fraud (Sec 447)
 Section 447 states that without prejudice to any liability including for repayment of
any debt under the Companies Act, 2013, or any other law for the time being in
force, any person who is found guilty of fraud, shall be punishable with
imprisonment for a term which shall not be less than six months but which may
extend to ten years and shall also be liable to fine which shall not be less than the
amount involved in the fraud but which may extend to three times the amount
involved in fraud
 The Section further states that where the fraud in question involves public interest,
the term of imprisonment shall not be less than three years.
 Fraud in relation to affairs of a company or any body corporate, includes any act,
omission, concealment of any fact or abuse of position committed by any person or
any other person with the connivance in any manner, with intent to deceive, to gain
undue advantage from, or to injure the interests of, the company or its shareholders
or its creditors or any other person, whether or not there is any wrongful gain or
wrongful loss.

15. Punishment for false statement (Sec 448)
Section 448 states that, save as otherwise provided in the
Companies Act, 2013, if in any return, certificate, financial
statement, prospectus, statement or other document required by
the Act or Rules made there under, any person makes a statement:
(a) which is false in any material particulars, knowing it to be
false; or
(b) which omits any material fact, knowing it to be material,
then such person shall be liable for punishment under Section 447
of the Companies Act, 2013.

16. Conclusion
 Even though the Secretarial Audit is not mandatory for private
companies and small public companies, all these companies
should voluntarily adopt the practice of annual secretarial audit
to ensure compliance and avoid the risks associated with non
compliance. However its scope is entirely a management’s
decision. Prevention is better than cure. It strengthens the
image and goodwill of a company in the minds of regulators
and stakeholders. It is an effective compliance risk
management tool. It is a governance tool. The benefits are
available to promoters, executive directors and officers of the
company, regulators, government authorities, investors,
financial institutions, banks, creditors and consumers alike.

17. Contact Us
Meenarth Corporate Consultants LLP
138, Kakrola Housing Complex,
Kakrola, New Delhi.
Ph: 9990485165 ; 9540407575
Email: ankit.agarwal@meenarth.com;
sachin.khurana@meenarth.com.