secretarial audit
TRANSCRIPT
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.
NEED FOR SECRETARIAL AUDIT
Multiplicity and complexity of laws - Secretarial audit facilitates to ensure compliance and avoid risk associated with non-compliance. It has two-fold objective:
• Firstly, to protect the interests of the customers, employees, revenue, environment, directors and officers of the company.
• Secondly, to avoid any unwarranted legal actions by the law-enforcing agencies and other persons as well.
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.
FORM MR-3SECRETARIAL AUDIT REPORT
FOR THE FINANCIAL YEAR ENDED … … …[Pursuant to section 204(1) of the Companies Act, 2013
and rule No.9 of the Companies (Appointment and Remuneration Personnel) Rules, 2014]
To,The Members,……….… Limited
I/We have conducted the secretarial audit of the compliance of applicable statutory provisions and the adherence to good corporate practices by……. (name of the company).(hereinafter called the company). Secretarial Audit was conducted in a manner that provided me/us a reasonable basis for evaluating the corporate conducts/statutory compliances and expressing my opinion thereon.
Based on my/our verification of the .....………………………….. (name of the company’s) books, papers, minute books, forms and returns filed and other records maintained by the company and also the information provided by the Company, its officers, agents and authorized representatives during the conduct of secretarial audit, I/We hereby report that in my/our opinion, the company has, during the audit period covering the financial year ended on _____, _____ complied with the statutory provisions listed hereunder and also that the Company has proper Board-processes and compliance-mechanism in place to the extent, in the manner and subject to the reporting made hereinafter:
I/we have examined the books, papers, minute books, forms and returns filed and other records maintained by ………….. (“the Company”) for the financial year ended on __, ______ according to the provisions of:
(i) The Companies Act, 2013 (the Act) and the rules made thereunder;(ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;(iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;
(iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;
(v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-
(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 12 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;
(vi) .............................................................. (Mention the other laws as may be applicable specifically to the company)
I/we have also examined compliance with the applicable clauses of the following:
(i) Secretarial Standards issued by The Institute of Company Secretaries of India.
(ii) (ii) The Listing Agreements entered into by the Company with ….. Stock Exchange(s), if applicable;
During the period under review the Company has complied with the provisions of the Act, Rules, Regulations, Guidelines, Standards, etc. mentioned above subject to the following observations:
I/we further report that The Board of Directors of the Company is duly constituted with proper balance of Executive Directors, Non-Executive Directors and Independent Directors. The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act.
Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent at least seven days in advance, and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting.
Majority decision is carried through while the dissenting members’ views are captured and recorded as part of the minutes. I/we further report that there are adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines.
I/we further report that during the audit period the company has ................................. (Give details of specific events / actions having a major bearing on the company’s affairs in pursuance of the above referred laws, rules, regulations, guidelines, standards, etc. referred to above).
For example: (i) Public/Right/Preferential issue of shares / debentures/sweat equity, etc. (ii) Redemption / buy-back of securities(iii) Major decisions taken by the members in pursuance to section 180 of the Companies Act, 2013(iv) Merger / amalgamation / reconstruction, etc.(v) Foreign technical collaborations
Place : Signature:Date : Name of CS in practice Firm: ACS/FCS No. C P No.:
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.
DOCUMENTS REQUIRED FOR AUDIT
The checklist for carrying out the Secretarial Audit of the Company is being provided by the Secretarial Auditor and the same would also depend on the activities carried out by the company.
Mandatory Acts to be covered for almost all the Companies:
Companies Act; SEBI and other related acts; Factories Act; Labour laws; Environmental Laws; and Other allied laws related to activities of the
Company
ACTS COVERED UNDER SECRETARIAL AUDIT
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:
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.
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.
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 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 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
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.
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.
AN EFFECTIVE TOOL FOR EFFICIENT CORPORATE COMPLIANCE MANAGEMENT
The SA is an effective tool for corporate law compliance management relating to corporate laws. It helps ensure flawless compliance and timely corrective action when non-compliance is discovered.
The benefits of SA are manifold, and its beneficiaries are many, including promoters, directors, investors, lenders, employees, Government and government agencies, and the last but not least, the public at large.
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.
Penalty – 1 lakh to 25 Lakh in case of default in complying of this section.
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).
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.
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.
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.
CERTIFICATIN OF ANNUAL RETURN
Section 92(1) of the Companies Act, 2013
Gajendra Singh [email protected]
As per Section 92 (1) read with Rule 11 of Companies (Management and administration) Rules, 2014, The Annual Return of every listed Company and Companies having:
Paid-up capital of Rs. 10 Crore or more; Turnover of Rs. 50 Crore or more.
Shall be certified by a Company Secretary in practice in Form MGT-8, stating that the Annual Return discloses the facts correctly and adequately and that the Company has complied with all the provisions of Companies Act
PENALTY FOR NON-COMPLIANCE
If the company secretary in practice certifies the Annual Return otherwise than in conformity with the Companies Act, then he shall be punishable with fine which shall not be less than Rs. 50,000/- (Fifty thousand Rupees) but which may extend to 5,00,000 (Five Lakh Rupees).
THANK YOU