Author: By Harsha Sharma
Secretarial Audit is an audit to check compliance of various legislations including the Companies Act and other corporate and economic laws applicable to the company. It is an audit conducted by practicing Company Secretary and is a procedure to make sure that the legal and procedural specifications are followed and observed. It is primarily a mechanism to monitor compliance concerning the requirements of stated laws. The specified companies are required to have secretarial audit each year as a part of the compliance requirement under the Companies Act, 2013.
The following Companies are required to obtain Secretarial Audit Report and annex the same with Board Report given from company secretary in practice in form MR-3-
*Paid up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of latest audited financial statement shall be taken into account.
* ‘Turnover’ has been defined to mean the gross amount of revenue recognized in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.
* Listed Company means a Company which has any of its securities listed on any recognized stock exchange.
*material subsidiary” shall mean a subsidiary, whose income or net worth exceeds [ten] percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.
In terms of Form MR-3, the Secretarial Auditor needs to examine and report on the compliance of the following five specific laws:
(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;
*Scope of MR- 3 includes ‘The Securities and Exchange Board of India (Listing obligations and Disclosures requirements) Regulations, 2015
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. · Examining and reporting whether the adequate systems and processes are in place to monitor and ensure compliance with general laws like labour laws, competition law, environmental laws etc.
If a Company or any officer of the Company or the Company Secretary in practice, contravenes the provisions of section 204 of Companies Act, 2013 which deals with secretarial audit and providing secretarial audit report with Board Report, then
who is in default, shall be liable to a penalty of Rs. 2 Lakh.
Section 447 deals with punishment for fraud which provides that any person who is found to be guilty of fraud, involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever is lower 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 the fraud.
In view of this, a company secretary in practice will be attracting the penal provisions of section 448, for any false statement in any material particular or omission of any material fact in the Secretarial Audit Report. However, a person will be penalized under section 448 in case he makes a statement, which is false in any material particular, knowing it to be false, or which omits any material fact knowing it to be material. It is pertinent to note that section 448 applies to “any person”. In view of this, a company secretary in practice, who is an independent professional, will be attracting the penalty, as prescribed in section 448 in case his observations in the secretarial audit report turns out to be false or he omits any material fact, knowing it to be false or material.
Disclaimer:- The content of this blog have been prepared on the basis of legal provisions existing at the time of preparation and does not constitute legal opinion for this subject matter. We, at Lawnians assume no liability for use of this information. For detailed analysis and legal advice, you are requested to contact with our expert professionals of this subject matter.