[Opinion] RoC Penalizes PCS for Issuing Secretarial Audit Report in Violation of the Provisions of the Companies Act 2013

Prof R Balakrishnan – [2023] 152 taxmann.com 372 (Article)

1. Secretarial Audit report

Secretarial Audit is brought in by the Companies Act 2013 and the secretarial audit is a process to check compliance made by the company under the various corporate laws (including the Companies Act 2013), rules, regulations, procedures etc. Secretarial audit is a mechanism to monitor compliance with the requirements of stated laws and process. The company needs to run a periodical examination of work to find out the errors and mistakes to make a robust compliance mechanism system in any organization. Almost all the companies are required to comply with variety of laws, rules, regulations and these laws are complex and non-compliance would attract major risk to the company. Periodical inspection of records of the company would give exact information as to whether and if so to what extent the company has complied with the laws applicable to the company. Secretarial audit gives comfort to the regulators, stakeholders and management that company has a disciplined approach to evaluate and improve effectiveness of risk management, control and governance process.

Section 204 of the Companies Act 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 spells out the category of companies who need to obtain secretarial audit report from an independent practicing company secretary. The secretarial auditor need to submit his report to the shareholders of the company and the secretarial report would point out non-compliances if any and as well inadequate compliances in order to protect the interest of various stakeholders. Secretarial audit would largely assist the company to avoid any unwarranted legal actions/penalties by law enforcing agencies and other persons as well by taking the required actions.

2. Secretarial auditor and the secretarial audit report

Appointment of secretarial auditor: – As per Rule 8 of the Companies (Meetings of Board and Powers) Rules 2014, secretarial auditor is required to be appointed by means of a resolution passed at a duly convened board meeting and the resolution for appointment of the secretarial auditor is required to be filed with the Registrar of Companies within 30 days’ time in e-form MG-14.

2.1 Secretarial audit report: – The secretarial auditor is required to carry out the secretarial audit by checking the compliances by the company under the various laws as including the Companies Act and also the LODR regulations in case of listed companies. The secretarial audit report is required to be submitted to the shareholders of the company for the financial year by the secretarial auditor in form MR-3 pursuant to section 204(1) of the Companies Act, 2013 and rule No. 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014.

2.2 Content of the secretarial audit report:- The Institute of Company Secretaries of India brought out a manual on secretarial audit and as spelled out in the manual, the secretarial auditor, duringthe period under review the company where secretarial audit is carried out has to state whether the company had complied with the provisions of the Companies Act, Rules, Regulations, Guidelines, Standards, etc. subject to his/her observations such as reporting the specific non compliances/observations/audit qualification, reservation or adverse remarks in respect of the relevant laws applicable to the company.

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