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Object and Usefulness of Secretarial Audit

“Secretarial Audit of a company conducted by a Practising Company Secretary on the same lines as financial audit, conducted by Chartered Accountants, seems to be the only answer to ensure that the legislations, the immaculate framing of which is such a Herculean task, are duly respected and obeyed.” - Concept Paper on Secretarial Audit (2009)

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Object of Secretarial Audit Report

• To express an opinion, based on the inspection of a company’s record and other documents and information.

• To report to the company’s management as to whether, and if so, to what extent, the company has complied with the laws comprising various statutes, rules, regulations, etc.

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Beneficiaries of Secretarial Audit

• Company - assures the management that those who are charged with the duty and responsibility of compliance with the requirements of the law are performing their duties timely, effectively and efficiently

• 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.

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Beneficiaries of Secretarial Audit

• Independent directors ensuring them that the company has 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.

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Beneficiaries of Secretarial Audit

• Government - salutary effect of substantially reducing the burden of the law-enforcement authorities.

• SEBI, Stock Exchanges, Financial Institutions, Banks, etc. - to gauge or measure the levels of compliance and non-compliance by the companies with whom they are concerned.

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Beneficiaries of Secretarial Audit

• Investors - comfort that the company has been conducting its affairs in accordance with laws and, therefore, their investment is safe and being taken due care of.

• Unearth and check these practices and also enable law-enforcing agencies take timely corrective action by brining to book the guilty.

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SECRETARIAL AUDIT(Section 204)

• For the first time a mandatory requirement for Secretarial Audit has been specified in the Act.

• SA is literally applicable on set of companies, which are as follows-

1. Listed Companies2. Every public company having a paid-up share

capital of fifty crore rupees or more; or3. Every public company having a turnover of two

hundred fifty crore rupees or more.

ICSI’s Representation

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The rule 9(1) could be amended as under to meet the immediate needs:

“9. Secretarial Audit Report – (1) For the purposes of subs-section 91) of section 204, the other class of companies shall be as under –(a) every company having a paid-up share capital of fifty crore rupees or more; or(b) every company having a turnover of two hundred crore rupees or more; or(c) every company having outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year.”

SECRETARIAL AUDIT• Secretarial Audit Report prepared by a PCS should be annexed to the Board’s

Report of specified companies.• The Board has to provide all assistance to the PCS to enable him to conduct such

Audit.• Any qualification/observation in the report needs to be explained in the Board’s

report. • To ensure compliance of the following Acts, Rules and Regulations thereto

• Companies Act, 2013 • Memorandum and Articles of Association of the Company; • Securities and Exchange Board of India Act, 1992 • Reserve Bank of India Act, 1934 • Securities Contracts (Regulation) Act, 1956 • Depositories Act, 1996 • Foreign Exchange Management Act, 1999 • Competition Act, 2002 • Listing Agreement, • any other law specifically applicable to the Company

Powers and Duties of Auditor

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Sec. 143(14)• The PCS conducting Secretarial Audit shall

have same powers as a Statutory Auditor.

Penal Provisions

• Besides the punishment of fine of minimum Rs 1 lakh and maximum Rs 5 lakhs, under s. 204, s.143 is applicable as its sub-s.(14) provides: The provisions of this section shall mutatis mutandis apply to—(b) the company secretary in practice conducting secretarial audit under 15 section 204.

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Penal Provisions

(12) Notwithstanding anything contained in this section, if an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed.

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Penal Provisions

(15) If any auditor, cost accountant or company secretary in practice do not comply with the provisions of sub-section (12), he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees.

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Secretarial Audit Report to be part of Board’s Report

Section 204 –• The Secretarial Audit Report shall be annexed

with the Board’s Report • Explanation to qualification or observation or

other remarks made by PCS

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Appointment of Secretarial Auditor

• The company acting through its Board of Directors.

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