When is Secretarial audit required in a Company

Companies Act, 2013 has introduced a lot of mandatory compliances for both private and public limited companies. One of those compliances is to conduct a secretarial audit to check proper compliance of other provisions, rules, laws and regulations.

It is a periodical inspection of day to day activities of an entity to monitor the compliances of various applicable laws and regulations. It is a robust system that points out errors made by an organization.

There are numerous laws and regulations that a company needs to follow. These laws have hundreds of compliances and it is impossible for a company to keep a track of everyone.

Secretarial audit was introduced by Companies Act, 2013 in order to counter that problem. Periodical inspection ensures that all the necessary compliances are complied with and there are no mistakes.

Is it mandatory have secretarial audit?

According to Section 204 of Companies Act, 2013 and Companies (Appointment and Remuneration or Managerial Personnel) Rules, 2014, the following companies are required to conduct secretarial audit and ask an independent company secretary to provide a secretarial audit report:

• Listed companies
• Public companies having paid-up share capital of ₹50 crores or more
• Public companies with a turnover of ₹250 crores or more
• Private limited company that is a subsidiary of above mentioned companies

Appointment of secretarial auditor

Secretarial audit can be conducted only by a member of ICSI (Institute of Company Secretaries of India) having a valid certificate of practice. The appointment of secretarial auditor is governed by Rule 8 of Companies (Meetings of Board and its powers) Rules, 2014. A secretarial auditor can be appointed by passing a resolution at the board meeting.

The resolution thus passed shall be filed electronically with the Registrar within 30 days in Form MGT-14.

Secretarial auditor must obtain a letter of engagement from the management. He should formally accept it after studying the terms if engagement.

Only if he is satisfied and there are no limitations in the scope of audit, should he accept it. If a new auditor is appointed such disclosure should be made in Board's report.