Compliance Check - Secretarial Audit

What is a Secretarial Audit?

A secretarial audit is a part of the organization’s total compliance management system. The secretarial audit acts as an effective tool for corporate compliance management. Also, it benefits in detecting the noncompliance and to take the respective measures.

Secretarial Audit is a process to check the company compliance with the provisions of many laws and rules or regulations or procedures, records, accounting, maintenance of books, etc. An independent professional can take control of the secretarial audit of the company. It is a procedure to make sure that the legal and procedural specifications are followed and observed. No matter what, the secretarial audit follows the due process. It is primarily a mechanism to monitor compliance concerning the requirements of stated laws.

Secretarial Audit is applicable and mandatory to which companies?

It is mandatory for the following companies which relate to the applicability of the secretarial audit and has to be followed. These are mentioned below:

• Every Listed Company
• Every public company (Conditions apply)

When it comes to a public company, then it has a few restrictions:

A public company with a Paid-up share capital of more than Rs. 50 crore and a turnover of more than Rs. 250 crore is only applicable. If anyone of the criteria meets, a secretarial audit is mandatory for that as well. A Company Secretary who has been practicing has also been recognized to conduct a secretarial audit to organizations.

Who can be appointed as Secretarial Auditor?

Members of the Institute of Company Secretaries of India, who are holding the certificate of practice which certifies to perform as a secretarial audit, can only conduct Secretarial Audit and provide with the Secretarial Audit Report to the Company or organization.

Secretarial Audit Report

For every company, the secretarial audit report is applicable only when it is fulfilled by the following conditions such as:

• A Company Secretary in Practice shall prepare for the audit report.
• It shall be prepared in Form M-3.R
• Considering the increasing importance of Corporate Governance, it has annexed the Board’s Report.

What are the services provided under the Secretarial Audit?

The secretarial audit checks compliance of various legislations including the Companies Act and other corporate and economic laws applicable to the company. A secretarial audit is a process to check the compliances made by a company under the Corporate Law and the other relevant laws, regulations, rules, and procedures, etc. It was enacted vide section 204 of the 2013 Companies Act. Under this, the regulators monitor the companies for compliances as needed by the stated laws and processes.

Every company must comply with government rules, regulations, and laws. Any non-adherence to the compliances can be dicey for the company. Organizations need to conduct a periodical examination of their work to point out the errors and to maintain a strong compliance mechanism system in any organization.

It is maintained that periodical inspections of the records give the Authority the exact information of the company’s compliance policy.

A detailed secretarial audit helps:

• To check reports on compliances.
• To protect the interest of employees, customers, society, etc.
• To avoid any unnecessary legal actions by the law enforcement agencies.
• To point out inadequate compliances and non-compliances.
• To ensure that the procedural and legal requirements are suitably complied and that is important for the image and the goodwill of any company.

Benefits of Secretarial Audit

• Possessing a secretarial audit will help your organization have an effective mechanism with the legal and procedural requirements to make sure of the compliance handled.
• It helps in spreading a level of confidence to the directors & Key Management Personnel (KMP), etc.
• The company directors can concentrate on their important business matters and meeting only when the Secretarial Audit ensures legal and procedural requirements in a safer, better and audible way.
• Thereby, it helps to reduce the work of law enforcement authorities.
• By following this, it shows the right path to investors by showcasing your legal records.
• Secretarial Audit is a productive governance and compliance risk management tool. It produces the result in a much better way.

Companies Act, 2013

• Review of Charter Documents alterations if any and related compliances
• Share Capital and Debentures Rules - Compliance related to ICDR, Pre and Post Issue Compliances
• Borrowings - Borrowing Limit, Pre and Post Borrowing Compliances
• Public Deposit if any - Pre and Post Compliances
• Board and General Meetings - Notice, Agenda and Minutes
• Declaration and Payment of Dividend - Pre and Post Compliances
• Board of Directors - Appointment & Resignation
• Internal Audit and Internal Audit Report
• Auditor Appointment, Tenure of Appointment & Rotation
• CSR Compliances - Committee Formation, Limit of Contribution
• Related Party Transactions & its Compliances
• Inter Corporate Loan, Investments and Corporate Guarantee
• Buy-Back of Shares - Pre & Post Compliances
• Annual Return & Annual Compliances
• Member Register and Change in any Shareholding Pattern
• Secretarial Standards

Foreign Exchange Management Act

• Foreign Direct Investment
• Overseas Direct Investment
• External Commercial Borrowings

Securities And Exchange Board Of India Act, 1992

• The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
• The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015
• The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009
• The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993
• The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
• The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

Labour, Fiscal & Other Laws

• Factories Act, 1948
• Industrial Disputes Act, 1947
• The Payment of Wages Act, 1936
• The Minimum Wages Act, 1948
• Employees’ State Insurance Act, 1948
• The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952
• The Payment of Bonus Act, 1965
• The Payment of Gratuity Act, 1972
• The Contract Labour(Regulation and Abolition)Act,1970
• The Maternity Benefit Act, 1961
• The Child Labour (Prohibition and Regulation Act), 1986
• The Employees’ Compensation Act, 1923
• The Apprentices Act, 1961
• Equal Remuneration Act, 1976
• The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959
• The Environment (Protection) Act, 1986
• The Sexual Harassment Of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
• The Water (Prevention & Control of Pollution)Act,1974
• The Air (Prevention & Control of Pollution) Act, 1981
• Tax deducted at Source
• Advance Tax
• GST
• Professional, Property & Dividend Tax

Securities Contracts (Regulation) Act, 1956 (‘SCRA’)

Depositories Act, 1996

* Labour, Fiscal, and Other laws are limited to the applicability of the Company

Documents Required for Secretarial Audit

• Charter Documents
• Last year Secretarial Audit Report
• Statutory Registers
• Board and General Meeting Minutes & Notices thereto
• Audited financial statements
• Filings & Intimations with Registrar of Companies, Stock Exchanges, Newspaper Advertisements (if Listed)
• Annual Performance Reports, Lease Deed, LUT cum Bond, softex returns
• Filings with other statutory departments
• Filings with RBI (If there is a foreign investment)
• ECB Returns (if there are foreign borrowings in the company)
• Registers maintained under Labour Laws
• Disclosures and Declaration for code of conduct received from the directors
• Sitting fees and Remuneration details paid to directors
• Proof of spending CSR amount
• SAST Disclosures
• Bank account details for dividend

Documents required for Compliance Check

In India,Compliance Check  cannot be done without proper identity and address proof. These documents will be needed for all the directors and the shareholders of the company to be incorporated. Listed below are the documents that are accepted by MCA for the online company registration process acceptable.

Identity And Address Proof

• Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
• Scanned copy of Voter’s ID/Passport/Driver’s License
• Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
• Scanned passport-sized photograph specimen signature (blank document with signature [directors only])

For the foreign nationals, an apostilled or notarized copy of the passport has to be submitted mandatorily. All documents submitted should be valid. The residence proof documents like the bank statement or the electricity bill must be less than 2 months old.

Registered Office Proof

For online company registration in India, the company must have a registered office in India. To prove admittance to the registered office, a recent copy of an electricity bill or the property tax receipt or water bill must be submitted. Along with the rental agreement, utility bill or the sale deed and a letter from the landlord with her/his consent to use the office as a registered office of the company should be submitted.

• Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
• Scanned copy of Notarized rental agreement in English
• Scanned copy of No-objection certificate from the property owner
• Scanned copy of sale deed/property deed in English (in case of owned property)

Note: Your registered office need not be a commercial space; it can be your residence too.