secretarial audit ppt
TRANSCRIPT
Section 204 of the Companies Act, 2013
Introduction Secretarial Audit is a process of checking and verifying the records
and documents of the company and to check whether the company isin compliance with the provisions of Companies Act, 2013 and otherapplicable laws.
The Secretarial Audit Report aims at confirming compliance by thecompany with all the applicable provisions of the applicable lawsand pointing out non-compliances and recommendations for bettercompliance.
The compliances are verified and checked by an independentprofessional [a company secretary in practice] to ensure that thecompany has complied with all the legal, secretarial and proceduralrequirements as required under various applicable laws.
Section 204 - Secretarial audit for bigger
companies
Section 204 of the Companies Act, 2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules,2014, provides that:
(a) Every Listed Company;
(b) Every Public Company having a paid up share capital of fiftycrore rupees or more; and
(c) Every public company having a turnover of two hundred fiftycrore rupees or more
shall annex with its Board’s Report, a Secretarial Audit Report, givenby a Company Secretary in Practice, in Form MR- 3.
Penalty for Non-Compliance
If the company or any officer of the company or the company
secretary in practice, contravenes any provisions of the Section
204 then the Company and every officer of the Company or the
Company Secretary in practice who is default, shall be
punishable with fine which shall not be less than 1,00,000 (One
Lakh Only) but which may extend to 5,00,000 (Five Lakh
Rupees).
Appointment of Secretarial auditor
The Secretarial Auditor would be required to be appointed inthe board meeting of the Company and the remuneration of theAuditor will also be determined in the aforementioned boardmeeting [Section 179(3)].
Company is required to file the certified true copy of theresolution passed in the aforementioned board meeting with theRegistrar of Companies as an attachment in e-form MGT – 14.
However, prior to the appointment, the Company would berequired to obtain the consent of the Secretarial Auditor.
Documents required for audit
Our Firm (Meenarth Corporate Consultants LLP) would
provide the checklist for carrying out the Secretarial Audit of
the Company (as the same would also depend on the
activities carried out by the company).
Acts covered under Secretarial Audit
Report1. The Companies Act, 2013 and the rules made there
under;
2. The Securities Contracts (Regulation) Act, 1956 and therules made there under;
3. The Depositories Act, 1996 and the Regulations and Byelaws framed there under;
4. Foreign Exchange Management Act, 1999 and the rulesand regulations made there under to the extent of ForeignDirect Investment, Overseas Direct Investment andExternal Commercial Borrowings;
5. The following regulations and guidelines prescribedunder SEBI Act, 1992:
Contd.
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.
Contd.The Report also deals with examination of compliance with applicableclauses of the following:
1. Secretarial Standards issued by the Institute of Company Secretariesof India;
2. The Listing Agreements entered into by the Company with StockExchange(s), if applicable.
3. Reporting on compliance of ‘Other laws as may be applicablespecifically to the company’ which shall include all the laws whichare applicable to specific industry for example for Banks- all lawsapplicable to Banking Industry; for insurance company-all lawsapplicable to insurance industry; likewise for a company inpetroleum sector- all laws applicable to petroleum industry; similarlyfor companies in pharmaceutical sector, cement industry etc.
Other laws as may be specifically
applicable to the companyAn indicative list of sector specific central laws in respect of some of the sectors is placedbelow for reference:
Pharmaceutical Industry
Pharmacy Act, 1948 Drugs and Cosmetics Act, 1940 Homoeopathy Central Council Act, 1973 Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954 Narcotic Drugs and Psychotropic Substances Act, 1985 Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 Petroleum Act 1934 Poisons Act 1919 Food Safety And Standards Act, 2006 Insecticides Act 1968 Biological Diversity Act, 2002 The Indian Copyright Act, 1957 The Patents Act, 1970 The Trade Marks Act, 1999 Indian Boilers Act, 1923
Contd. POWER
The Electricity Act, 2003 National Tariff Policy Essential Commodities Act, 1955 Explosives Act, 1884 Indian Boilers Act, 1923 Mines Act, 1952 (wherever applicable) Mines and Mineral (Regulation and Development) Act, 1957
(wherever applicable)
the list provide is indicative only and not exhaustive. The list for othersector specific central laws can be provided as and when required bythe client.
Benefits of Secretarial Audit Secretarial Audit can be an effective due diligence exercise for the prospective
acquirer of a company or controlling interest or a joint venture partner.
It assures the owners and the management that the affairs of the company are being
conducted in accordance with requirements of laws and that the owners stake is not
being exposed to undue risk.
It ensures the management of a company that those who are charged with the duty
and responsibility of compliance with the requirements of law are performing their
duties competently, effectively and efficiently, so that the 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.
It ensures them that they have done everything required under law and that the
company had 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.
The Secretarial audit can assist bodies like SEBI, Stock Exchange, Financial
Institutions, banks etc., to gauge or measure the levels of compliance and non
compliance by the companies with whom they are concerned.
Duties of Secretarial auditor – Fraud
Reporting [Sec 143(12)(14)]
If Company Secretary in Practice, during conduct of Secretarial Audit, hassufficient reason to believe that an offence involving fraud is being committed orhas been committed against the company by officers or employees of thecompany, he shall report the same to the Central Government immediately but notlater than 60 days of his knowledge with a copy to the Board / Audit Committeeseeking their reply within 45 days;
Board / Audit Committee to reply in writing the steps taken to address the fraud;
The Auditor to forward his report and reply of the Board / Audit Committee withhis Comments to the Central Government within 15 days of reply by Board / AuditCommittee;
The Report shall be in Form ADT – 4.
Punishment for fraud (Sec 447)
Section 447 states that without prejudice to any liability including for repayment ofany debt under the Companies Act, 2013, or any other law for the time being inforce, any person who is found guilty of fraud, shall be punishable withimprisonment for a term which shall not be less than six months but which mayextend to ten years and shall also be liable to fine which shall not be less than theamount involved in the fraud but which may extend to three times the amountinvolved in fraud
The Section further states that where the fraud in question involves public interest,the term of imprisonment shall not be less than three years.
Fraud in relation to affairs of a company or any body corporate, includes any act,omission, concealment of any fact or abuse of position committed by any person orany other person with the connivance in any manner, with intent to deceive, to gainundue advantage from, or to injure the interests of, the company or its shareholdersor its creditors or any other person, whether or not there is any wrongful gain orwrongful loss.
Punishment for false statement (Sec 448)
Section 448 states that, save as otherwise provided in the
Companies Act, 2013, if in any return, certificate, financial
statement, prospectus, statement or other document required by
the Act or Rules made there under, any person makes a statement:
(a) which is false in any material particulars, knowing it to be
false; or
(b) which omits any material fact, knowing it to be material,
then such person shall be liable for punishment under Section 447
of the Companies Act, 2013.
Conclusion
Even though the Secretarial Audit is not mandatory for private
companies and small public companies, all these companies
should voluntarily adopt the practice of annual secretarial audit
to ensure compliance and avoid the risks associated with non
compliance. However its scope is entirely a management’s
decision. Prevention is better than cure. It strengthens the
image and goodwill of a company in the minds of regulators
and stakeholders. It is an effective compliance risk
management tool. It is a governance tool. The benefits are
available to promoters, executive directors and officers of the
company, regulators, government authorities, investors,
financial institutions, banks, creditors and consumers alike.
Contact Us
Meenarth Corporate Consultants LLP
138, Kakrola Housing Complex,
Kakrola, New Delhi.
Ph: 9990485165 ; 9540407575
Email: [email protected];