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Secretarial Audit

Secretarial Audit: Ensuring Corporate Compliance and Good Governance

In today’s fast-changing business environment, maintaining legal compliance isn’t just a formality — it’s a necessity. Whether you’re a listed company, a large private entity, or even an upcoming startup, staying compliant with various laws and regulations can feel overwhelming.

That’s where Secretarial Audit comes in.

A Secretarial Audit acts as a health check-up for your company’s legal and regulatory compliance. It ensures that your business is following all the necessary corporate laws, helping you avoid penalties, legal disputes, and reputational damage.

Let’s break this down in simple terms — what secretarial audit means, who needs it, why it’s important, and how it benefits your business.

1. What Is a Secretarial Audit?

A Secretarial Audit is an independent verification process conducted by a Practising Company Secretary (PCS) to check whether a company is complying with all the applicable corporate and legal requirements.

Think of it like an internal diagnostic — it checks if your company’s records, procedures, and filings are in proper shape and in line with the Companies Act, 2013 and other related laws.

It’s not about pointing fingers — it’s about ensuring good governance, transparency, and accountability.

In Simple Words

If your company was a car, the secretarial audit would be the regular servicing that keeps it running smoothly and legally on the road.

2. Legal Basis of Secretarial Audit in India

The concept of Secretarial Audit was introduced under Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Under this provision:

  • Every listed company and certain large unlisted public and private companies are required to obtain a Secretarial Audit Report from a qualified Practising Company Secretary (PCS).

  • The report must be annexed with the company’s Board Report in the annual filings.

The Companies Covered Under Section 204

Secretarial Audit is mandatory for:

  1. All listed companies

  2. Public companies having:

    • Paid-up share capital of ₹50 crore or more, or

    • Turnover of ₹250 crore or more

  3. Private companies that are subsidiaries of public companies meeting the above criteria.

However, many forward-looking private companies and startups voluntarily opt for secretarial audits to ensure internal compliance and governance.

3. Objective of Secretarial Audit

The primary objective of Secretarial Audit is to ensure that the company complies with all applicable laws, rules, and regulations.

But beyond compliance, it also helps management identify potential risks and strengthens corporate governance practices.

Key objectives include:

  • Verifying compliance with the Companies Act, 2013

  • Checking adherence to SEBI regulations (for listed entities)

  • Ensuring compliance with Labour Laws, FEMA, Depositories Act, and other industry-specific laws

  • Reviewing Board processes and corporate governance structures

  • Detecting non-compliances early to prevent penalties or litigation

  • Providing stakeholders with assurance about the company’s legal integrity

4. Who Conducts the Secretarial Audit?

Only a Practising Company Secretary (PCS) — a professional member of the Institute of Company Secretaries of India (ICSI) — can perform a secretarial audit.

A PCS acts as an independent professional, ensuring unbiased and accurate reporting.
They analyze the company’s records, verify documents, inspect registers, and check whether the management is following the right legal procedures.

5. Scope of Secretarial Audit

A Secretarial Audit doesn’t just look at the Companies Act; it has a wider scope that covers multiple laws and corporate frameworks.

Here’s what it usually includes:

1. Companies Act, 2013

  • Maintenance of statutory registers (like Register of Members, Directors, etc.)

  • Filing of returns with ROC (like MGT-7, AOC-4, ADT-1, etc.)

  • Proper conduct of Board and General Meetings

  • Appointment and remuneration of directors

  • Compliance with loans, borrowings, and related party transactions

  • Issue and transfer of shares

  • CSR obligations (if applicable)

2. Securities Laws (For Listed Companies)

  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

  • Insider Trading Regulations

  • Takeover Code, Depositories Act

  • Any circulars or notifications by SEBI or Stock Exchanges

3. FEMA & Other Applicable Laws

  • Foreign Direct Investment (FDI) compliance

  • External Commercial Borrowings (ECB)

  • Overseas Direct Investment (ODI) reporting

  • Labour, environmental, and industry-specific laws

4. Corporate Governance

  • Composition and functioning of the Board and Committees

  • Independence of Directors

  • Disclosure and transparency mechanisms

  • Whistleblower and internal control systems

6. The Process of Secretarial Audit

The secretarial audit process typically unfolds in structured steps. Here’s a simplified version:

Step 1: Appointment of Secretarial Auditor

The Board of Directors passes a resolution in a meeting to appoint a Practising Company Secretary (PCS) as the secretarial auditor.

Step 2: Preliminary Discussion

The auditor meets with management to understand the company’s structure, business model, and applicable laws.

Step 3: Documentation and Verification

The auditor checks all statutory registers, filings, minutes books, share certificates, and records.
They verify if:

  • Board meetings are properly conducted

  • ROC filings are up to date

  • Company has complied with FEMA, SEBI, and other laws

  • There are any penalties or show cause notices pending

Step 4: Drafting the Report

After verification, the auditor prepares a Secretarial Audit Report in Form MR-3, which includes observations, qualifications (if any), and recommendations.

Step 5: Submission to the Board

The report is presented to the Board of Directors, and any non-compliances or irregularities are discussed and corrected.

Step 6: Reporting in Annual Report

The final Secretarial Audit Report (Form MR-3) is annexed with the Board’s Report and submitted as part of the company’s annual filings.

7. Importance and Benefits of Secretarial Audit

Many business owners see audits as a burden — but in reality, a secretarial audit is one of the smartest investments a company can make. Here’s why:

1. Ensures Legal Compliance

The biggest advantage is that it keeps your company compliant with multiple laws. This reduces the risk of penalties, fines, or legal issues.

2. Builds Investor and Stakeholder Confidence

When investors see that a company has undergone a professional secretarial audit, it builds trust and transparency. It signals that your governance is strong and compliant.

3. Identifies Gaps and Risks

The audit identifies weaknesses in systems and procedures, helping management take corrective action before it’s too late.

4. Strengthens Corporate Governance

Regular audits improve the functioning of the Board, promote accountability, and ensure decisions are taken responsibly.

5. Reduces Chances of Penalties

Companies often face fines for missing deadlines or filing errors. A secretarial audit helps you catch and correct these in time.

6. Boosts Reputation

A clean secretarial audit report enhances the company’s reputation — especially important for listed and investor-backed companies.

7. Facilitates Smooth Regulatory Inspection

In case of inspection or scrutiny by authorities, a company with regular secretarial audits can easily produce records and prove compliance.

8. Real-Life Example

Let’s take a simple example.

A mid-sized manufacturing company in Pune was expanding rapidly. In the rush, they missed some critical ROC filings and did not hold their annual general meeting on time.

During a Secretarial Audit, the PCS identified these non-compliances and helped the company rectify them before the ROC initiated any penalties. The management not only avoided hefty fines but also streamlined its internal processes.

That’s the value of having a Secretarial Audit — it catches problems before they become expensive.

9. Key Areas Reviewed in Secretarial Audit

A secretarial auditor generally examines the following areas:

  • Compliance with the Companies Act, 2013

  • Maintenance of minutes of Board, Committee, and General Meetings

  • Filing of statutory returns and forms

  • Compliance with SEBI regulations (if listed)

  • Adherence to FEMA and FDI guidelines

  • Appointment and resignation of directors

  • Share capital and dividend-related compliance

  • Related party transactions

  • CSR policy and execution (if applicable)

  • Compliance with industry-specific laws

10. Penalty for Non-Compliance

If a company required to conduct a Secretarial Audit fails to do so, or doesn’t annex the report in the Board Report, it may face penalties under Section 204(4) of the Companies Act, 2013.

The penalties can be:

  • For the company and officers: up to ₹5,00,000

  • For the Practising Company Secretary (if at fault): up to ₹5,00,000

Apart from the financial penalty, it can damage the company’s credibility in the eyes of regulators and investors.

11. Voluntary Secretarial Audit – A Smart Practice

Even if not mandatory, many private limited companies and LLPs voluntarily choose to undergo secretarial audits.

Why? Because:

  • It helps them stay ready for due diligence during mergers, fundraising, or IPOs.

  • It uncovers compliance gaps early.

  • It builds investor confidence during valuation or acquisition.

It’s a proactive step towards building a compliant and responsible business.

12. Format of Secretarial Audit Report (Form MR-3)

The Secretarial Audit Report is submitted in Form MR-3 and generally includes:

  • Auditor’s opinion on compliance

  • Observations on non-compliances or irregularities

  • Corrective actions suggested

  • Certification that records and systems are in order

The report ends with the PCS’s signature, seal, and membership details.

13. Common Non-Compliances Found in Secretarial Audit

Some frequent lapses identified during audits include:

  • Delay in filing annual returns or financial statements

  • Improper appointment or resignation procedure of directors

  • Missing entries in statutory registers

  • Non-compliance with FEMA on foreign remittances

  • Delay in CSR reporting

  • Non-updation of website disclosures for listed companies

These issues may seem minor but can attract heavy penalties if ignored.

14. Documents Required for Secretarial Audit

A PCS may request the following:

  • Memorandum and Articles of Association

  • Minutes books of Board and General Meetings

  • Statutory registers

  • ROC filing receipts

  • Share certificates and transfer documents

  • Agreements, resolutions, and approvals

  • SEBI filings (for listed entities)

  • CSR policy and reports

  • Director KYC and appointment papers

15. How Often Is a Secretarial Audit Conducted?

Secretarial Audit is generally conducted once every financial year.
However, some companies prefer quarterly internal secretarial audits to ensure continuous compliance and readiness for annual certification.

16. Benefits for Management and Directors

For management, secretarial audits act as a compliance mirror.

They help:

  • Directors fulfil their legal responsibilities under Section 134 and 166 of the Companies Act.

  • Company Secretaries identify areas where internal controls can be improved.

  • Management maintain transparency before investors and regulators.

17. Role of Company Secretary in Secretarial Audit

The Company Secretary (CS) plays a dual role here:

  1. As a compliance officer (internal role) – they maintain statutory records, filings, and Board processes.

  2. As an auditor (external PCS) – they independently verify compliance and issue the audit report.

Together, both ensure that the company’s legal foundation stays strong.

18. Future of Secretarial Audit in India

With India moving towards stricter compliance norms and digital filings, the importance of secretarial audits is only growing.

The Ministry of Corporate Affairs (MCA) is increasingly using automation and AI to track filings — which means even small delays or mistakes are easily flagged.

Regular secretarial audits help businesses stay ahead of this tightening framework.

19. FAQs on Secretarial Audit

Q1. Who can conduct a Secretarial Audit?
Only a Practising Company Secretary (PCS) holding a valid Certificate of Practice (COP) from ICSI.

Q2. Is it mandatory for private limited companies?
Only if they are subsidiaries of public companies that meet the prescribed capital or turnover criteria. Otherwise, it’s voluntary.

Q3. What happens if the company doesn’t comply with audit findings?
The PCS mentions it in the report, and it becomes part of the public record in the Board Report — impacting credibility.

Q4. Can a company change its secretarial auditor every year?
Yes, the company can appoint a different PCS by passing a board resolution.

Q5. Is a Secretarial Audit different from a Statutory Audit?
Yes. A Statutory Audit deals with financial statements, while a Secretarial Audit focuses on legal and procedural compliance.

20. Conclusion

A Secretarial Audit is much more than a legal formality — it’s a powerful tool to ensure your company’s compliance, transparency, and governance standards are in top shape.

It gives confidence to directors, investors, regulators, and even employees that the business operates ethically and lawfully.

In short, it’s your company’s legal health certificate — and like all check-ups, it’s best done regularly.

By choosing professional Secretarial Audit services from a qualified Practising Company Secretary, you’re not just meeting legal requirements — you’re building a stronger, more trustworthy business.

Because in today’s corporate world, good governance isn’t optional — it’s the foundation of lasting success.