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Secretarial Audit: Meaning, Applicability and Requirements

HomeCompany lawSecretarial Audit: Meaning, Applicability and Requirements
Secretarial Audit: Meaning, Applicability and Requirements
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    Rajat Khaneja
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There are many compliances applicable to a company registered in India. The act which governs the existence and operations of a company is the Companies Act, 2013 (“Act”) and the rules made thereunder. In this article, we shall discuss the meaning, applicability and requirements of Secretarial Audit. The provisions regarding Secretarial Audit are covered under Section 204 of the Act. As per the provisions of the Act, it is mandatory for certain companies to conduct Secretarial Audit and obtain report from a Practising Company Secretary.

Meaning of Secretarial Audit

Secretarial Audit means an audit of various compliance under various laws applicable to a company during a particular financial year. It ensures, verifies and checks the compliance by the company with various legal provisions under various laws applicable to the company.

There are many benefits of Secretarial Audit which are as follows:

Applicability of Secretarial Audit

As per section 204 (1) of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Audit is appliable on following categories of companies


1.In the said rules, every company having outstanding loan or borrowings from banks & Public Financial Institutions was inserted by Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020 Dated 3rd January, 2020. The amendment was effective from 1st April, 2020. Click here to download the notification.

2. On 8th of February, 2019 , the Securities Exchange Board of India passed the circular which is issued in exercise of the powers conferred under sections 11 and 11A of the Securities and Exchange Board of India Act, 1992 read with Regulations 24A and 101 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

“24A: Secretarial Audit- Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake Secretarial Audit and shall annex with its annual report, a Secretarial Audit report, given by a Company Secretary in Practice, in such form as may be prescribed with effect from the year ended March 31, 2019.

”Material Unlisted Subsidiary” means a subsidiary of a listed company whose income or net worth exceeds 10% of the consolidated income or net worth, respectively, of the Company and its subsidiaries in the immediately preceding accounting year.

Other companies, on which Secretarial Audit is not applicable or mandatory under the Act, may also get it done in order to ensure proper compliance with the applicable laws. Following companies may get their Secretarial Audit done although it is not applicable to them:

  • Startups in which investment has already been made by the investors
  • New companies seeking investments
  • Companies aspiring to get themselves listed on a stock exchange.
  • Growing companies

Secretarial Auditor

  • In terms of section 204(1), only a member of the Institute of Company Secretaries of India holding Certificate of Practice (i.e. “Company Secretary in Practice” or “PCS”) can conduct the Audit.
  • The Secretarial Audit Report of the Company shall be furnished in Form No. MR 3 which is to be annexed with the Board’s report. Click here to download the format of Form No. MR 3.
  • Board in their report shall explain in full any qualification or observation or other remarks made by the Secretarial Auditor in its report (Sec 134(3))
  • The Secretarial Auditor is required to be appointed by the Board Resolution passed by the Board of Director of the Company in their Board Meeting.
  • The Board Resolution for the appointment of the secretarial auditor is required to be filed with Registrar of the Companies (ROC) in e-form MGT-14 within a period of 30 days from the date of appointment.
  • If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees

Compliance under Audit

The Secretarial Audit is a broad check on compliances of applicable acts to the company. The most common laws applicable on companies are:

  1. The Companies Act, 2013
  2. The Securities Contracts (Regulation) Act, 1956
  3. The Depositories Act, 1956
  4. FEMA, 1999
  5. Rules and Regulations under the SEBI Act
  6. Other applicable laws as per the business of a company

Other than this the auditor will also check the company’s compliance with:

  1. The Secretarial Standards which the ICSI issues from time to time
  2. SEBI (Listing Obligations and Disclosure Requirement) Regulations , 2015

Secretarial Auditing Standards

The auditing standards on Secretarial Audit are applicable to the auditor undertaking it under section 204 of the Companies Act, 2013 and rules made thereunder. The standards are issued by the Institute of Company Secretaries of India. The standards deal with the basis and manner for carrying out the Secretarial Audit. The standards are effective and mandatory for the Audit accepted by the Auditor on or after 1st April, 2020. We shall discuss the Secretarial Audit standards separately.

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