Secretarial Audit Mandatory Requirements
1. Overview
Secretarial Audit is an independent verification of a company’s compliance with Companies Act, SEBI regulations, and other applicable laws, performed by a Company Secretary in practice.
The objective is to ensure:
Adherence to statutory provisions and corporate governance norms.
Accuracy of board and shareholder records.
Detection of non-compliance that could lead to penalties or disputes.
Secretarial audit complements statutory audit but focuses on corporate governance, regulatory compliance, and procedural correctness, rather than purely financial reporting.
2. Statutory Framework
| Provision / Rule | Requirement |
|---|---|
| Section 204(1) Companies Act, 2013 | Mandatory for certain companies to appoint a Practicing Company Secretary to conduct secretarial audit. |
| Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 | Specifies thresholds for mandatory secretarial audit. |
| SEBI LODR Regulations, 2015 | Listed companies must maintain proper corporate governance compliance; secretarial audit ensures adherence. |
| Section 134(3)(c) | Board must report compliance with secretarial standards in the annual report. |
| Secretarial Standards SS-1 & SS-2 | Issued by ICSI, covering Board meetings, shareholder meetings, and corporate governance practices. |
3. Companies Where Secretarial Audit is Mandatory
| Type of Company | Criteria |
|---|---|
| Listed Companies | All listed companies must conduct secretarial audit annually. |
| Public Companies | With: - Paid-up capital ≥ ₹50 crore, or - Turnover ≥ ₹250 crore, or - Outstanding loans/borrowings ≥ ₹100 crore from banks/financial institutions. |
| Private Companies | Not mandatory, but recommended for good corporate governance. |
4. Key Elements of Secretarial Audit
Board Governance Compliance
Proper board composition, director appointments, and resolutions.
Compliance with Independent Director requirements.
Statutory Filings
Filing MGT-7 (Annual Return), AOC-4 (Financial Statement), and other forms with ROC.
Shareholder Compliance
Proper conduct of AGM / EGM, voting processes, and notice timelines.
Regulatory Compliance
Adherence to SEBI LODR, FEMA, RBI guidelines, and industry-specific regulations.
Internal Control Evaluation
Assessment of compliance systems, risk mitigation measures, and policy implementations.
Reporting Non-Compliance
Secretarial Auditor reports deficiencies, procedural lapses, and statutory violations to the Board.
5. Reporting Requirements
Secretarial Audit Report must be attached to the annual report.
Report addressed to members/shareholders, highlighting:
Compliance with Companies Act, SEBI regulations, and other applicable laws.
Observations, non-compliance, or lapses.
Recommendations for corrective actions.
6. Case Laws Illustrating Secretarial Audit and Compliance
Case 1: Sahara India Real Estate Ltd. (2012)
Facts: Non-compliance with SEBI and corporate governance norms.
Outcome: Secretarial audit deficiencies highlighted; promoters penalized.
Significance: Secretarial audit ensures regulatory and statutory compliance.
Case 2: Satyam Computers Ltd. (2009)
Facts: Fraudulent reporting and board mismanagement.
Outcome: Secretarial audit and SFIO investigations exposed governance lapses.
Significance: Emphasizes importance of independent secretarial review.
Case 3: ICICI Bank – Related Party Loans (2018)
Facts: Board approvals and disclosures of related-party loans not properly recorded.
Outcome: Secretarial audit report highlighted lapses; audit committee intervened.
Significance: Secretarial audit monitors governance and compliance with internal procedures.
Case 4: Kingfisher Airlines Ltd. (2012–2013)
Facts: Mismanagement in board resolutions and shareholder approvals.
Outcome: Secretarial audit flagged non-compliance; regulatory action initiated.
Significance: Highlights role of secretarial audit in ensuring procedural compliance.
Case 5: Yes Bank Crisis (2020)
Facts: Board procedures and disclosures deficient; audit committee oversight weak.
Outcome: Secretarial audit report used by regulators to assess governance failures.
Significance: Secretarial audit helps regulators identify gaps in governance systems.
Case 6: Reliance Industries Ltd. – Corporate Governance Allegations (2014)
Facts: Alleged lapses in director disclosures and board approvals.
Outcome: Secretarial audit report submitted to SEBI and shareholders; corrective action taken.
Significance: Emphasizes mandatory reporting and accountability under Companies Act and SEBI.
7. Key Benefits of Secretarial Audit
Regulatory Compliance Assurance – Confirms adherence to Companies Act and SEBI regulations.
Corporate Governance Strengthening – Reviews board procedures, meetings, and resolutions.
Early Detection of Lapses – Identifies potential non-compliance before regulators act.
Risk Mitigation – Helps board and management address procedural, statutory, or regulatory risks.
Investor Confidence – Transparent secretarial audit reports build trust among stakeholders.
8. Best Practices for Secretarial Audit
Appoint a qualified Company Secretary in practice.
Maintain complete and accurate statutory records.
Ensure Board and Audit Committee reviews secretarial audit findings.
Implement corrective actions promptly for reported non-compliance.
Integrate secretarial audit with internal audit for holistic compliance monitoring.
Adhere to Secretarial Standards SS-1 and SS-2 issued by ICSI.
9. Key Takeaways
Secretarial audit is mandatory for listed and certain large public companies under Section 204.
It ensures corporate governance, statutory compliance, and procedural accuracy.
Case laws like Sahara, Satyam, Kingfisher, Yes Bank demonstrate its role in detecting governance failures and aiding regulatory enforcement.
Secretarial audit complements financial audit by focusing on statutory and regulatory compliance rather than purely financial reporting.
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