Secretarial Audit

Definition

A secretarial audit is an independent, comprehensive examination of a company's compliance with the provisions of corporate and related laws, conducted by a practicing Company Secretary (PCS) in whole-time practice. Mandated under Section 204 of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, it is compulsory for every listed company and every public company with a paid-up share capital of INR 50 crore or more, or a turnover of INR 250 crore or more. The audit report is issued in Form MR-3 and must be annexed to the Board's report.

The scope of a secretarial audit extends beyond the Companies Act to cover compliance with the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996, the Foreign Exchange Management Act (FEMA), all SEBI regulations applicable to the company, and any other sector-specific laws. The practicing Company Secretary examines board meeting procedures, shareholder meeting compliance, director appointments and disclosures, related party transactions, share transfers and allotments, ROC filings, statutory registers maintenance, and compliance with listing obligations for listed companies.

For Indian businesses, particularly those approaching IPO or those with significant foreign investment, the secretarial audit serves as an independent validation of the company's governance framework. The MR-3 report carries the professional liability of the issuing Company Secretary and highlights any non-compliance, inadequacy, or failure to maintain proper records. Qualifications or adverse observations in the secretarial audit report must be disclosed in the Board's report along with the board's explanation. Companies that fall below the applicability threshold may still voluntarily opt for a secretarial audit as a best governance practice, especially before fundraising rounds or mergers.

Key Points

• Mandated under Section 204 for listed companies and public companies with paid-up capital of INR 50 crore+ or turnover of INR 250 crore+
• Conducted by a practicing Company Secretary (PCS) in whole-time practice, not by the company's in-house CS
• Audit report issued in Form MR-3, annexed to the Board's report presented at the AGM
• Covers compliance with the Companies Act, SEBI regulations, FEMA, Depositories Act, and sector-specific laws
• Examines board and shareholder meeting procedures, ROC filings, statutory registers, related party transactions, and director disclosures
• Qualifications or adverse remarks in MR-3 must be explained by the board in the Board's report
• SEBI (LODR) Regulations additionally require secretarial audit for listed entities and their material unlisted subsidiaries