Secretarial Audit in India: Process and Benefits

Secretarial Audit is an important method for all organizations. It is a part of total compliance management in an organization. It is an effective tool when it comes to corporate compliance management. In this blog we will discuss in detail about the secretarial audit in India, its process and benefits. 

What is the requirement of secretarial audit in India?

It is a process to check compliance to the provisions of law, rules and regulations, maintenance of books etc. by an independent professional to make sure that the company complies with the legal requirements and procedural needs and also follows the due process. It is a mechanism to monitor compliance with the requirement of stated law.

Objective of secretarial audit 

Following are the objectives of secretarial audit-

  1. To check and report on the competition of compliances according to provision of law.
  2. To point out the non-compliances.
  3. To safeguard the interest of the stakeholder that includes customers, employees etc.
  4. Compliances are to be followed to avoid any unwarranted legal action or penalties.

Applicability of Secretarial audit in India

The mandatory provision regarding applicability of secretarial audit are-

  1. Every listed company
  2. Every public company having a paid up share capital of Rs. 50 crore or more and having turnover of Rs. 250 crore or more.
  3. Company having outstanding loans or borrowing from banks or public financial institutions of Rs. 100 crore or more.

Scope of Secretarial Audit

Scope comprises verification of the compliances under the following-

  1. Companies Act, 2013 and the rules made there under;
  2. Securities Contracts (Regulation) Act, 1956 and the rules made there under;
  3. Depositories Act of 1996 and the rules made there under;
  4. Foreign Exchange Management Act of 1999
  5. Regulations and guidelines provided under the Securities and Exchange Board of India, Act 1992;
  6. Reporting on the compliance of secretarial standards issued by Institute of Company Secretaries of India; and
  7. Other laws are applicable specifically to the company that means all the laws that are applicable to specific industries.

Appointment of Secretarial auditor

Process of appointment of a secretarial auditor are as follows-

  1. Firstly, consent of the secretarial auditor is required.
  2. Thereafter, a certified copy needs to be filed of the resolution passed in the Board meeting with the Registrar of companies in MGT-14.
  3. Make an appointment of such an auditor in the Board meeting and fix the remuneration in the meeting.

Process of secretarial audit in India

The process are as follows-

  • Appointment of secretarial auditor.
  • Communication to earlier incumbent
  • Primary discussion will take place about the company with secretarial auditor
  • After the meeting an audit plan is finalized and the staff is briefed.
  • Testing, interview and analysis
  • The working papers are prepared
  • Audit summary for discussions
  • Finally the secretarial audit will be submitted.

Documents required for secretarial audit

Following are the documents which are required for secretarial auditing-

  1. Charter documents and statutory registers
  2. Birds and general meeting minutes and notices
  3. The audited financial statement as well as last year’s secretarial audit report
  4. Annual performance reports, lease deeds,bonds and return.
  5. Registers maintained under the labour law
  6. Details of remuneration and sitting fees paid to directors
  7. Details of CSR amount
  8. Details of bank account for dividend 
  9. ECB returns details

Benefits of secretarial audit

  1. It’s an effective mechanism to ensure the compliance with the procedural and legal requirements;
  2. It promotes the level of confidence to directors and key managerial personnel etc.
  3. It ensures that legal and procedural requirements are met that in turn allows the directors to concentrate on crucial business dealings;
  4. It strengthens the goodwill of the company for their regulators as well for their stakeholders;
  5. It is also an effective governance and compliance risk management tool;
  6. It, further, helps an investor in analyzing the compliance level of companies thereby increasing the reputation also;
  7. It administers professional discipline and also self-regulation;
  8. It may be an effective due diligence performance for the prospective acquirer of the company or a partner of a joint venture; and
  9. It helps to detect any non-compliance and helps in taking corrective action.

Conclusion

Secretarial audit in India is independent and it is beneficial for the companies who follow it as it improves their operations. It can help an organization in completing their objectives.

What Are The Consequences Of Not Filing Annual Return?

non filing of return

According to the Rules and Regulations of Companies Act, 2013, every company registered in Ministry Of Corporate Affairs is required to file Annual Returns in order to avoid hefty penalties for the Directors as well as for the Company.
An Annual Return is a document that is required to be filed by every company with the Ministry of Corporate Affair office on the close of each financial year. Annual Returns shall be filed within 60 days from the date of Annual General Meeting or if it is not held in any particular year from the date at which this meeting shall have been conducted. As per Companies Act, 2013,any
company failing to do so within the prescribed time period will be considered as an offence for which the punishment will be levied. Thus, it is imperative to file the accurate and timely returns for every company. With this blog we will discuss the consequences of not filing Annual Return.

What is the Punishment for Directors?
Directors are Responsible for managing the functions of the company. Thus, filing timely returns is also responsibility of Directors only. If they will fail to file the return on time then they will have to face the punishment for it depending upon the days for which filing is delayed. Here are some cases of penalty to be levied on the Directors:-

Case 1- Non filing of return within 270 days:
If the Director has not filed return within 270 days when it should be filed originally then it

Directors would be liable to pay an Additional Penalty. The Directors will be imprisoned for the term exceeding 6 months and the fine not less than 50K which can extend upto 50 lacs or with both.

Case 2- non-filing of returns for 3 years:
If the return is not filed for the period of 3 years then the Directors have to face severe consequences. They will no more be eligible to be appointed as Director for the same Company for the total period of 5 year from the date from the date on which the company fails to file the return.

Case 3- false statement filed:
In case the return of the company is filled with false or omitted facts the Director or any other person responsible will be imprisoned for the time period of 6 months that may be extended to 10 years. Also he shall be liable for the fine that would not be less than the amount involved in
fraud and can extend up to three times the amount involved in fraud.

What is the punishment for the Company:
The company is treated as a separate legal entity in the eyes of law. Thus, apart from the Directors, the company will also be held responsible for the non-filing of Annual Returns by MCA. Following is the amount of fine that the company is required to pay in different cases:

Case1- Period of delay of 15 days:
The amount of penalty would be 1 time of the number of fees normally charged.

Case 2: More than 15 days but not more than 30 days:
The amount of penalty would be 2 times of the number of fees normally charged.

Case 3- More than 30 days but up to 60 days:
The amount of penalty would be 4 times of the number of fees normally charged.

Case 4- More than 60 days but up to 90 days:

The amount of penalty would be 6 times of the number of fees normally charged.

Case 5- More than 90 days but up to 180 days:
The amount of penalty would be 10 times the amount of fees normally charged.

Case 6- More than 180 days but up to 270 days:
The amount of penalty would be 12 times the amount of fees normally charged.

Case 7- More than 270 days:
The penalty would be 100rs per day after the expiry of 270 days.

Case 8- for 2 years:
If the company fails to file the return for last 2 financial years consistently then the company would be regarded as inactive. Further, the bank account of the company would freeze and the notice of strike off will be issued by the company.