An Overview of Secretarial Audit
In order to make sure that businesses operate in compliance with relevant laws, rules, regulations, and defined corporate governance standards, the Companies Act of 2013 established Secretarial Audit as a statutory compliance tool. It serves as an evaluation of a business’s operations and decision-making procedures from a legal and procedural standpoint. Promoting accountability, openness, and sound corporate governance is the main goal of secretarial auditing.
The Ministry of Corporate Affairs (MCA), Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), and other sectoral regulators are just a few of the authorities that oversee various laws that apply to businesses in the current regulatory environment. Secretarial auditing is a valuable tool for verifying adherence to these regulations and identifying deviations or non-compliances promptly, enabling remedial action before such mistakes result in fines or legal action.
What is Secretarial Audit?
An impartial, independent assessment of a business’s adherence to relevant corporate, securities, and related regulations is known as a secretarial audit. In compliance with Section 204 of the Companies Act, 2013 and the applicable regulations, it is carried out by a Practicing Company Secretary. Section 204 of the Companies Act, 2013, says that:
- Every listed company and a company belonging to another class of companies, as may be prescribed, shall annex with its Board’s report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed.
- It shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for auditing the secretarial and related records of the company.
- The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall explain in full any qualification or observation or other remarks made by the company secretary in practice in his report under sub-section (1).
- 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 1[liable to a penalty of two lakh rupees].
What is the Applicability of Secretarial Audit?
The following explains the mandatory clauses pertaining to Secretarial Audit application.
- Each and every listed company,
- Every publicly traded firm with over Rs. 50 crores in paid-up share capital.
Over Rs. 250 Crores in turnover, a secretarial audit is also required if any of the requirements are met. A secretarial audit can be performed by a practicing company secretary.
What are the objectives and Process of Secretarial Audit?
The following is a list of Secretarial Audit’s goals:
Punishment
If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this secretarial audit, then,
- The company, or
- Every officer of the company, or
- The company secretary in practice,
Who is in default, shall be punishable with fine
- Minimum Rs. 1 lakh
- Maximum Rs. 5 lakhs
Benefits of Secretarial Audit
- Ensures Legal Compliance
It verifies compliance with applicable corporate, securities, and allied laws, thereby ensuring that the company operates within the legal framework.
- Early Detection of Non-Compliances
Secretarial Audit helps in identifying procedural lapses and statutory defaults at an early stage, enabling timely corrective action.
- Strengthens Corporate Governance
By ensuring adherence to Secretarial Standards and governance norms, it promotes transparency, accountability, and ethical management practices.
- Reduces Legal Risk and Penalties
Timely identification and rectification of non-compliances help in avoiding penalties, prosecution, and regulatory actions.
- Assists the Board of Directors
It supports the Board in discharging their statutory and fiduciary duties by providing an independent compliance assessment.
- Enhances Stakeholder Confidence
A clean Secretarial Audit Report improves the confidence of shareholders, investors, regulators, and other stakeholders.
- Improves Compliance Management Systems
It helps in strengthening internal compliance mechanisms and promotes a culture of legal discipline within the organization.
- Prevents Litigation and Regulatory Scrutiny
Proactive compliance through Secretarial Audit reduces the likelihood of disputes, investigations, and regulatory interventions.
- Facilitates Better Decision-Making
Accurate compliance reporting enables management to make informed and legally sound decisions.
- Adds Long-Term Value to the Company
Strong governance and compliance practices enhance the company’s reputation, sustainability, and long-term growth prospects.
Conclusion
Secretarial Audit plays a vital role in ensuring legal compliance and promoting sound corporate governance under the Companies Act, 2013. It serves as an effective mechanism to examine whether a company has complied with applicable laws, rules, regulations, and prescribed procedures. By identifying non-compliances at an early stage, Secretarial Audit enables companies to take timely corrective action and avoid legal penalties, regulatory scrutiny, and reputational damage.
Beyond statutory compliance, Secretarial Audit strengthens transparency, accountability, and ethical standards in corporate functioning. It assists the Board of Directors in fulfilling their statutory and fiduciary responsibilities and enhances stakeholder confidence in the company’s governance framework. In an increasingly regulated corporate environment, Secretarial Audit is not merely a legal requirement but a strategic tool that supports risk management, sustainable growth, and long-term corporate credibility.
