Section 204 of the Companies Act, 2013 (“the Act”) requires every listed company and every public company having a paid-up share capital of ₹50 crore or more, or a turnover of ₹250 crore or more, to conduct a secretarial audit. The audit is conducted by a practising company secretary, and the report is annexed to the board's report in Form MR-3.
The Applicability
The secretarial audit is also required for a public company having outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more, or having outstanding deposits of ₹25 crore or more. The thresholds are cumulative in the sense that the company must satisfy any one of them.
For listed companies, Regulation 24A of the SEBI (LODR) Regulations, 2015 imposes additional requirements, including the secretarial audit of the material unlisted subsidiary. The material subsidiary must be audited by a practising company secretary, and the report must be annexed to the board's report.
The Scope
The secretarial auditor must examine the company's compliance with the Act, the rules, the secretarial standards, and the applicable regulations. The audit covers the board and committee meetings, the general meetings, the statutory registers, the filings with the ROC, the related party transactions, and the corporate governance requirements. The auditor must also examine the company's compliance with the SEBI regulations where the company is listed.
The Form MR-3
The secretarial audit report is in Form MR-3. It must set out the auditor's observations on the company's compliance, the adequacy of the board's processes, and any specific non-compliances. The report is not a certificate of good governance; it is a report of the auditor's examination, and it must disclose adverse observations where they exist.
The Consequences of Non-Compliance
The failure to appoint a secretarial auditor or to annex the Form MR-3 report is an offence. The company and its officers are liable to penalty. The ROC has imposed penalties on companies that have not complied, and the auditor's report is a public document that is scrutinised by regulators and shareholders.
Call to Action
Anuj Desai & Associates advises companies on the Section 204 secretarial audit—from the applicability analysis and the appointment of the auditor to the scope of the audit and the Form MR-3 report. If your company is covered by Section 204, we can help you ensure that the secretarial audit is complete and compliant.
📧 office@anujdesaiassociates.com
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🌐 https://anujdesaiassociates.com
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