August 10, 2023
With the passage of time Regulators & Corporates have realized that the soul of the corporate compliant regime is not merely enacting a plethora of legislations but in its implementation and compliance. The desired results can be achieved only if the laws are complied to its letter and spirit. To strengthen good corporate governance practice in India by providing reasonable comfort to the management, regulators, and the stakeholders in relation to compliance of multiple laws, rules, regulations, etc. the Companies Act, 2013 mandated the carrying out of secretarial audit by independent professional for a certain class of companies.
One cannot deny the fact that good corporate governance and compliance framework is crucial to ensure transparency and accountability. It can prevent corporate scandals, fraud and scams and disasters like Satyam Scam PNB Scam and the fall of Sardha & Sahara Group.
Secretarial Audit: Where statutory audit primarily focuses on the financial aspect and impact, secretarial audit covers non-financial aspects of the business and its impact on the performance of the company. It verifies compliances of applicable laws, regulations, and guidelines to mitigate various risks associated with non- compliance.
Secretarial Audit is essentially a mechanism to monitor compliance with the requirements of stated laws by verification of secretarial records and compliances ought to be maintained by the company. In other words, secretarial audit is a compliance audit, and it is a part of total compliance management in an organisation. It is an effective tool for corporate compliance management and corporate governance management. It helps to detect non-compliance and to take corrective measures. The secretarial auditor shall be a practicing company secretary appointed by the board of directors, and the secretarial report submitted by the secretarial auditor shall be annexed to the director’s report.
Applicability of Secretarial Audit: The benefits of Statutory Auditor are super-numerary, making it a comprehensive tool, too attractive to be used voluntarily by the companies & various stake holders and not only when statute mandates its applicability.
Legal Framework governing Secretarial Audit: The Companies Act, 1956 did not contain any provision with respect to secretarial audit. However, the Ministry of Corporate Affairs had released ‘Corporate Governance Voluntary Guidelines 2009’ in December, 2009, to ensure that the effective compliance system is in place. However, the stated guidelines did not mandatorily provide for conducting of Secretarial Audit, rather such guidelines gave an option to the Companies to get the Audit done by a Practicing Professional.
The Companies Act, 2013 introduced secretarial audit as a mandatory requirement for a certain class of companies. Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, following companies are mandatorily required to carry out a secretarial audit:
In addition, Regulation 24A SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 provides that every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex with its annual report, a secretarial audit report.
Benefits of Secretarial Audit
Conclusion: India has become one of the fastest emerging nations to attract foreign investments. Indian companies have increasingly been able to access newer and larger markets around the world; as well as able to acquire more funds and businesses. The response of the Government and regulators has also been admirable to meet the challenges and promote ‘ease of business. But as the global environment is changing continuously with corporates having investors around the globe there is a greater need of adopting and sustaining good corporate governance practices and credible, robust and consistent compliance framework for value creation and building corporations of the future, which goes beyond the provisions of a statute.
Therefore, adoption of secretarial audit voluntarily by the companies on which statutes do not mandate its applicability may help businesses to get aligned with the international trends in corporate governance and coherent compliance framework, we believe that ‘Corporate governance and Compliance ethics starts where the law ends’.
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