Secretarial compliance is not limited to filing annual forms with the Registrar of Companies. A company must also comply with requirements relating to board meetings, shareholder approvals, statutory registers, securities laws, related-party transactions, managerial appointments, foreign investment and various event-based filings.
A Secretarial Audit provides an independent review of these compliances. The audit helps identify non-compliances, delayed filings, procedural gaps and governance risks before they result in penalties or regulatory action.
What Is a Secretarial Audit?
A Secretarial Audit is an independent examination of a company’s statutory records, filings, registers, minutes and compliance systems. It is conducted by a Company Secretary in Practice to determine whether the company has complied with applicable corporate and securities laws and whether it has adequate systems for monitoring compliance.
The Secretarial Audit Report is issued in Form MR-3 and annexed to the company’s Board’s Report. Secretarial Audit is governed primarily by Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Applicability of Secretarial Audit
| Company category | Prescribed criterion | Practical point |
| Listed company | Every listed company | Review the nature of listed securities and applicable listing provisions. |
| Public company meeting the prescribed threshold | Paid-up share capital of ₹50 crore or more, or turnover of ₹250 crore or more | Check the relevant figures as existing on the last date of the latest audited financial statements. |
| Company with specified borrowings | Outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more | The borrowing test can apply to a private company and should be checked for the financial year. |
Is Secretarial Audit Mandatory for Private Companies
A private company does not ordinarily require Secretarial Audit merely because of its paid-up capital or turnover. However, it may become liable where its outstanding loans or borrowings from banks or public financial institutions reach the prescribed threshold.
A private company may also obtain a voluntary Secretarial Audit as part of investor due diligence, a merger or acquisition, fundraising, corporate restructuring, an internal governance review, preparation for listing or a compliance risk assessment.
Who Can Conduct a Secretarial Audit
A Secretarial Audit can be conducted only by a Company Secretary in Practice (PCS). The company should formally appoint the Secretarial Auditor through a Board resolution. The appointment, scope, reporting period, remuneration and authority to inspect records should be properly documented. The auditor should remain independent and avoid circumstances that may create a conflict of interest.
What Is Form MR 3
Form MR-3 is the prescribed format of the Secretarial Audit Report. It records the auditor’s observations regarding compliance with applicable laws, maintenance of statutory records, statutory filings, Board and shareholder meetings, Board composition, decision-making processes, regulatory approvals, adequacy of compliance systems and material legal or corporate events during the year.
The report may be unmodified or may contain qualifications, observations and adverse remarks.
Secretarial Audit Process
- Determine Applicability: Evaluate listing status, paid-up capital, turnover and outstanding bank or public financial institution borrowings. Document the assessment even where the conclusion is that Secretarial Audit is not applicable.
- Appoint the Secretarial Auditor: The Board should approve a Company Secretary in Practice. The engagement letter should specify the financial year, audit scope, reporting responsibilities, information required, management responsibilities, professional fees and timelines.
- Prepare a Compliance Checklist: Prepare a law-wise and event-wise checklist showing the provision, due date, responsible department, supporting evidence and current status.
- Provide Records to the Auditor: Provide complete and accurate statutory registers, meeting documents, ROC filings, agreements and regulatory correspondence.
- Verification and Testing: The auditor examines documents and may test selected transactions, resolutions, approvals and filings. Explanations may be sought from directors and the legal, secretarial and finance teams.
- Discuss Audit Observations: Potential non-compliances are discussed with management. Corrective action may be taken, but later correction does not necessarily remove the need to report the original delay or default.
- Issue Form MR 3: After completing the examination, the Secretarial Auditor issues Form MR-3. It is annexed to the Board’s Report and forms part of the annual reporting documentation.
Documents Required for Secretarial Audit
- Certificate of incorporation, Memorandum and Articles of Association;
- Registered office, corporate structure and group-company details;
- Registers of members, directors, key managerial personnel and charges;
- Registers of loans, guarantees, securities, investments and contracts in which directors are interested;
- Board, committee and general meeting notices, agendas, attendance records and minutes;
- Directors’ disclosures, including MBP-1 and DIR-8;
- Share transfer, transmission, allotment and share certificate records;
- Annual returns, financial statement filings, ROC challans and acknowledgements;
- Loan agreements and related-party transaction documents;
- Records for statutory, cost and internal auditor appointments;
- CSR documents, foreign investment and FEMA filings;
- SEBI and stock-exchange filings, where applicable;
- Legal notices, regulatory orders and details of material events during the year.
Important Areas Examined During Secretarial Audit
Board Composition
Whether the company has the required number and category of directors, including independent directors and woman directors wherever applicable.
Board and Committee Meetings
Frequency, gaps, notice, agenda, quorum, participation, dissent, resolutions and preparation and signing of minutes.
Secretarial Standards
Compliance with Secretarial Standard-1 on Board Meetings and Secretarial Standard-2 on General Meetings.
Directors’ Disclosures
Whether required disclosures concerning interests, disqualification and independence were obtained.
Related-Party Transactions
Identification of parties, prior approvals, shareholder approval where required, abstention by interested directors, disclosures and statutory records.
Loans, Guarantees and Investments
Limits, approvals, disclosures and conditions under Sections 185 and 186.
Share Capital Transactions
Issues, allotments, rights issues, preferential allotments, private placements, transfers, transmissions, buy-backs, capital reduction, certificates and ROC filings.
Charges
Authorisation and timely reporting of creation, modification and satisfaction of charges.
Annual and Event-Based ROC Filings
Correct and timely filing of AOC-4, MGT-7 or MGT-7A, MGT-14, PAS-3, SH-7, DIR-12, ADT-1 and other applicable forms.
Beneficial Ownership
Declarations of beneficial interest and significant beneficial ownership.
Foreign Investment and FEMA Compliance
FEMA reporting and approval requirements for foreign shareholders, overseas investments, foreign borrowings and cross-border transactions.
Qualifications in Form MR 3
A qualification may be included where the auditor identifies a material failure, such as:
- Delay in holding Board meetings or inadequate quorum;
- Non-maintenance of statutory registers or delayed ROC filings;
- Appointment of directors without proper approval;
- Failure to obtain shareholder approval;
- Non-compliance in related-party transactions;
- Improper issue or allotment of shares;
- Delayed filing of charge documents or FEMA reports;
- Non-compliance with Secretarial Standards; or
- Absence of an adequate compliance-monitoring system.
The Board must explain qualifications, reservations or adverse remarks made by the Secretarial Auditor in its Board’s Report.
Conclusion
Secretarial Audit is a comprehensive review of a company’s governance and legal compliance framework. It should not be treated merely as an annual certification exercise. A company should conduct periodic compliance reviews throughout the year, update statutory records immediately after each event and obtain approvals before entering into regulated transactions. This approach reduces qualifications in Form MR-3 and helps the Board demonstrate effective compliance oversight.
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Frequently Asked Questions
Q: What is a Secretarial Audit?
It is an independent examination of a company’s compliance with applicable corporate, securities and other specified laws.
Q: Who can conduct a Secretarial Audit?
Only a Company Secretary in Practice can conduct it and issue Form MR-3.
Q: Is Secretarial Audit mandatory for every company?
No. It applies to listed companies and other prescribed classes of companies.
Q: What is the turnover threshold for Secretarial Audit applicability?
For a public company, the prescribed turnover threshold is ₹250 crore or more.
Q: Can Secretarial Audit apply based on borrowings?
Yes. It applies to a company having outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more.
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