CS PROFESSIONAL PROGRAMME – SACMDD
Secretarial Audit – Compliances
The purpose of the Secretarial Audit is to sow the seed for effective governance. It is essentially an effective tool to monitor compliances. The Audit primarily evaluates the company on two main aspects, namely:
1. Conformity with Statutory Compliances
2. Conduct of the company in meeting such statutory compliances
Compliances are being regarded as value addition measures rather than statutory duty. It acts as a compass that reveals the direction in which the company is marching to. The continuing line of corporate scandals has necessitated the need for compliance. The laws are made more stringent and complex, regardless of the industry. Any non-compliance or inadequate compliance are treated with hefty penalties than ever, this is to hold the management responsible for the loss of integrity and shareholder trust in the company.
Secretarial Audit understands the complexities of the compliance needs – which are vast, interconnected, and vital to the success of any company. This ensures auditing of relevant statutory/operational books of Companies to verify whether the company has complied with Compliance requirements
Therefore the Company Secretary in Practice conducting the Secretarial Audit is vested with great responsibility and challenge as well to justify the faith and confidence laid on him. He/ She should take adequate care while conducting the ‘Secretarial Audit’ at the same time has to adhere to the highest standards of professional ethics and excellence in providing services. The Secretarial Auditor in his report of the secretarial audit shall express his independent opinion on the company’s compliance with laws applicable to it.
Speaking of the Scope of Secretarial Audit, the coverage area is growing day by day. The common set of laws under which the examination of books, papers, minute books, forms or returns filed, and other records maintained by the Company has been briefly reinstated below for better understanding. The audit substantially covers the below laws namely:
A. The Companies Act, 2013 and the rules made there under;
B. The Securities Contracts (Regulation) Act, 1956 and the rules made there under;
C. The Depositories Act, 1996 and the Regulations and Bye-laws framed there under;
D. The Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings;
E. The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-
i. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
ii. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015;
iii. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
iv. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and Securities And Exchange Board Of India (Share Based Employee Benefits) Regulations, 2014;
v. The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009;
vi. The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
vii. The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with the client;
viii. The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
F. Other Applicable Laws
i. Factories Act, 1948
ii. Payment of Wages Act, 1936
iii. The Minimum Wages Act, 1948
iv. Employees’ State Insurance Act, 1948
v. Provident Fund Act 1952 & Employees’ Pension Scheme 1995
vi. The Payment of Bonus Act, 1965,
vii. Payment of Gratuity Act, 1972,
viii. The Water (Prevention & Control of Pollution) Act, 1974, Read with Water (Prevention & Control of Pollution) Rules, 1975,
ix. Tami Nadu (Professional Tax) Act,
x. Prevention of Child Labour Act,
xi. Industries (Development & Regulations) Act 1971.
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On par with the best practices in the profession, the Audit widely ensures the coverage of the below standards and regulations as well, which are applicable to the company:
i. Secretarial Standards issued by The Institute of Company Secretaries of India.
ii. SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015
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I. Compliances under Companies Act
The major compliances in relation to companies emerge substantially from The Companies Act, 2013 (or the earlier Companies Act, 1956). In general, the main objective of the company is to make profits by carrying on its business and maximize its wealth. However, during this process of achieving its objectives and making profits, the important requirement of a company is to adhere to the legislative environment in relation to such objectives. This responsibility lies with the Board of Directors, officers, and professionals on behalf of the company. This ensures accountability and transparency with shareholders or stakeholders or customers or vendors or service providers or suppliers or regulators. In simple, a company would have failed in its commitment to be a responsible corporate citizen, if it doesn’t comply with the provisions of law.
Under the Companies Act, the basic compliances requirements that are examined are:
A. Compliance with all the requirements of the Act and Memorandum and Articles of Association in respect of notices, proxies, quorum, and minutes of all general meetings, board, and committee meetings as well.
B. Compliance with the maintenance of books and records, all the statutory registers, filed all forms, returns and notices to Registrar of Companies, Central Government or the prescribed authorities as per the provisions of the Companies Act, 2013/1956.
Checklist of Documents under Companies Act, 2013-
1. Register and Records include:
a. Register of Investments, Charges, Deposits, etc.
b. Register & Index of members/ shareholders, Debenture holders
c. Foreign registers of members or debenture holders
d. Register of Directors, KMP and their Shareholding
e. Register of investments of loans made, guarantee given or security provided
f. Register of contracts
g. Books of accounts & cost records
h. Register of directors’ attendance, shareholders’ attendance, etc.
i. Register of proxies
j. Register of Transfer
k. Register of renewed & duplicate certificates, Register of the destruction of records/documents, etc.
l. Register of fixed assets etc.
2. Timely Returns include:
a. Annual Returns on Financial Statement, Annual Accounts/Reports
b. Annual Return of Shareholders
c. Half-yearly MSME Returns
3. Other event-based Returns include:
a. Return of allotment
b. Return in relation to notice of redemption of preference shares, consolidation, division, increase in share capital, cancellation of shares, and increase in the number of members
c. Return in relation to notice of situation/change in the situation of registered office
d. Return filed in relation to Court/ CLB / NCLT orders
e. Return in relation to registration and filing of registration of resolution & agreements
f. Return of appointment of managing director/whole-time director/manager
g. Return on filing particulars of appointment of directors, managing director, manager or secretary & changes made
h. Return of deposits
i. Return in relation to creation/modification/satisfaction of charge
j. Return in relation to Significant Beneficial Owner (particulars of a beneficial interest in shares)
k. IEPF Returns
4. Records of Meeting Board/Committees/General Meetings and Minutes include
a. Details of meetings of Directors/Committee Members
b. Minutes book of meetings of the board of directors/committee members
c. Minutes of General Meeting including the Annual General Meeting
d. Proof of despatch of notices to members/ shareholders of Annual Report, General Meeting notices etc.
5. Share Certificates, Transfer/Transmission of Shares, Dividend, Board’s Report
a. Copies of Endorsed shares certificates and other securities
b. Transfer Deeds and transmission request letters etc.
c. Declaration, payment, and transfer of dividend
d. Board’s report
e. Transfer of unpaid amounts to the IEPF
6. Contracts / Arrangements include
a. Details of related parties
b. Details of transactions/contracts entered into under Section 188
c. Details of transactions/contracts entered into
7. Notices include copies of Show cause notices/default notices etc. received by the company from ROC, Central Government, NCLT or Court, if any.
Apart from the aforesaid checklist of documents, the scope under the Companies Act, 2013 also extended on the compliance on governance as vested under the Act. It has vast coverage throughout the Act, Rules and Forms that include but not limited to below main compliance requirements. Compliances of provisions of Companies Act, 2013 in relation to:
a. Composition of the Board and Committees
b. Adequate notice been served for meeting of Board, Committee or members
c. Passing of resolutions in Board and General Meetings
d. Alteration of Articles of Association
e. Filing of Resolutions and Agreements
f. Further issue of Shares
g. Buy-back of securities
h. Registration of Charges
i. AGM and General meetings including notice and explanatory statement
j. Appointment of Managerial Personnel
k. Board Report’s and its annexures etc.
II. Compliance with SEBI/Stock Exchanges
These compliances broadly include:
a. Periodic returns in XBRL / Normal mode relation to Share Holding Patter, Corporate Governance, Investor Grievances, etc.
b. Returns and intimations submitted with exchanges, including the intimation of Board and General meeting and duly submitting their outcome as well.
c. Correspondences exchanged with stock exchanges for complying with listing agreement clauses.
d. Compliance with various SEBI Regulations, broadly:
i. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
ii. SEBI (Issue Of Capital And Disclosure Requirements) Regulations, 2018
iii. SEBI (Prohibition of Insider Trading) Regulations, 2015
iv. SEBI (Depositories and Participants) Regulations, 2018
v. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 etc.
e. Other Regulations, Circulars, and notifications issued by SEBI from time to time.
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