Secretarial Audit: Applicability, Process & Benefits

In today’s highly regulated corporate environment, legal compliance and strong governance are no longer optional, they are essential for sustainable business growth. One of the most important mechanisms introduced under the Companies Act, 2013 to ensure corporate compliance is Secretarial Audit.

Secretarial Audit functions as an independent compliance verification mechanism and structure. It also assists companies in identifying compliance gaps, avoiding regulatory penalties and strengthening corporate governance practices. This blog explains the meaning, applicability, process, scope, reporting requirements and benefits of Secretarial Audit in a manner fully aligned with statutory provisions and professional guidance.

What is Secretarial Audit?

Secretarial Audit is a compliance audit conducted by an independent Practising Company Secretary (PCS) to verify whether a company has complied with the applicable provisions of: -

• The Companies Act, 2013 and the rules made thereunder
• Securities laws (for listed companies)
• Secretarial Standards which are issued by the Institute of Company Secretaries of India (ICSI)
• FEMA and allied regulations
• Other laws specifically applicable to the company

Secretarial Audit is governed by Section 204 of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

The findings of the audit are reported in the Secretarial Audit Report in Form MR-3, which is annexed to the Board’s Report.

Objectives of Secretarial Audit

The key objectives of Secretarial Audit are: -

• Ensuring compliance with statutory and regulatory requirements
• Strengthening corporate governance and board processes
• Identifying non-compliances, delays and procedural lapses
• Mitigating legal, regulatory and reputational risks
• Protecting the interests of shareholders and various other stakeholders

Applicability of Secretarial Audit

As per Section 204 of the Companies Act, 2013, Secretarial Audit is mandatory for the following classes of companies: -

1. Listed Companies

All companies listed on any recognised stock exchange in India are mandatorily required to conduct Secretarial Audit.

2. Certain Unlisted Public Companies

Secretarial Audit is mandatory for unlisted public companies meeting any one of the following criteria: -

• Paid-up share capital of ₹50 crore or more, or
• Turnover of ₹250 crore or more

3. Unlisted Public Companies with Large Borrowings

Unlisted public companies having outstanding loans or borrowings from banks or any public financial institutions of ₹100 crore or more are required to conduct Secretarial Audit.

4. Other Classes of Companies (As Notified)

The Central Government may, by notification, extend the applicability of Secretarial Audit to other classes of companies.

Note: Private companies are not required to conduct Secretarial Audit unless specifically notified by the Central Government.

Appointment of Secretarial Auditor

• The Secretarial Auditor must be a Practising Company Secretary holding a valid Certificate of Practice.
• The appointment is made by the Board of Directors through a duly passed board resolution.
• The auditor must be independent and should not be disqualified under the Companies Act, 2013.

Scope of Secretarial Audit

The scope of Secretarial Audit is wide and includes verification of compliance with: -

• The Companies Act, 2013 and allied rules
• Secretarial Standards (SS-1 and SS-2)
• SEBI laws and regulations (for listed entities)
• FEMA, RBI regulations and foreign investment laws
• Other laws that are specifically applicable to the company’s business operations

The auditor also examines: -

• Composition and functioning of the Board and its committees
• Convening and conduct of board and general meetings
• Maintenance of statutory registers and records
• Filing of returns and forms with MCA and other regulators
• Related party transactions
• Appointment, resignation and remuneration of Directors and Key Managerial Personnel (KMP)

Process of Secretarial Audit

The Secretarial Audit is generally conducted through the following steps: -

Step 1: Appointment of Secretarial Auditor

The Board of Directors appoints a Practising Company Secretary as the Secretarial Auditor through a board resolution.

Step 2: Preliminary Discussion and Planning

The auditor holds initial discussions with the management to understand the company’s structure, operations and applicable laws.

Step 3: Examination of Records

The auditor verifies and examines: -

• Statutory registers and records
• Minutes of board and general meetings
• ROC and regulatory filings
• Agreements, licenses and approvals
• Internal policies and compliance frameworks

Step 4: Compliance Verification

A detailed review is conducted to verify compliance with applicable laws, rules, regulations and secretarial standards.

Step 5: Identification of non-compliances

Any non-compliances, deviations or procedural lapses are identified and documented.

Step 6: Management Representation

The auditor may seek explanations or clarifications from management and consider corrective actions taken.

Step 7: Issuance of Secretarial Audit Report

The final Secretarial Audit Report is issued in Form MR-3 and annexed to the Board’s Report.

Reporting under Secretarial Audit

The Secretarial Audit Report: -

• Must be annexed to the Board’s Report
• Should clearly state any qualifications, observations or adverse remarks
• Requires the Board of Directors to provide explanations or corrective actions for each qualification or observation

Failure to adequately explain adverse remarks may attract regulatory scrutiny.

Penalty for Non-Compliance

In case of non-compliance with the provisions of Section 204 of the Companies Act, 2013, the company, its officers and defaulting persons are liable to penalties as prescribed under Section 204(4) of the Act, as amended from time to time.

Apart from statutory penalties, non-compliance may adversely affect the company’s regulatory standing, investor confidence and corporate reputation.

Benefits of Secretarial Audit

Secretarial Audit provides both compliance-related and strategic benefits: -

1. Improved Legal Compliance

It ensures systematic and timely compliance with applicable corporate and regulatory laws.

2. Strengthened Corporate Governance

The audit promotes transparency, accountability, credibility and ethical governance practices.

3. Effective Risk Management

Early identification of the non-compliances helps to prevent penalties, litigation and reputational damage.

4. Enhanced Board Effectiveness

Secretarial Audit improves board processes, documentation and decision-making practices.

5. Increased Stakeholder Confidence

A clean Secretarial Audit Report enhances confidence among investors, lenders, regulators and other stakeholders.

6. Improved Compliance Culture

Regular audits foster a culture of compliance and discipline within the organisation.

Role of Management and the Board

While Secretarial Audit is conducted by an independent professional, the primary responsibility for compliance rests with the Board of Directors and management. They are responsible for: -

• Maintaining proper records, data and systems
• Providing accurate and proper information to the auditor
• Implementing corrective and preventive actions
• Ensuring continuous compliance throughout the financial year

Conclusion

Secretarial Audit is not merely a statutory formality; it is a vital governance tool that enhances legal compliance, transparency and accountability. By ensuring adherence to corporate and regulatory laws, Secretarial Audit helps companies mitigate risks, strengthen governance standards and build long-term stakeholder trust.

For companies falling within its applicability, conducting a timely and effective Secretarial Audit is essential for sustainable growth and regulatory confidence.