Laws and regulations a company secretary required to examine and report in secretarial audit

Secretarial audit is an audit applicable to certain specified companies to check compliance of various legislation including the Companies Act and other corporate and economic laws applicable to the company.

In our last article, we have discussed when and why secretarial audit is required for companies. In this article we will look into those laws and regulations that a company secretary is required to examine while conducting secretarial audit.

Laws and regulations a company secretary required

In terms of Form MR-3, the Secretarial Auditor needs to examine and report on the compliance of the following specific laws:

  • The Companies Act, 2013 (the Act) and the rules made there under;
  • The Securities Contracts (Regulation) Act, 1956 (“SCRA”) and the rules made there under;
  • The Depositories Act, 1996 and the Regulations and Bye-laws framed there under;
  • Foreign Exchange Management Act, 1999 and the rules and regulations made there under to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;
  • The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (“SEBI Act”):-
    1. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
    2. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
  • The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
  1. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
  2. The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
  3. The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client;
  • The Securities and Exchange Board of India (De-listing of Equity Shares) Regulations, 2009; and
  • The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998; In addition, the form MR-3, point (vi) also refers to „Other laws as may be applicable specifically to the company.‟
  • other laws as may be applicable specifically to the company

The Council of the ICSI at its 226th meeting held on November 21, 2014 decided on the Scope of Secretarial Audit as regards “point (vi) …….( other laws as may be applicable specifically to the company)”, which is placed as under:

Reporting on compliance of “Other laws as may be applicable specifically to the company” which shall include all the laws which are applicable to specific industry for example for Banks- all laws applicable to Banking Industry; for insurance company-all laws applicable to insurance industry; likewise for a company in petroleum sector- all laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement industry etc.

Examining and reporting whether the adequate systems and processes are in place to monitor and ensure compliance with general laws like labour laws, competition law, environmental laws etc.

In case of financial laws like tax laws and Customs Act etc., Secretarial Auditor may rely on the Reports given by Statutory Auditors or other designated professionals.

Secretarial Auditor needs to examine and report on the compliance with the applicable clauses of the following:

  • Secretarial Standards issued by The Institute of Company Secretaries of India and approved by the Central Government.
  • The Listing Agreements entered into by the Company with Stock Exchange(s), if applicable;

Format of Secretarial Audit Report also requires reporting on whether;

  • The Board of Directors of the Company is duly constituted with proper balance of Executive Directors, Non-Executive Directors and Independent Directors.
  • The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act.
  • Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent at least seven days in advance, and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting.
  • Majority decision is carried through while the dissenting members‟ views are captured and recorded as part of the minutes.
  • There are adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines.

Secretarial Auditor is required to report and provide details of specific events and actions occurred during the reporting period having major bearing on the affairs of the Company in pursuant to above referred laws or rules & regulations.

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