Secretarial Audit is a compliance audit conducted by a Practicing Company Secretary (PCS) to verify whether a company has complied with all applicable laws, regulations, and governance norms. Under Section 204 of the Companies Act 2013, certain companies are mandatorily required to conduct a Secretarial Audit annually and attach the report (Form MR-3) to the Board's Report.
Who Must Conduct Secretarial Audit?
Under Section 204 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the following companies must conduct Secretarial Audit:
- Every listed company
- Every public company with a paid-up share capital of ₹50 crore or more
- Every public company with a turnover of ₹250 crore or more
- Every company that has outstanding loans or borrowings from banks and public financial institutions of ₹100 crore or more
Who Can Conduct Secretarial Audit?
Only a Practicing Company Secretary (PCS) — i.e., a member of the Institute of Company Secretaries of India (ICSI) who holds a Certificate of Practice — can conduct Secretarial Audit. The Board of Directors appoints the PCS through a Board resolution. The same PCS cannot be the company's internal Company Secretary.
Scope of Secretarial Audit
The PCS examines compliance with:
- Companies Act 2013 and rules made thereunder
- Securities laws (SEBI Act, SCRA, Depositories Act) — for listed companies
- FEMA — for foreign investment, overseas investments, ECB
- Industry-specific regulations applicable to the company
- Labour laws — PF, ESI, gratuity, etc.
- Secretarial Standards issued by ICSI (SS-1, SS-2)
- Listing obligations (SEBI LODR) — for listed companies
Form MR-3 — The Secretarial Audit Report
The PCS issues the report in Form MR-3. This report is attached as an Annexure to the Board's Report in the Annual Report. If non-compliances are found, the PCS must specifically identify and report them. Directors must then explain each qualification in the Board's Report.
Penalties for Non-Compliance
If a company required to conduct Secretarial Audit fails to do so, the company and every officer in default is punishable with fine ranging from ₹1 lakh to ₹5 lakh.
Conclusion
Secretarial Audit is a mandatory annual compliance for large companies — providing independent certification of legal and governance compliance. SPOTON's CS team conducts Secretarial Audits and prepares Form MR-3 reports for companies across Kerala. Contact us for comprehensive secretarial and MCA compliance services.
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