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Companies Act, 2013 By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI

Companies Act, 2013 By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI Practising Company Secretary At ACAE For Chartered Accountants mamtab@mamtabinani.com dated : 16.11.2013. SECRETARIAL AUDIT. UNDER THE COMPANIES ACT, 2013 (Sections 134, 143, 204). Section 134.

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Companies Act, 2013 By CS Mamta Binani Past Chairperson (Year 2010), EIRC of ICSI

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  1. Companies Act, 2013 By CS MamtaBinani Past Chairperson (Year 2010), EIRC of ICSI Practising Company Secretary At ACAE For Chartered Accountants mamtab@mamtabinani.com dated : 16.11.2013

  2. SECRETARIAL AUDIT UNDER THE COMPANIES ACT, 2013 (Sections 134, 143, 204)

  3. Section 134 • 134(1): Every financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board, as laid in the section and then submitted to the auditor for his report thereon. • 134(2): The auditors’ report shall be attached to every financial statement. • 134(3): There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include :

  4. Secretarial Audit Inter-alia: • Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made— (i) by the auditor in his report; and (ii) by the company secretary in practice in his/her secretarial audit report Comments: Quite a lot of emphasis is laid by the Government

  5. Powers & Duties of Auditors • Section 143(14): Mentions that the provisions of section 143 will apply mutatis-mutandis to: 1. the cost accountant in practice conducting cost audit under section 148 or 2.the company secretary in practice conducting secretarial audit under section 204

  6. Very Critical Provision • Section 143(12):Notwithstanding anything contained in this section, if an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe • that an offence involving fraud is being or has been committed against the company by officers or employees of the company • he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed

  7. Look at the Penal Provisions • Section 143(15): If any auditor, cost accountant or company secretary in practice do not comply with the provisions of sub-section (12) • he shall be punishable with fine which shall not be less than Rs.1.00 lakh but which may extend to Rs.25.00 lakhs • Section 143(13): No duty to which an auditor of a company may be subject to shall be regarded as having been contravened by reason of his reporting the matter referred to in sub-section (12), if it is done in good faith

  8. What are the Powers & Duties • 143(1): Right of access at all times to the books of account whether kept at registered office or elsewhere • Require information from the officers of the company, as may be necessary for the performance of his duty as an auditor • 143(2): The auditor to make a report to the members about the true and fair view of the financial statements • 143(3): The information that the auditor’s report has to also state etc.

  9. Enabling Provision-Section 204 • Section 204(1):Every listed company and a company belonging to other class of companies shall annex with its Board’s report made in terms of section 134(3), a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed • Section 204(2):It shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for auditing the secretarial and related records of the company • Section 204(3): BOD to explain in their report-any qualification or observation or other remarks made by the CS in Practice

  10. Penalty Provision • Section 204(4):If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section • the company, every officer of the company or the company secretary in practice, who is in default • shall be punishable with fine which shall not be less than Rs.1.00 lakh but which may extend to Rs.5.00 lakhs

  11. As per Draft Rules Prescribed in Chapter XIII • SECRETARIAL AUDIT Rule 13.7 (1): For the purposes of section 204(1), the other class of companies shall be as under: (a) Every public company having a paid-up share capital of Rs.100.00 crores or more. • The format of the Secretarial Audit Report shall be in Form No.13.3

  12. Specimen of draft Form no.13.3 • To The Board of Directors/Members ______________(Name and Address of the Company) • I have examined the registers, records and documents of _____________ (“the Company”) for the financial year ended on March ___________ according to the provisions of – • (i) the Companies Act, 2013 and the Rules made under that Act; • (ii) the Memorandum and Articles of Association of the Company; • (iii) the Securities and Exchange Board of India Act, 1992 and the rules/regulations made under that Act; (where applicable)

  13. Contd… • (iv) the Reserve Bank of India Act, 1934 and the rules/regulations/directions made under that Act; (where applicable) • (v) the Securities Contracts (Regulation) Act, 1956 and the Rules made under that Act; (where applicable) • (vi) the Depositories Act, 1996 and the Regulations and Bye-laws framed under that Act; (where applicable) • (vii) the Foreign Exchange Management Act, 1999 and the Rules and Regulations made under that Act; (where applicable) • (viii) the Competition Act, 2002 and the rules and regulations made under that Act;(where applicable)

  14. Contd… • 2. Based on my examination and verification of the registers, records and documents produced to me and according to the information and explanations given to me by the Company, I report that the Company has, in my opinion, complied with the provisions of the Companies Act, 2013 (“the Act”) and the Rules made under the Act and the Memorandum and Articles of Association of the Company, with regard to: • (a) maintenance of various statutory registers and documents and making necessary entries therein; • (b) closure of the Register of Members / Debenture holders/other security holders;

  15. Contd…. • (c) forms, returns, documents and resolutions required to be filed with the Registrar of Companies and the Central Government; • (d) service of documents by the Company on its Members, Debenture holders, Other security holders, Debenture Trustees, Auditors, Cost auditors (where applicable), Secretarial auditor (where applicable), the Registrar of Companies and the Stock exchange (where applicable); • (e) contents and service of notice of Board meetings and Committee meetings of Directors; • (f) convening and holding the meetings of Directors and Committees of Directors including passing of resolutions by circulation;

  16. Contd…. • (g)the Annual General Meeting/Extraordinary General meetings of the company; • (h) minutes of proceedings of General Meetings and of the Board and its Committee meetings; • (i) approvals of the Members including through postal ballot (wherever required), the Board of Directors, the Committees of Directors and the government authorities, wherever required; • (j)constitution of the BOD/ Committee(s) of Directors, appointment, retirement and re-appointment of Directors including the Managing Director and Whole-time Directors, and Key managerial personnel;

  17. Contd…. • (k) payment of remuneration to Directors including the Managing Director and Whole-time Directors and key managerial personnel; • (l) appointment and remuneration of Auditors, secretarial auditor (where applicable); and Cost Auditors (where applicable); • (m) transfers and transmissions of the Company’s shares and debentures, issue and dispatch of duplicate certificates and requirements with regard to dematerialization and re-materialization of securities; • (n) redemption of preference shares (where applicable);

  18. Contd…. • (o) payment of interest on debentures and redemption of debentures; (where applicable) • (p) declaration and payment of dividends; • (q) acceptance of deposits from members or public, where applicable; • (r) transfer of certain amounts/securities as required under the Act to the Investor Education and Protection Fund, uploading of details of unpaid and unclaimed dividends on the relevant websites; • (s) borrowings and registration, modification and satisfaction of charges wherever applicable;

  19. Contd…. • (t) investment of the Company’s funds including inter corporate loans and investments and loans to others (where applicable); • (u) giving guarantees in connection with loans taken by subsidiaries and associate companies (where applicable); • (v) form of financial statement as prescribed under Schedule III of the Act; • (w) allotment of securities of the Company pursuant to Employees Stock Option Scheme(where applicable);

  20. Contd…. • (x) buy-back of equity shares of the Company (where applicable); • (y) issue of sweat equity shares, (where applicable); • (z) Directors’ report; • (za) contracts, agreements, common seal, registered office and publication of name of the Company; • (zb) secretarial standards, • (zc) generally, all other applicable provisions of the Act and the Rules made under the Act.

  21. Contd…. • 3. I further report that: • (a) the Directors/Key managerial personnel have complied with the requirements as to disclosure of interests and concerns in contracts and arrangements, shareholdings / debenture holdings and directorships in other companies and interests in other entities; • (b) the Directors have complied with the disclosure requirements in respect of their eligibility of appointment, their being independent and compliance with the provisions of the Companies Act and, where applicable, Listing Agreement;

  22. Contd…. • 3. I further report that: • (c) the Company has obtained all necessary approvals under the various provisions of the Act; and • (d) there was no prosecution initiated and no fines or penalties were imposed during the year under review under the Act, SEBI Act, RBI Act, SCRA, Depositories Act, Listing Agreement and Rules, Regulations and Guidelines framed under these Acts against/ on the Company, its Directors and Officers.

  23. Contd…. • 4. I further report that the Company has complied with the requirements under Acts, rules and regulations mentioned in para 1 above. • 5. I further report that based on the information received and records maintained, 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.

  24. Contd…. • Place : • Signature: • Date : Name of Company Secretary in practice / Firm: • ACS/FCS No. • C P No.: • Note: Para wise details of the Audit finding, if necessary, may be placed as annexure to the report

  25. ICSI made representations • The Institute of Company Secretaries of India made representations to the Ministry of Corporate Affairs expressing its concerns over some of the provisions relating to Secretarial Audit • For quick reference, the representation is being produced herewith, in the next few slides

  26. ICSI representation on Secretarial Audit • MCA: 2013 October 21, 2013 ShriNavedMasood, IAS Secretary to Government of India Ministry of Corporate Affairs ShastriBhawan New Delhi Dear Sir, Sub: Draft rules with respect to Secretarial Audit under the Companies Act, 2013

  27. ICSI repn. on Secretarial Audit…Contd • Section 204(1) of the Companies Act, 2013 provides that every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board’s report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such form  as may be prescribed. The draft Rule 13.7. (1), however provides that the other class of companies shall be as under: • (a) Every public company having a paid-up share capital of one hundred crore rupees or more.” 

  28. ICSI repn. on Secretarial Audit…Contd • 2. We submit the following in this regard: • a. Section 204 focuses on governance as also compliance with applicable laws, as evident from draft format issued along with draft rules. This can’t be overlooked for companies which have a paid up capital of less than Rs.100 crore. • b. The requirement proposed in draft rules would keep 99% of the companies out of purview of section 204 of the Act.

  29. ICSI repn. on Secretarial Audit…Contd • 2. We submit the following in this regard: • c. Generally, in large corporates the level of governance is expected to be higher compared to smaller companies. In this context, it is all the more necessary to ensure governance in those companies where the public interest would be substantially high. In this context, “public interest” would constitute: • Amount of paid-up capital; • Total net-worth; • Turnover; • Borrowings including fixed deposits; • Number of stakeholders.

  30. ICSI repn. on Secretarial Audit…Contd • 3. Secretarial Audit comprises of verification of compliance of provisions of various laws and rules/procedure, by an independent professional to ensure that the company has complied with the legal and procedural requirements and also followed due processes. This can’t be overlooked for a public company having a bank borrowing of Rs. 200 crore but with paid-up share capital of Rs. 10 crore only. Also this can’t be overlooked for a private company.

  31. ICSI repn. on Secretarial Audit…Contd • 4. The Companies Act, 2013 for the first time defines the term ‘fraud’. Severe punishment for fraud has been provided at several places throughout the entire Act. Under the Act, the duty has been cast on practicing company secretary who is conducting secretarial audit to report fraud to the Central Government. • In the interest of governance, transparency and compliance, the rules may provide that “For the purposes of sub-section (1) of section 204, the other class of companies may be as under:

  32. ICSI repn. on Secretarial Audit…Contd • (a) every company having a paid-up share capital of Rs.10 crore or more or annual turnover of Rs. 25 crore or more as per its last audited financial statement; Or • (b) every company having outstanding loan or borrowing from Bank or Financial Institution or accepted public deposits exceeding Rs. 25 crore or more at any point of time in last financial year. Thanking you Yours faithfully (M S Sahoo), Secretary

  33. For info - Secretarial Audit • The Ministry had in its Corporate Governance Voluntary Guidelines, 2009 released during the India Corporate Week (Dec 14-21, 2009) mentioned about Voluntary Secretarial audit on page 20 of the said document in Para V. • For quick reference, the link enabling access to the said document is provided hereunder: www.mca.gov.in/Ministry/latestnews/CG_Voluntary _Guidelines_2009_24dec2009.pdf

  34. What was there in Voluntary Guidelines • V. SECRETARIAL AUDIT Since the Board has the overarching responsibility of ensuring transparent, ethical and responsible governance of the company, it is important that the Board processes and compliance mechanisms of the company are robust. To ensure this, the companies may get the Secretarial Audit conducted by a competent professional. The Board should give its comments on the Secretarial Audit in its report to the shareholders.

  35. For info - Secretarial Standards • 118(1): Every company shall cause minutes of the proceedings of every meeting prepared and signed in such manner as may be prescribed and kept within 30 days of the conclusion of every such meeting concerned in books kept for that purpose with their pages consecutively numbered. • 118(10): Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India and approved as such by the Central Government.

  36. For sake of clarity This PPT covers the actual provisions envisaged in the new law. As, it is quite important to first know the letter of law.

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