Need and objective

With the introduction of concept of 'Secretarial Audit' in Voluntary Corporate Governance Guidelines (CGV) 2009 and the 'Companies Bill 2012', it has gained immense importance.The enactment of the Companies Act, 2013 has provisions of Secretarial Audit mandatory for bigger corporates through Section 204, w.e.f. 01.04.2014.

Secretarial Audit is the process of independent verification, examination of level of compliance of applicable Corporate Laws and other relevant industry specific laws applicable to a company. Secretarial Audit establishes better compliance platform by checking the compliances with the provisions of various statutes, laws, rules & regulations, procedures by a Practicing Company Secretary to make necessary recommendations and remedies. The primary objective of the Compliance Management backed Secretarial Audit is to safeguard the interest of the Directors & officers of the companies, shareholders, creditors, employees, customers etc.

The audit process if properly devised ensures timely compliance and eliminates any un-intended noncompliance of various applicable rules and regulations. Secretarial Audit is to be on the principle of “Prevention is better than cure” rather than post mortem exercise and to find faults. Timely examination of compliance reduces risks as well as potential cost of non-compliance and also builds better corporate image Section 204(4) states that, if company secretary in practice contravenes the provisions of section 204, he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five Lakh rupees.

It would act as a check on frauds. It would definitely reduce the number of prosecutions by Government & consequent litigation on account of noncompliance with the provisions of corporate and securities laws, thereby reducing burden on Courts as well as national exchequer. It acts as a pre-emptive check to ensure that the Board processes and compliance mechanisms of the company are robust thereby generating confidence amongst the shareholders, the creditors and other stakeholders in the company, besides instilling self-regulatory and professional discipline in companies.