Brief Overview of the Article With the introduction of the Secretarial Audit in the Companies Act 2013 and making it mandatory for all the listed companies and for a certain class of public companies, is a welcome step towards the way of Corporate Governance. Secretarial Audit is the examination and verification of the compliance status of the various laws applicable to the company, however it should not merely be treated as the Compliance Audit, rather it should be an audit of the examination and verification of the ethical standards, observance of the transparency and disclosure, observance of integrity and honesty of the key managerial persons, efforts for environmental protection for sustainable growth and Corporate Social Reasonability for the benefit of the society at large. This paper is an attempt to review our professional duties just not limited to the adherence of laws but also to observer the ethical standards too. Secretarial Audit - Scope under the New Companies Act The ‘audit’ may mean the examination of books of accounts of an entity. When we talk about the ‘Secretarial Audit’, it may mean the examination relating to the compliance of the various laws applicable to a Company. Secretarial Audit: As per the ICSI, the Secretarial Audit is a process to check compliance with the provisions of all applicable laws and rules/regulations/procedures; adherence to good governance practices with regard to the systems and processes of seeking and obtaining approvals of the Board and/or shareholders, as may be necessary, for the business and activities of the company, carrying out activities in a lawful manner and the maintenance of minutes and records relating to such approvals or decisions and implementation. Companies Act, 1956: As per the erstwhile Companies Act 1956, section 383A provided that,every Company having paid-up capital of INR 5.00 crores and above is to have a whole time secretary. However, where the paid-up capital is between INR 2.00 crores but less than INR 5.00 crores the company may have a whole time secretary OR obtain a Secretarial audit certificate from a Practicing Company secretary. Every Company having paid-up capital INR 10.00 Lakhs or above to obtain a Secretarial Audit certificate from a Practicing Company Secretary. So as per the CA 1956, it was merely a Secretarial Compliance Certificate and the scope was also limited. Corporate Governance Voluntary Guidelines 2009: The Voluntary Guidelines 2009 has suggested for the Secretarial Audit. The para V of the Voluntary Guidelines reads as under: “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 mechanism of the company are robust. To ensure this, companies may get the Secretarial Audit conducted by the competent professional. The Board should give its comments on the Secretarial Audit in its report to the shareholder.” Although the guidelines were voluntary, but it was expected to set a good governance practices by the Public Companies as well as the large Private Companies and were recommendatory in nature. These guidelines were incorporated in the Companies Bill 2009 and 2012, which later on, shaped in the form of Companies Act 2013. Companies Act 2013: Section 204 (1) of the CA 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managing Personnel) Rules 2014, provides that every listed company, or every public company having a paid up share capital of INR 50 crore or more, or every public company having a turnover of INR 250 crores or more 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 [Form MR-3 of the Companies ( Appointment and Remuneration of Managerial Personnel) Rules, 2014] as may be prescribed. The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall explain in full any qualification or observation or other remarks made by the company secretary in practice in his report under sub-section (1). From the above, the following points can be derived: It is applicable on all the listed companies. It is not applicable on the private companies since they are not listed. The secretarial audit is not applicable on private companies irrespective of their size, turnover, paid up capital, net worth, number of employees etc. whatsoever it may be. The applicability is also based on the basis of the paid up share capital or turnover crossing the threshold limit by the public companies even if it is not a listed company. The secretarial audit report is to be annexed with the Board Report and the Board is to give clarification / explanation if the report has been qualified by the auditor. How the secretarial auditor will be appointed and what will be the tenure, has not been prescribed in the Act. The Act has specifically earmarked this role exclusively for the Company Secretary in Practice. The Act do not prescribe the disqualification for appointment of the Secretarial Auditor. The ceiling of number of audits which a PCS may undertake, has not been prescribed. Scope of the Secretarial Audit: The secretarial audit is the process to examine the verification and report of compliance of various laws applicable to that company. Hence, not alone the Companies Act but almost all the Acts and Regulations which are applicable on that particular company or the area/ field in which the company is operating are the subject matter of the Secretarial Audit. The Rule 9 of the Companies (Appointment and Remuneration Personnel) Rules 2014 prescribes that the Secretarial Audit Report should be given in Form MR-3. The report shall cover the adherence of compliance of the provisions, inter alia of the followings: i. The Companies Act, 2013 and the rules made there under, ii. The Securities Contracts (Regulations) Act 1956 and the rules made there under iii. The Depositories Act, 1996 and the Regulations and Bye-laws framed there under iv. Foreign Exchange Management Act, 1999 and the rules made there under. v. The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’): The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; 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; The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999; The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008; 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 (Delisting of Equity Shares) Regulations, 2009; and The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998; vi. Any other law specifically applicable to such company Corporate Governance and Secretarial Audit: The introduction of Secretarial Audit and to make it compulsory for all the listed companies and for certain class of public companies in the Companies Act 2013, is a welcome step and it is the way towards the adherence of the Corporate Governance. The Corporate Governance, as defined by the ICSI, is the application of the best management practices, compliance of laws in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stake holders. The definition narrates the words “compliance of laws in true letter and spirit and adherence to ethical standards”, is very much important. The laws though discussed and drafted by the eminent personalities and passed by the respective governments, often leaves some lacunas / loop holes which may be the areas of practice for the professionals and advocates. However, in order to enhance the values of the best corporate governance practices, the compliance of the laws should in true letter and spirit to enhance the value to all the stakeholders. It has been well said that the business cannot go a long way on the false representations, unethical standards of profit making and ballooning the size of the balance sheet. A lot of examples of Indian and Foreign Companies are before us. Issues relating to the Corporate Governance were adhered in these companies too, but then what went wrong? Harshad Mehta securities scam in 1992 happened due to inefficiency in settlement system in GOI bond market transactions and Bank Receipts ( BRs). Global Trust Bank came into existence in 1994 as a fast moving new generation private sector bank but moratorium was put on it by the RBI in 2004 just in ten years. The reason was mounting NPAs, large exposure in un-secured advances and funding to the scam master Ketan Desai and losses in the securities market. Number of Plantation Companies incorporated during the period of 1993-1996 and crores of rupees were collected through the plantation scheme and vanished in few years of operations promising the huge returns to the investors. Insider trading game in M S Shoes in 1994 manipulated the share prices of the company and after the game over, the brokers defaulted and the BSE was shut done for 3 days as a result of it. CRB Group of companies was created by the C R Bhansali. The group companies were involved in manipulating the market by cooking the performance figures and obtaining the funds from the external sources using such manipulated performance. Satyam Computers- the ballooning of the balance sheet size and cooking of the unrealistic profits burst and came in to light in Jan 2009. Prior to this the company was awarded a 3rd rank in corporate governance survey by the Global Institutional Investors in 2005. At the International front also some of the examples are of Unethical ways of treating the revenue nature of expenses as capital expenses and thus spreading the expenses amount over years ), Collapse of Enron (USA) and auditing firm Arthur Anderson in 2001. It was alleged that millions of dollars were funded to the top executives and their friends and relatives. The Enron used the complex financial partnerships to conceal the mounting debts which the auditor firm Arthur Anderson reportedly approved the false financial statements of the Enron. This resulted the enactment of the Sarbanes- Oxley Act 2002. The SOX Act is a sincere attempt to address all the issues associated with the corporate failures to achieve quality governance to restore the investor’s confidence. From the above discussions and quoting the few examples of the corporate, who did well in the beginning, complied with the applicable laws but gradually in order to cooking the profits through the unethical standards, collapsed and earned a bad name in the Corporate World. So the Secretarial Audit should not merely be of skin deep length, rather it should built a strong fundamental base. Conclusion: Thus the Secretarial Audit should not be treated merely as the Compliance Audit, rather it is an audit of the examination and verification of the ethical standards, observance of the transparency and disclosure, observance of integrity and honesty of the key managerial persons, efforts for environmental protection for sustainable growth and corporate social reasonability for the benefit of the society at large.