How often should a company conduct a secretarial audit? A Complete Guide for Indian Businesses

As a business owner in India, are you confident that your company is meeting every single legal and regulatory requirement? The corporate landscape is complex, and staying compliant can feel like a full-time job. This is where a secretarial audit comes in, acting as a comprehensive health check-up for your company’s governance and compliance framework. Understanding the mandatory secretarial audit frequency is crucial, and this guide will clearly explain the rules, why they matter, and whether your business needs to schedule this critical review. The importance of secretarial audit in India cannot be overstated, as it is a vital tool for avoiding steep penalties, building investor trust, and ensuring long-term sustainable growth for your enterprise.

What is a Secretarial Audit? (And Why You Should Care)

Before diving into the frequency and requirements, it’s essential to grasp what a secretarial audit truly entails and why it holds significant value beyond just being a procedural formality. For many directors and business owners, it serves as a protective shield, offering peace of mind that the company’s affairs are being managed in accordance with the law. It is not merely about ticking boxes; it is about embedding a culture of robust compliance and ethical governance deep within the organization’s DNA. This proactive approach strengthens the company from the inside out, making it more resilient to regulatory changes and more attractive to potential partners and investors who prioritize stability and transparency in their business dealings.

Defining Secretarial Audit in Simple Terms

A secretarial audit is an independent, objective verification process conducted by a Practicing Company Secretary (PCS). The primary purpose of this audit is to systematically check and report on a company’s compliance with the provisions of various laws and regulations applicable to it. Think of it like a financial audit, but instead of scrutinizing financial statements, the PCS examines your company’s legal and procedural paperwork. This includes reviewing statutory registers, board minutes, annual filings, and adherence to rules under the Companies Act, 2013, SEBI Regulations (for listed companies), Foreign Exchange Management Act (FEMA), and other industry-specific laws. The goal is to provide an unbiased opinion on the state of your company’s corporate governance structure and compliance mechanism.

The Real Importance of Secretarial Audit in India

The value of a secretarial audit extends far beyond a simple compliance certificate. It’s a strategic tool that provides immense benefits to the company, its directors, and stakeholders. A thorough audit acts as a diagnostic tool, highlighting potential areas of concern before they escalate into serious legal or financial problems, thereby safeguarding the company’s reputation and financial health.

• Compliance Assurance: Its foremost benefit is ensuring that the company adheres to a complex web of corporate laws, including the Companies Act, 2013, Securities Laws, and other relevant regulations. This formal check provides the Board with confidence that the legal machinery of the company is functioning correctly.
• Risk Mitigation: By identifying non-compliance issues at an early stage, a secretarial audit helps the management take corrective action promptly. This proactive approach significantly reduces the risk of incurring heavy fines, penalties, and potential prosecution from regulatory bodies like the Registrar of Companies (ROC) or SEBI.
• Investor Confidence: For investors, lenders, and other stakeholders, a clean secretarial audit report is a powerful signal of good corporate governance. It demonstrates that the company is transparent, well-managed, and committed to ethical practices, making it a more attractive and reliable investment opportunity.
• Board of Directors’ Shield: Directors are personally responsible for the company’s compliance. A secretarial audit provides them with an independent assurance that the company’s affairs are in order, which can protect them from potential liabilities arising from non-compliance they might have been unaware of, which are detailed in the Liabilities of Directors and Key Managerial Personnel (KMP) Under the Act.

The Official Secretarial Audit Frequency: Is It Mandatory for You?

While the benefits are clear for any business, the question for most owners is whether this audit is a legal obligation for their specific company. The Indian government, through the Companies Act, 2013, has outlined specific criteria to identify companies for whom this annual check-up is not just good practice but a mandatory requirement. Understanding these thresholds is the first step in determining your company’s legal obligations and planning your compliance calendar accordingly. These regulations are designed to ensure that larger companies with a significant impact on the economy and public interest are held to a higher standard of governance and transparency.

Secretarial Audit Requirements for Indian Companies

Not every company registered in India is required to conduct a secretarial audit. The mandate is specifically for larger companies that meet certain financial thresholds. According to Section 204 of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following companies must conduct a secretarial audit. The secretarial audit guidelines India are very clear on this applicability.

The secretarial audit requirements for Indian companies make it mandatory for:

• Every listed company.
• Every public company having a paid-up share capital of ₹50 Crore or more.
• Every public company having a turnover of ₹250 Crore or more.
• Every company (including private companies) having outstanding loans or borrowings from banks or public financial institutions of ₹100 Crore or more.

For an official reference, you can always consult the regulations directly on the Ministry of Corporate Affairs (MCA) website.

So, How Often Should Secretarial Audits Be Conducted?

For all companies that meet any of the criteria mentioned above, the answer is direct and unambiguous. The mandatory secretarial audit frequency is once every financial year. This annual exercise is not optional. The audit must cover the entire financial year (from April 1st to March 31st), and the findings are compiled into a formal report. This report, presented in Form MR-3, must be attached to the Board’s Report, which is a crucial component of the company’s Annual Report filed with the Registrar of Companies. This ensures that the audit’s findings are transparent and accessible to all stakeholders, including shareholders and regulatory authorities.

Beyond the Mandate: Should Your Small Business Conduct a Voluntary Audit?

If your company doesn’t meet the mandatory thresholds, you might be tempted to dismiss the idea of a secretarial audit entirely. However, for ambitious startups and growing Small and Medium Enterprises (SMEs), this is a missed strategic opportunity. Choosing to conduct a voluntary audit can provide a significant competitive advantage and lay a strong foundation for future growth. It sends a powerful message to the market that your company is serious about governance, transparency, and building a sustainable business, even before it is legally required to do so. This foresight can be particularly beneficial when you are looking to scale, seek investment, or enter into strategic partnerships.

The Strategic Advantage for Startups and SMEs

Even if it’s not compulsory, a voluntary secretarial audit can be a game-changing tool for smaller businesses aiming for the big leagues. It’s an investment in your company’s future health and reputation.

• Due Diligence Readiness: If you plan to raise funds from angel investors or venture capitalists, they will conduct intense due diligence on your company. Having a recent, clean secretarial audit report makes this process smoother and faster, positioning your company as “investor-ready” and professionally managed.
• Proactive Problem-Solving: A voluntary audit helps you identify and fix compliance gaps before they evolve into costly legal battles or regulatory penalties. It’s far cheaper and less stressful to correct a minor procedural error early on than to deal with a show-cause notice from the ROC later.
• Strengthening Internal Controls: The audit process forces you to establish strong internal controls and documentation practices from the very beginning. This discipline builds a robust corporate governance framework that can easily scale as your business grows, preventing operational chaos down the line.
• Building Brand Credibility: In a crowded marketplace, trust is a valuable currency. Voluntarily subjecting your company to a secretarial audit demonstrates a deep commitment to transparency and ethical operations, which enhances your brand’s credibility with customers, suppliers, and potential partners.

Deciding the Right Frequency for a Voluntary Audit

So, if you decide to go the voluntary route, how often should secretarial audits be conducted? There is no legal mandate, so you have flexibility. The best approach depends on your company’s growth trajectory and strategic goals.

• Annually: For a rapidly growing business or one that deals with complex regulations, conducting a voluntary audit annually is the best practice. It instills a continuous discipline of compliance and ensures your records are always clean and up-to-date.
• Before a Major Event: At a minimum, a secretarial audit is crucial before any major corporate event. This includes preparing for a round of funding, planning a merger or acquisition, or considering a major business restructuring. The audit report will serve as a vital health certificate during these critical negotiations.

A Quick Guide to Conducting a Secretarial Audit for Companies in India

Whether mandatory or voluntary, the process for a secretarial audit follows a structured path. It requires close collaboration between the company’s management and the external Practicing Company Secretary. Here’s a simplified overview of the key steps involved, and you can learn more about the Best Practices for Conducting Secretarial Audits.

Step 1: Appoint a Practicing Company Secretary (PCS)

The process begins with the Board of Directors appointing an independent PCS to conduct the audit. This appointment must be formally approved and documented through a board resolution. It is crucial to select a PCS with relevant industry experience and a reputation for thoroughness.

Step 2: Collate and Provide Documents

The company must provide the appointed PCS with access to all relevant books, papers, and records. Key documents typically required include:

• Statutory Registers (Register of Members, Register of Directors, etc.)
• Minutes of Board, Committee, and General Meetings
• Filings and forms submitted to the ROC, SEBI, and other authorities
• Licenses, permits, and regulatory approvals
• Corporate Social Responsibility (CSR) records, if applicable

Step 3: The Audit and Reporting

The PCS will meticulously examine all the documents and verify the company’s processes against the applicable legal framework. They will check for procedural correctness, timely filings, and overall compliance. The auditor’s findings, observations, and qualifications (if any) are then compiled into the Secretarial Audit Report in the prescribed Form MR-3.

Step 4: Board Review and Filing

The final audit report is presented to the Board of Directors for their review and comments. The Board’s response to any qualifications or adverse remarks made by the auditor must be included in the Board’s Report. Finally, the Secretarial Audit Report is attached to the Board’s Report and filed with the Registrar of Companies as part of the company’s annual financial statements.

The process of conducting secretarial audit for companies in India can be complex. TaxRobo’s team of experts can manage the entire process for you.

Conclusion

In summary, the mandatory secretarial audit frequency for specified large companies in India is a strict annual requirement. This yearly check-up ensures that major corporate players adhere to the highest standards of governance. However, the true value of a secretarial audit lies in its strategic benefits, which are accessible to all businesses. For ambitious SMEs and startups, conducting a voluntary audit is not a burden but a powerful move towards building a robust, transparent, and investor-ready enterprise. It is a proactive investment in your company’s long-term health and reputation.

Whether you need to meet mandatory requirements or want to proactively strengthen your company’s governance, a secretarial audit is key. Contact TaxRobo today for a free consultation and ensure your business is built on a foundation of compliance and trust.

FAQs

1. What is the penalty for not conducting a mandatory secretarial audit?

Failure to comply with the mandatory secretarial audit requirement can lead to significant penalties under the Companies Act, 2013. The company, every officer of the company, and the company secretary who is in default can be liable for a penalty which can extend to ₹2 Lakhs.

2. Is a secretarial audit required for a Private Limited Company?

Generally, a secretarial audit is not mandatory for a Private Limited Company. However, there are two key exceptions:

• If a private company is a subsidiary of a public company which meets any of the mandatory criteria, it may also be required to conduct the audit.
• If a private company’s outstanding loans or borrowings from banks or public financial institutions are ₹100 Crore or more, the audit becomes mandatory.

3. Can our in-house Company Secretary conduct the secretarial audit?

No. The law requires the secretarial audit to be conducted by an independent Practicing Company Secretary (PCS). An in-house or employee Company Secretary cannot conduct the audit, as this would create a conflict of interest and undermine the principle of an independent, unbiased review. The Appointment and Qualifications of Company Secretaries: Section 203 outlines the specific roles and requirements for such professionals.

4. What is the difference between a statutory audit and a secretarial audit?

While both are mandatory audits for certain companies, they serve different purposes and are conducted by different professionals. A Statutory Audit focuses on financial records, whereas a Secretarial Audit focuses on legal and procedural compliance.

Feature	Statutory Audit	Secretarial Audit
Objective	To verify the truth and fairness of financial statements.	To verify compliance with corporate and other applicable laws.
Conducted By	A Practicing Chartered Accountant (CA).	A Practicing Company Secretary (PCS).
Scope	Covers financial records, books of account, and accounting principles.	Covers statutory registers, board processes, filings, and governance.
Reporting Form	Audit Report on Financial Statements.	Form MR-3 (Secretarial Audit Report).