Who can perform a secretarial audit – internal staff or external professionals?

In today’s competitive business landscape, building trust with investors, regulators, and customers is paramount. Strong corporate governance and unwavering legal compliance are no longer optional extras but the very foundation of a sustainable enterprise in India. One of the most critical tools for ensuring this compliance is the secretarial audit, a comprehensive health check of a company’s legal and procedural framework. As businesses grow and cross certain thresholds, a pivotal question emerges: Who is qualified to conduct this crucial audit? Can your trusted internal team handle it, or must you hire external secretarial audit professionals? This guide will provide a clear, legally-backed answer, breaking down the roles, qualifications, and requirements as per Indian law.

What is a Secretarial Audit and Why is it Mandatory in India?

Before diving into who can perform the audit, it’s essential to understand its purpose and the legal mandate behind it. The secretarial audit is not merely a box-ticking exercise; it’s a proactive mechanism to ensure a company adheres to the complex web of corporate laws, preventing costly penalties and reputational damage down the line. It offers the Board of Directors an independent assurance that the company has robust systems in place for legal compliance.

Defining the Secretarial Audit

A secretarial audit is an independent verification process conducted to check a company’s compliance with the provisions of various corporate and economic laws. It examines and reports on the adherence to good corporate practices. The scope of this audit is quite broad and covers a wide array of legislation to ensure the company is functioning within the legal boundaries set by the government.

Key laws covered under the purview of a secretarial audit include:

• The Companies Act, 2013 and the rules made thereunder.
• The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder.
• The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder.
• Foreign Exchange Management Act, 1999 (FEMA) and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings.
• Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (SEBI Act), such as the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Which Companies Must Comply with Secretarial Audit Requirements in India?

The mandate for a secretarial audit is not applicable to all companies. The secretarial audit requirements India are explicitly laid out in Section 204 of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. A secretarial audit is mandatory for the following classes of companies:

1. Every listed company: Any company whose shares are listed on a recognized stock exchange in India must undergo a secretarial audit annually.
2. Every public company with a paid-up share capital of ₹50 Crore or more: This threshold applies to large public companies, regardless of whether they are listed or not.
3. Every public company with a turnover of ₹250 Crore or more: Turnover is another key financial metric that triggers the requirement for a secretarial audit for public companies.
4. Every company with outstanding loans or borrowings from banks or public financial institutions of ₹100 Crore or more: This is a crucial and often overlooked criterion. It means that even a private limited company, if its borrowings from banks/PFIs reach this threshold, will be required to conduct a secretarial audit.

The Core Debate: Internal Staff vs. External Professionals

This brings us to the central question of our discussion. Can the diligent in-house Company Secretary or the internal legal team, who manage compliance year-round, conduct this audit? Or is it mandatory to look outside the organization? The law is unequivocally clear on this matter, emphasizing the principle of independence. The internal vs external secretarial audit India debate is settled by the statute itself.

The Role and Limitations of Internal Staff

An internal legal team or an in-house Company Secretary is the backbone of a company’s compliance function. They are invaluable assets responsible for day-to-day compliance, maintaining statutory books and registers, preparing for board meetings, filing forms with the Registrar of Companies (RoC), and ensuring that internal processes align with legal requirements. Their deep understanding of the company’s operations is crucial for maintaining good governance.

However, despite their expertise and importance, secretarial audit internal staff India are legally barred from conducting the official secretarial audit. The fundamental reason is the absence of independence. An audit, by its very nature, must be an unbiased and objective assessment. An employee, who is part of the company’s management and on its payroll, cannot be considered independent. They cannot provide a truly impartial opinion on the compliance framework they themselves helped create and manage. It would be a classic case of a conflict of interest.

The Mandate for External Professionals

To ensure credibility, transparency, and objectivity, the Companies Act, 2013, mandates that the secretarial audit be conducted by an independent third party. The findings of the audit report are presented to shareholders, regulators, and other stakeholders, who must have complete confidence in its impartiality. This is why the law insists on engaging external professionals for secretarial audit. These professionals are not employees of the company and can therefore offer an unbiased, arm’s-length perspective on the company’s state of compliance. Their report carries the weight of professional independence, which is the cornerstone of any credible audit.

Who are the Qualified Secretarial Audit Professionals in India?

The law is not just specific about the need for an external professional; it is also extremely specific about who that professional can be. Not every legal or finance professional is authorized to conduct this specialized audit. The question of who performs secretarial audit India has a single, definitive answer.

The Only Authorized Professional: The Company Secretary in Practice (PCS)

As per Section 204 of the Companies Act, 2013, only a Company Secretary in Practice (PCS) is legally authorized and qualified to conduct a secretarial audit and furnish the Secretarial Audit Report.

It is crucial to understand the term “in Practice.” A Company Secretary (CS) can either be in employment (an in-house CS) or in practice (a PCS). A PCS is a qualified member of the Institute of Company Secretaries of India (ICSI) who holds a Certificate of Practice. This certificate allows them to offer their professional services to the public, much like a Chartered Accountant in practice or a lawyer running their own firm. A PCS is an independent professional who is not on the payroll of the company they are auditing, thereby satisfying the critical requirement of independence.

Qualifications and How to Verify Them

To ensure you are engaging a legitimately qualified professional, you must be aware of the secretarial audit professionals qualifications India. A person designated as a PCS must meet the following criteria:

• Be an active member of the Institute of Company Secretaries of India (ICSI).
• Hold a valid Certificate of Practice (CoP) issued by the ICSI.

Actionable Tip: Before appointing a professional, it is a prudent step for any company to verify their credentials. You can easily do this by visiting the official ICSI website and using their member verification portal.

To verify a professional’s status, you can visit the ICSI’s directory of members in practice here: ICSI Members in Practice Directory.

How TaxRobo Can Help You with Your Secretarial Audit Needs

Navigating the complexities of compliance and finding the right independent professional can be a daunting task for business owners. The process involves identifying a qualified PCS, negotiating terms, coordinating the audit, and then acting on the findings. This is where TaxRobo simplifies your entire compliance journey, connecting your business with a network of vetted, experienced, and reliable secretarial audit professionals across the country.

Simplifying Your Compliance Journey

At TaxRobo, we understand that your focus should be on growing your business, not getting bogged down by regulatory hurdles. We act as your compliance partner, ensuring your secretarial audit is handled seamlessly and efficiently. We bridge the gap between your company and the top secretarial audit professionals India has to offer, ensuring a smooth, transparent, and thorough audit process.

Our Secretarial Audit Services

Our end-to-end secretarial audit services India are designed to provide you with complete peace of mind. We assist you with:

• Appointing a Qualified PCS: We connect you with an independent Company Secretary in Practice whose credentials have been thoroughly verified.
• Coordinating the Audit: We facilitate communication and act as a liaison between your team and the auditor to ensure a smooth process.
• Documentation Support: We help you collate and prepare all the necessary documentation and information required by the auditor.
• Advisory on Rectification: If the audit uncovers any non-compliances, we provide expert guidance on the corrective actions required to strengthen your governance framework.

Don’t leave your company’s compliance to chance. Partner with experts who can navigate the legal landscape for you.

Connect with Our Compliance Experts Today

Conclusion

To circle back to our original question, the answer is definitive and enshrined in Indian corporate law. While your internal compliance team is essential for day-to-day operations, they are legally prohibited from conducting the official secretarial audit due to the principle of independence.

Let’s recap the main points:

• A secretarial audit is a mandatory annual requirement for all listed companies and other large companies in India meeting specific financial thresholds.
• Internal staff, including in-house Company Secretaries, are vital for daily compliance but CANNOT legally conduct the secretarial audit.
• The audit must be performed by an independent, external Company Secretary in Practice (PCS) who holds a valid Certificate of Practice from the ICSI.

Viewing the secretarial audit not as a burden but as a valuable tool for risk mitigation and strong corporate governance can transform your approach to compliance. Ensure your company is legally sound and secure. Contact TaxRobo for end-to-end support with your secretarial audit services India.

Frequently Asked Questions (FAQs)

Q1: What is the penalty for not complying with secretarial audit requirements?
A: The penalty for non-compliance is specified under Section 204(4) of the Companies Act, 2013. If a company or any officer of the company or the company secretary in practice contravenes the provisions, they shall be punishable with a fine which shall not be less than one lakh rupees but which may extend to two lakh rupees.

Q2: Can a Chartered Accountant (CA) or a lawyer perform a secretarial audit?
A: No. While Chartered Accountants are authorized to conduct financial/statutory audits and lawyers provide legal advice on various matters, Indian law is explicit that a secretarial audit can only be conducted by a Company Secretary in Practice (PCS). Their roles are distinct and not interchangeable in this context.

Q3: What is Form MR-3?
A: Form MR-3 is the prescribed format for the Secretarial Audit Report. The PCS must prepare and sign their findings in this specific form. This report is then required to be annexed with the Board’s Report, which is part of the company’s annual report.

Q4: Is a secretarial audit required for a large private limited company?
A: Generally, private companies are exempt. However, the requirement is triggered for a private limited company if its outstanding loans or borrowings from banks or public financial institutions are ₹100 Crore or more. Additionally, if a private company is a subsidiary of a public company that meets any of the prescribed criteria, it will also need to comply. It’s always crucial to check the latest secretarial audit requirements India to ensure compliance.