Wednesday, April 20, 2016

Queries on Secretarial Audit

The present paper elaborates five most common queries relating to the Secretarial Audit. It relates to the applicability, number of audits, a PCS may undertake, scope of the audit and penal provisions.
1. ABC Pvt Ltd. was incorporated in the year 2010 as Private Company. Its paid up capital is Rs 35 crore, but the annual turnover for the financial year ended on 31stMarch, 2016, first time crossed from Rs 240 crores to Rs 300 crores. XVY Ltd, a public company, controls the composition of the Board of Directors of ABC Pvt Ltd, hence in terms of Section 2(87) of Companies Act, 2013, ABC Pvt Ltd is treated as subsidiary company of XYZ Ltd. A newly appointed Company Secretary of ABC Pvt Ltd suggested the Board of Directors to get the Secretarial Audit of this company. Whether the Secretarial Audit of a Private Limited Company is mandatory as per the provisions of the Companies Act, 2013.
Section 204(1) of the Companies Act, 2013 (CA 2013) provides secretarial audit for bigger companies. In terms this section, "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'.

Further, Rule 9(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (Rules) provides that for the purposes of sub-section (1) of section 204, the other class of companies shall be as under:
a.

every public company having a paid up share capital of Rs. 50 crore or more; or
b.

every public company having a turnover of Rs. 250 crores or more.
Sub-section (2) provides that the format of the Secretarial Audit Report shall be in Form No. MR-3.
Paid-up share capital: In terms of Section 2(64) states that 'paid-up share capital' or 'share capital paid-up' means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called
Turnover: In terms of section 2(91) 'turnover' means as the aggregate value of the realization of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year.
Hence, from the plain reading of section 204(1) read with relevant Rules, the Secretarial Audit is mandatory only for the public companies which are listed on the bourses and such other public companies having paid-up capital of Rs 50 crores or more or turnover of Rs 250 crores or more.
In the above case the ABC Pvt Ltd is a Private Limited Company, so one can say that it is not mandatory, but as mentioned in the question that ABC Pvt Ltd is enjoying the status of a subsidiary company in terms of section 2(87). Now taking reference to the provisions contained in section 2(71) relating to 'public company', which reads as under:
'public company' means a company which (a) is not a private company; (b) has a minimum paid-up [xxx]1 share capital as may be prescribed:
PROVIDED that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.
Hence, by this definition, it can be inferred that Secretarial Audit would be applicable to a private company which is a subsidiary of a public company, and which falls under the prescribed class of companies.

Further looking to the inherent advantages of the Secretarial Audit, it can be got done even for the companies which are not mandatorily required to do so.
Click here to Know More at http://bit.ly/queriesonsecretarialaudit
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