Compliance Check – Secretarial Audit

Compliance Check – Secretarial Audit: complete guide

Introduction

Company law in India places a wide range of obligations on companies and their directors. Board and general meetings must be called and minuted correctly, statutory registers must be kept up to date, forms must be filed with the Registrar of Companies on time, related party transactions need the right approvals, share issues and transfers must follow the prescribed process, and foreign investment, labour, environmental and sector-specific laws all apply alongside the Companies Act, 2013. A single missed filing or an unapproved transaction can lead to penalties, compounding proceedings, questions from investors and, in serious cases, disqualification of directors.

A secretarial audit is an independent examination of how well a company has complied with these laws. Under Section 204 of the Companies Act, 2013, certain classes of companies must have a secretarial audit carried out every year by a company secretary in practice, who issues a report in Form MR-3. That report is annexed to the board's report, and the board must explain any qualification, observation or adverse remark made in it. Listed companies have further obligations under the listing regulations of the securities regulator, including an annual secretarial compliance report.

Companies that are not legally required to have a secretarial audit also benefit from a compliance check. Startups preparing for a funding round, companies planning an acquisition or public issue, family businesses preparing for a change of control, and companies that have changed accountants or company secretaries often discover gaps only when an investor or buyer asks for the records. A compliance check finds these gaps early, while they can still be fixed through late filings, ratification or compounding, rather than during a transaction when time is short.

Our team of company secretaries carries out both statutory secretarial audits and voluntary compliance checks. We review your records against the applicable laws, list the gaps we find in order of seriousness, explain how each can be corrected and, where you engage us for a statutory audit, issue the secretarial audit report. This page explains who needs this service, the legal requirements, our step-by-step process, documents, timelines, our fee and what happens after the review.

Who Needs It

Companies that must have a secretarial audit under the Companies Act. Under Section 204 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a secretarial audit is mandatory for:

• Every listed company.
• Every public company with paid-up share capital of 50 crore rupees or more.
• Every public company with turnover of 250 crore rupees or more.
• Every company with outstanding loans or borrowings from banks or public financial institutions of 100 crore rupees or more.

These limits are checked against the latest audited balance sheet, and the rules carry certain exemptions, for example for specified companies operating in an International Financial Services Centre. We confirm whether your company falls under the requirement at the start of the engagement.

Listed companies and their material subsidiaries. Under the listing regulations of the securities regulator, listed entities and their material unlisted subsidiaries incorporated in India must undertake a secretarial audit, and listed entities must also file an annual secretarial compliance report.

Companies that benefit from a voluntary compliance check:

• Startups before fundraising, so that the share allotment history, board approvals, cap table and filings are clean before investor due diligence.
• Companies preparing for a merger, acquisition or sale, where the buyer will examine corporate records closely.
• Companies planning to list, which need several years of clean records.
• Companies that have changed their professional advisers, and want to confirm that past work was done correctly.
• Companies that have received a notice from the Registrar, or want to compound or regularise past defaults.
• Foreign-owned subsidiaries, whose parent companies want assurance on Indian corporate and foreign exchange compliance.
• Family-owned companies preparing for succession or a change in shareholding.

Key Benefits

• Meeting a legal requirement. For companies covered by Section 204, the audit is compulsory, and failure to comply can lead to penalties on the company and its officers.
• Early detection of gaps. Missed filings, incomplete registers, unapproved transactions and irregular share issues are identified before they become a problem.
• A clear correction plan. Each gap is paired with practical steps to fix it, such as late filing, ratification, compounding or adjudication.
• Investor and buyer confidence. A clean compliance record shortens due diligence and reduces the risk of price adjustments, indemnities or delayed closings.
• Support for directors. Directors gain a clearer view of the company's compliance position, which helps them meet their duties under the Act.
• Better governance. Regular review encourages good practices in board processes, documentation and decision-making.
• Reduced exposure to penalties. Fixing defaults early usually costs less than dealing with them after a notice has been issued.

Statutory secretarial audit versus voluntary compliance check. A statutory secretarial audit follows the format and scope laid down by law. The secretarial auditor must be a company secretary in practice, is appointed by the board, and issues a report in Form MR-3 that becomes part of the board's report. A voluntary compliance check is an internal review that the company commissions for its own purposes. Its scope can be narrower or wider, for example focusing only on share capital history before a funding round, and the findings are shared with management rather than published. Both use the same detailed review of records, but they serve different purposes.

What the review covers. A typical secretarial audit looks at compliance with the Companies Act and rules, the Secretarial Standards on board and general meetings that companies must follow under Section 118 of the Act, the depositories law, foreign exchange law as it applies to foreign investment and overseas investment, and, for listed companies, the securities laws and listing regulations. It also covers the laws specifically applicable to the company's sector, based on a list agreed with management.

Eligibility and Legal Requirements

The key legal requirements for a secretarial audit are:

• Applicability. Section 204 of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, sets out which companies must have a secretarial audit, based on listing status, paid-up capital, turnover and borrowings.
• Qualified auditor. The secretarial audit must be carried out by a company secretary in practice. A company secretary who is an employee of the company cannot act as its secretarial auditor.
• Appointment by the board. The secretarial auditor is appointed by a resolution of the board. For listed entities, the listing regulations now also require shareholder approval and set limits on the term of appointment, along with restrictions on certain other services the secretarial auditor may provide.
• Report in Form MR-3. The secretarial auditor issues the report in Form MR-3, which is annexed to the board's report.
• Board's explanation. The board must explain in its report any qualification, observation or other remark made by the secretarial auditor.
• Cooperation of the company. The company must give the secretarial auditor all assistance and access to records needed for the audit.
• Penalties. Failure to comply with Section 204 attracts penalties on the company, every officer in default and the company secretary in practice, as set out in the Act.
• Listed company requirements. Listed entities must also file an annual secretarial compliance report with the stock exchanges within the time set by the listing regulations.
• Voluntary checks. There is no prescribed format for a voluntary compliance check. The scope and reporting are agreed with the company in the engagement letter.

Company law and listing requirements are amended from time to time. We check the current applicability, scope and reporting format at the time of each engagement.

Step-by-Step Guide

1. Initial consultation. We discuss your company's structure, size, listing status and business, and whether you need a statutory secretarial audit or a voluntary compliance check.
2. Applicability and scope. We confirm whether Section 204 applies, agree the period to be covered, and list the laws to be reviewed, including laws specific to your sector.
3. Engagement and appointment. For a statutory audit, we provide our consent and eligibility certificate, and you pass a board resolution appointing us as secretarial auditor. For a voluntary check, we sign an engagement letter setting out the scope.
4. Document request. We share a detailed checklist of records needed, such as minutes, registers, filings, share records, agreements and policies.
5. Review of incorporation and constitutional documents. We check the Memorandum and Articles, and any alterations, against the filings on the MCA portal.
6. Review of meetings and registers. We check board, committee and general meeting notices, agenda, attendance, minutes and resolutions against the Act and the Secretarial Standards, and review all statutory registers.
7. Review of filings and transactions. We check event-based and annual filings with the Registrar, share allotments, transfers, buy-backs, loans, investments, related party transactions, appointments of directors and key managerial personnel, and foreign investment reporting.
8. Review of other applicable laws. We review compliance with the other laws in scope, based on documents, management representations and compliance certificates from functional heads.
9. Draft findings and discussion. We share a draft report or observation list, grouped by seriousness, with suggested corrective steps. We discuss each point with management and consider any further documents provided.
10. Final report. For a statutory audit, we issue the secretarial audit report in Form MR-3 for inclusion in the board's report. For a voluntary check, we issue a compliance report with findings and a correction plan.

Documents Checklist

Constitutional and registration documents:

• Certificate of incorporation and any fresh certificates
• Memorandum and Articles of Association, with all alterations
• Shareholders agreements and investment agreements, if any

Meetings and registers:

• Notices, agenda, attendance records and minutes of board, committee and general meetings
• Register of members, register of directors and key managerial personnel, register of charges, register of loans and investments, register of contracts with related parties and other statutory registers
• Directors' disclosures of interest and declarations of non-disqualification
• Annual report and board's report for the period

Filings and share capital:

• Copies of forms filed with the Registrar and their acknowledgments
• Records of share allotments, transfers, transmissions and buy-backs, including valuation reports and approvals
• Share certificates or demat records, and depository records where applicable
• Records of foreign investment received and related reporting

Other laws and policies:

• List of laws specifically applicable to the company's business
• Licences, registrations and returns under sector-specific laws
• Compliance certificates from functional heads, where available
• Company policies required under the Act, such as on related party transactions or corporate social responsibility, where applicable

For listed companies, additionally:

• Disclosures and filings made with stock exchanges
• Insider trading records and structured digital database
• Committee charters and reports

How Long It Takes

The time depends on the size of the company, the period under review and how quickly records are shared:

• Scoping and document request: two to three working days.
• Document collection: depends on how well records are organised. Most companies share documents within one to two weeks.
• Review of records: usually two to four weeks for a private or unlisted public company, and longer for listed companies or groups with many entities.
• Draft findings and discussion: about one week, depending on management's responses.
• Final report: usually within a few working days after all points are closed.

For a statutory secretarial audit, the report must be ready in time to be annexed to the board's report, so we recommend starting soon after the end of the financial year.

Pricing

Our professional fee for Compliance Check – Secretarial Audit is ₹ 14,999.

This covers:

• Applicability check and scoping of the engagement
• Review of constitutional documents, meetings, registers and Registrar filings for the agreed period
• Review of share capital transactions and other key corporate actions
• Review of compliance with the other laws agreed in scope
• A draft list of findings with suggested corrective steps
• A discussion meeting with management
• The final secretarial audit report in Form MR-3, or a compliance report for a voluntary check

The fee applies to a single unlisted company for one financial year with a standard volume of records. Listed companies, groups, multi-year reviews and companies with a large number of transactions or complex structures are quoted separately after scoping. Late filings, compounding applications and other corrective work arising from the findings are separate services. Any government fees for corrective filings are payable at actual.

Common Mistakes to Avoid

• Assuming the audit does not apply. Companies often overlook the borrowings limit, which can bring private companies into the requirement.
• Appointing the auditor late. Appointing the secretarial auditor near the board report date leaves little time for a proper review and for fixing issues.
• Incomplete minutes. Minutes that are not signed, not prepared within the time required, or do not record decisions properly are a frequent finding.
• Missing statutory registers. Many companies do not maintain all the registers the Act requires, or do not update them after each change.
• Irregular share issues. Allotments made without valuation reports, proper approvals or timely filing of the return of allotment are a common and serious gap.
• Ignoring related party approvals. Transactions with directors, their relatives and related companies often need board or shareholder approval and disclosure.
• Missing foreign investment reporting. Delayed reporting of foreign investment under foreign exchange rules can attract penalties that must be compounded.
• Treating the report as a formality. Findings in the report must be explained by the board. Fixing the underlying issues is more useful than drafting explanations.

What Happens After

After the review, you receive a report setting out the company's compliance position. Next steps usually include:

• Board review. The board reviews the findings and, for a statutory audit, includes the Form MR-3 report in the board's report, with explanations for any qualifications or remarks.
• Filing the board's report. The board's report, with the secretarial audit report annexed, forms part of the financial statements filed with the Registrar.
• Correcting gaps. Missed filings can be made with additional fees, records can be updated, and certain defaults can be regularised through ratification, compounding or adjudication.
• Strengthening processes. We often suggest a compliance calendar, board meeting checklists and register maintenance processes to prevent repeat issues.
• Ongoing support. Companies often engage us for annual secretarial compliance, so that the next year's audit has fewer findings.

FAQs

Which companies must have a secretarial audit?

Listed companies, public companies with paid-up capital of 50 crore rupees or more, public companies with turnover of 250 crore rupees or more, and companies with outstanding loans or borrowings from banks or public financial institutions of 100 crore rupees or more. The limits are checked against the latest audited balance sheet.

Does a private limited company need a secretarial audit?

Only if it meets the borrowing limit set by the rules, or another condition that brings it within Section 204. Otherwise, it is not required, though many private companies choose a voluntary compliance check.

Who can carry out a secretarial audit?

A company secretary in practice. A company secretary employed by the company cannot act as its secretarial auditor.

What is Form MR-3?

Form MR-3 is the prescribed format of the secretarial audit report. It is issued by the secretarial auditor and annexed to the board's report.

Is the secretarial audit the same as a statutory audit of accounts?

No. A statutory audit examines the financial statements and is carried out by a chartered accountant. A secretarial audit examines compliance with company law and other applicable laws and is carried out by a company secretary in practice.

What happens if the report contains qualifications?

The board must explain each qualification, observation or adverse remark in its report. The company should also take steps to fix the underlying issues.

Can past defaults be corrected after they are found?

Many can. Missed filings can usually be made with additional fees, and certain offences can be compounded or adjudicated under the Act. Some matters may need ratification by the board or shareholders.

How is a compliance check useful before fundraising?

Investors review the company's share allotment history, approvals and filings during due diligence. A compliance check finds gaps before the investor does, giving time to fix them without delaying the deal.

Which laws are covered in the review?

The review covers the Companies Act and rules, the Secretarial Standards, applicable foreign exchange and depository laws, and, for listed companies, securities laws. Laws specific to your sector are covered based on a list agreed with management.

How far back does the review go?

A statutory secretarial audit covers one financial year. A voluntary compliance check can cover any agreed period, often from incorporation for startups preparing to raise funds.

Do we need to provide original records?

Scanned copies are usually sufficient for most records. We may ask to see originals of minute books, registers or share certificates where needed.

Can you also fix the gaps you find?

Yes. Our team can handle late filings, register updates, ratification resolutions and compounding applications. For a statutory secretarial audit, we take care that corrective work does not conflict with the independence requirements that apply to the auditor.

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