Secretarial Audit Applicability: Rules, Threshold Limits & Reporting Requirements Explained

In India’s complex corporate governance framework, compliance plays a vital role in ensuring transparency, accountability, and adherence to laws. While financial audits examine the accuracy of a company’s financial statements, Secretarial Audit ensures that the company complies with all legal and regulatory requirements under the Companies Act and other applicable laws.

Introduced under Section 204 of the Companies Act, 2013, the Secretarial Audit is a powerful mechanism that promotes better corporate governance and minimizes the risk of penalties and prosecution.

This detailed guide explains what Secretarial Audit is, which companies are required to conduct it, who can perform it, and what the recent amendments and applicability thresholds are for FY 2024-25.

1. What is a Secretarial Audit?

A Secretarial Audit is an independent verification of a company’s compliance with various corporate laws, rules, and regulations. It is conducted by a Company Secretary (CS) in practice to ensure that the company has complied with all applicable legal requirements under:

  • The Companies Act, 2013

  • The Securities Contracts (Regulation) Act, 1956

  • The Depositories Act, 1996

  • The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (for listed entities)

  • Other relevant laws applicable to the company’s operations

The secretarial audit helps directors identify gaps in compliance systems and take corrective actions before they escalate into legal issues.

2. Legal Basis: Section 204 of the Companies Act, 2013

The legal framework for Secretarial Audit is laid down under:

  • Section 204 of the Companies Act, 2013, and

  • Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

As per this section, certain classes of companies are mandatorily required to obtain a Secretarial Audit Report from a Company Secretary in Practice (PCS) and include it with the Board’s Report.

3. Secretarial Audit Applicability: Which Companies Are Required to Comply

As per the latest provisions (effective from FY 2020-21 onwards), Secretarial Audit is mandatory for the following classes of companies:

  1. Every Listed Company

    • All companies whose securities are listed on any recognized stock exchange in India must mandatorily undergo Secretarial Audit.

  2. Every Public Company with:

    • Paid-up share capital of ₹50 crore or more, or

    • Turnover of ₹250 crore or more.

  3. Every Private Company having:

    • A paid-up share capital of ₹50 crore or more, or

    • Turnover of ₹250 crore or more.

  4. Every Company (including Private Company) having outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more.

Example:

If a private company has a turnover of ₹300 crore and borrowings of ₹80 crore, Secretarial Audit becomes applicable due to turnover. Similarly, if another private company has borrowings exceeding ₹100 crore, it must also undergo Secretarial Audit even if its turnover is below ₹250 crore.

4. Purpose of Secretarial Audit

The main objectives of Secretarial Audit are:

  • To ensure compliance with laws and regulations.

  • To verify the effectiveness of internal compliance systems.

  • To identify non-compliance risks and recommend corrective measures.

  • To promote good corporate governance and transparency.

It acts as an early warning system, helping companies avoid regulatory penalties and reputational damage.

5. Who Can Conduct a Secretarial Audit?

Only a Company Secretary in Practice (PCS), who holds a valid certificate of practice issued by the Institute of Company Secretaries of India (ICSI), is authorized to conduct a Secretarial Audit.

No other professional — not even a Chartered Accountant or Cost Accountant — can perform this audit.

6. Secretarial Audit Report – Format and Contents

The Secretarial Audit Report is prepared in Form MR-3, as prescribed under Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

The MR-3 report covers compliance with:

  1. The Companies Act, 2013 and rules made thereunder.

  2. The Securities Contracts (Regulation) Act, 1956 and rules.

  3. The Depositories Act, 1996 and related regulations.

  4. FEMA – Foreign Direct Investment and External Commercial Borrowings.

  5. SEBI Regulations such as:

    • SEBI (LODR) Regulations, 2015

    • SEBI (Prohibition of Insider Trading) Regulations, 2015

    • SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

    • SEBI (Share Based Employee Benefits) Regulations, 2014

It may also include reporting on other sector-specific laws applicable to the company’s line of business (for example, environmental, labour, or industry-specific laws).

7. Process of Conducting a Secretarial Audit

The audit typically follows these steps:

  1. Pre-Audit Planning:
    The PCS collects basic data, governance documents, and compliance records from the company.

  2. Review of Statutory Registers and Filings:
    Examination of registers, minutes, resolutions, and ROC filings such as MGT-7, AOC-4, PAS-3, etc.

  3. Verification of Compliance with SEBI Regulations:
    For listed companies, verification of LODR, Insider Trading, and takeover regulations.

  4. Review of FEMA and Other Laws:
    Cross-checking FDI and overseas transactions for compliance with RBI directions.

  5. Preparation of Report:
    The PCS issues a report in Form MR-3 highlighting observations, non-compliances, and suggestions for improvement.

8. Submission and Disclosure Requirements

  • The Secretarial Audit Report (Form MR-3) must be attached to the Board’s Report of the company.

  • The report should be signed and dated by the Company Secretary in Practice.

  • Directors must respond to each qualification or observation mentioned in the audit report in their Board’s Report.

This ensures accountability and transparency at the top management level.

9. Secretarial Compliance Report for Listed Entities

Apart from Secretarial Audit, listed companies and their material subsidiaries are also required to submit a Secretarial Compliance Report under Regulation 24A of SEBI (LODR) Regulations, 2015.

Key Features:

  • Must be submitted to the stock exchange within 60 days from the end of the financial year.

  • The report certifies compliance with all applicable SEBI Regulations and circulars.

  • It must be signed by a Practicing Company Secretary (PCS).

Thus, listed entities are subject to both:

  • Secretarial Audit under Section 204 of the Companies Act, and

  • Secretarial Compliance Report under SEBI LODR Regulation 24A.

10. Benefits of Conducting a Secretarial Audit

  • Early detection of non-compliance: Identifies procedural lapses before they lead to penalties.

  • Improves governance standards: Encourages ethical management practices.

  • Investor confidence: Assures stakeholders of regulatory adherence.

  • Regulatory protection: Acts as a safeguard in case of MCA or SEBI inspections.

  • Enhances brand reputation: Reflects the company’s commitment to transparency and accountability.

11. Penalties for Non-Compliance

If a company fails to conduct a Secretarial Audit when applicable:

  • The company, along with every officer in default, is liable for penalty under Section 204(4) of the Companies Act.

  • MCA may also initiate prosecution for willful default.

  • In case of listed companies, SEBI may impose additional penalties for non-submission of the Secretarial Compliance Report under Regulation 24A.

Thus, non-compliance can lead to financial as well as reputational consequences.

12. Common Non-Compliances Found During Secretarial Audits

  1. Delay in filing annual forms (AOC-4, MGT-7, DIR-3 KYC).

  2. Non-maintenance of statutory registers.

  3. Improper issue or transfer of shares.

  4. Non-filing of resolutions under Section 117.

  5. Non-compliance with SEBI LODR or Insider Trading Regulations.

  6. Delay in appointment of Key Managerial Personnel.

Identifying and correcting these lapses in time ensures smoother regulatory functioning and corporate health.

13. Practical Checklist for Secretarial Audit Compliance

Area Key Checkpoints
Companies Act, 2013 ROC filings, Board meetings, KMP appointments
SEBI Regulations LODR, Insider Trading, Takeover, and ICDR compliance
FEMA FDI, ODI, ECB documentation
Statutory Registers Updated registers of members, directors, contracts
Board Processes Proper notices, quorum, and minutes
Corporate Governance Code of conduct, whistle-blower mechanism

Maintaining this checklist throughout the year helps the company stay audit-ready.

14. Key Takeaways

Criteria Applicability
Listed Companies Mandatory
Public Companies Paid-up capital ≥ ₹50 cr or Turnover ≥ ₹250 cr
Private Companies Paid-up capital ≥ ₹50 cr or Turnover ≥ ₹250 cr
Any Company Outstanding loans/borrowings ≥ ₹100 cr
Audit Conducted By Practicing Company Secretary (PCS)
Audit Report Format Form MR-3
Additional for Listed Cos. Secretarial Compliance Report under SEBI Reg. 24A

The Secretarial Audit is not just a compliance formality but a crucial governance tool that ensures companies function within the legal framework. For FY 2024-25, its applicability now extends even to large private companies and those with high borrowings, strengthening corporate accountability across the ecosystem.

Companies should view this audit as an opportunity to improve internal controls, prevent future risks, and build investor confidence through transparency and compliance excellence.

By engaging a qualified Practicing Company Secretary and maintaining robust internal systems, companies can ensure seamless compliance and demonstrate their commitment to ethical business practices.