Secretarial Audit

It is an independent check — conducted by a Practising Company Secretary — of whether your company has actually followed the corporate, securities, and other applicable laws during the year, not just recorded transactions correctly in its books. The result is a report in Form MR-3 that gets attached to your company's Board's Report and becomes part of the public MCA filing record.

Under Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, secretarial audit is mandatory for every listed company, every public company with paid-up share capital of ₹50 crore or more, every public company with turnover of ₹250 crore or more, and every company with outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more. Material unlisted subsidiaries of listed companies are also brought within scope.

Only if the private company independently crosses the Rule 9 thresholds — which is uncommon but not impossible for a large private company with significant borrowings or turnover, or where it becomes a material unlisted subsidiary of a listed parent. Most private limited companies are not within the mandatory scope, but many choose a voluntary secretarial audit as good governance practice — particularly before a large fundraise, IPO preparation, or strategic transaction.

No. Section 204 specifically requires secretarial audit to be conducted by a Company Secretary in whole-time practice — a member of the Institute of Company Secretaries of India (ICSI) holding a valid Certificate of Practice. A Chartered Accountant, even one very experienced in corporate law, cannot sign Form MR-3. PNPC's secretarial audit engagements are led by our in-house Practising Company Secretaries, working alongside our CA teams for coordinated compliance advisory.

Form MR-3 is the prescribed format for the secretarial audit report under the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014. It records the PCS's opinion on the company's compliance with the Companies Act 2013 and rules made thereunder, the Securities Contracts (Regulation) Act 1956, the Depositories Act 1996, applicable SEBI regulations, FEMA to the extent of FDI/ODI, and other laws specifically applicable to the company. It also records the composition of the Board, adequacy of notice for meetings, and any specific observations, qualifications, or adverse remarks.

Section 204(4) of the Companies Act 2013 prescribes a penalty for the company and every officer in default for failure to comply with the secretarial audit requirement. Beyond the direct penalty, the absence of MR-3 where it is mandatory is itself flagged in the Board's Report review process, draws Registrar attention, and — for listed companies — can trigger stock exchange and SEBI scrutiny for a governance lapse.

The statutory financial audit under Section 143, conducted by a Chartered Accountant, forms an opinion on whether the financial statements present a true and fair view. Secretarial audit, conducted by a Practising Company Secretary under Section 204, forms an opinion on whether the company has complied with applicable corporate and securities laws — an entirely different subject matter. Both are mandatory where applicable, and neither substitutes for the other.

For a company with reasonably well-maintained statutory registers and minutes, a first-time secretarial audit typically takes 5–7 weeks from PCS appointment to a signed Form MR-3. Companies with compliance backlogs, multiple subsidiaries, significant FEMA exposure, or missing/incomplete registers should expect a longer timeline, as document reconstruction and gap remediation add time.

The full statutory register set (Members, Directors, Charges, Contracts, Loans/Investments), Board and general meeting notices/minutes/attendance for the full audit period, copies of all MCA e-form filings made during the year with acknowledgement numbers, and — for listed companies — LODR disclosures, SAST filings, and PIT Code compliance records. Where the company has foreign investment, FEMA filing records (FC-GPR, FC-TRS, FLA, ODI/APR) are also required. A detailed checklist is shared at engagement kickoff.

A material unlisted subsidiary is a subsidiary company of a listed entity whose income or net worth exceeds prescribed thresholds relative to the listed parent, as defined under SEBI LODR Regulations. Because the parent's shareholders and regulators need assurance on the subsidiary's governance as well — not just the listed entity's own — SEBI's framework brings such subsidiaries within the secretarial audit requirement even though the subsidiary itself is not listed.

Yes. Where the PCS identifies non-compliance or is unable to obtain sufficient evidence on a matter, the MR-3 report will carry a qualification, reservation, or adverse remark specific to that finding, rather than an unqualified opinion. This is a normal and expected outcome where genuine gaps exist — the value of the audit is in surfacing them accurately, not in producing a clean report regardless of the facts.

Yes, to the extent applicable — Form MR-3 specifically requires the PCS to report on compliance with the Foreign Exchange Management Act 1999 and the rules made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings. Where a company has received FDI or made outbound investment, the PCS examines FC-GPR, FC-TRS, FLA return, and ODI/APR filings as part of the audit scope.

Only if the Section 8 company independently crosses the Rule 9 thresholds for paid-up capital, turnover, or borrowings — which is uncommon but possible for large Section 8 companies with significant scale. Most Section 8 companies fall outside the mandatory scope, though voluntary governance reviews are increasingly common for large NGOs and foundations seeking donor or grant-funder confidence.

For listed companies, the secretarial audit scope explicitly includes verification of compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 — Board composition and independence, Audit Committee and other committee constitution, related-party transaction approvals, timely disclosures to stock exchanges, and the corporate governance report. The PCS's findings on LODR compliance are a core part of the MR-3 report for every listed entity.

A whole-time Company Secretary (CS) is an employee of the company, responsible for day-to-day secretarial compliance, MCA filings, and Board support — mandatory for every listed company and every public company with paid-up capital of ₹10 crore or more under Section 203. A Practising Company Secretary (PCS) is an independent professional, external to the company, engaged specifically to conduct the secretarial audit under Section 204. The independence of the PCS from the day-to-day compliance function is fundamental to the credibility of the audit opinion.

Legal and financial due diligence in any fundraising or acquisition scrutinises corporate compliance history closely — MCA filing consistency, Board process integrity, related-party transaction approvals, and securities law adherence for any prior share issuances. A voluntary secretarial audit conducted ahead of the transaction surfaces these issues on the company's own terms, with time to remediate, rather than as findings discovered by the counterparty's diligence team mid-negotiation.

The Board typically reappoints the same PCS annually, similar to the statutory auditor appointment process, though there is no statutory tenure restriction equivalent to the auditor rotation rules under Section 139. Companies may also change their secretarial auditor between years at the Board's discretion. Each year's engagement requires a fresh Board resolution and engagement letter defining the scope for that financial year.

Form MR-3 must be annexed to the company's Board's Report under Section 134(3)(f) of the Companies Act 2013. The Board's Report itself must specifically explain any qualification, reservation, or adverse remark made by the secretarial auditor. This means the Board cannot simply attach the MR-3 and move on — where the report carries observations, the Board is required to provide its own explanation for each one.

Yes. While the annual mandatory secretarial audit covers the full financial year, companies frequently commission a special-purpose or limited-review secretarial audit covering a specific period — often as part of transaction due diligence, ahead of an IPO, or in response to a specific regulatory query. The scope, period, and deliverable format are agreed at the outset of such an engagement and differ from the standard annual MR-3.

PNPC quotes a fixed, agreed fee for each secretarial audit engagement, based on the company's size, group structure, number of subsidiaries, whether it is listed, and the volume of corporate actions (share allotments, charge creation, M&A activity) during the audit period. The scope and fee are confirmed in writing before fieldwork begins — there are no hidden charges for standard document review within the agreed scope.

An unqualified opinion states that, in the PCS's opinion, the company has complied with the applicable provisions during the audit period, without material exception. A qualified opinion identifies specific instances of non-compliance or limitation of scope while otherwise affirming compliance elsewhere. An adverse opinion — comparatively rare — indicates the PCS has concluded the company has not complied in a material and pervasive way. Most secretarial audit reports for reasonably well-run companies are unqualified or carry limited, specific qualifications rather than an adverse opinion.

Yes, where the company is subject to Corporate Social Responsibility obligations under Section 135 of the Companies Act 2013, the secretarial audit reviews whether the CSR Committee was properly constituted, the CSR policy was approved and disclosed, the mandated CSR spend was made or properly carried forward/transferred to a specified fund, and the CSR disclosures in the Board's Report meet the prescribed format.

PNPC's CS team conducting the secretarial audit works alongside our CA team handling the statutory financial audit, AOC-4, and MGT-7 filings, on a shared timeline anchored to the AGM date. This means related-party transaction findings, Board process observations, and financial disclosure matters are examined consistently by both teams, and the Board's Report — which must include both the auditor's report and the MR-3 annexure — is finalised as a single coordinated package rather than two disconnected workstreams.

Where the secretarial audit surfaces a violation that requires formal regularisation — such as a delayed filing beyond ordinary late-fee remediation, or a technical breach requiring compounding under Section 441 of the Companies Act — PNPC advises on and can coordinate the compounding application process with the Regional Director or NCLT, as applicable, alongside the audit engagement.

Yes — the same Rule 9 applicability criteria apply regardless of whether directors or shareholders are resident in India or abroad. Where foreign shareholding exists, the FEMA compliance component of the secretarial audit (FC-GPR, FC-TRS, FLA return) becomes especially important, and director-related compliance (DIN status, KYC, disqualification checks) is verified for every director, resident or non-resident.

We begin with a scoping exercise to identify every missed filing, undocumented meeting, or unresolved regulatory notice across the backlog period, quantify the associated penalty exposure, and sequence the remediation — because some MCA filings must be made in chronological order and certain forms cannot be filed until earlier gaps are resolved. The secretarial audit report for the current year will typically carry qualifications reflecting the backlog until remediation is substantially complete.

For companies required to constitute an Audit Committee under Section 177, the Committee typically reviews the secretarial audit findings alongside the statutory audit report, particularly where observations touch related-party transactions, internal financial controls, or governance matters within the Committee's oversight remit. The Board relies on this review when drafting its own explanation of any MR-3 qualification in the Board's Report.

Yes — every such corporate action (director appointment or resignation via DIR-12, share allotment via PAS-3, capital alteration via SH-7, registered office change via INC-22, charge creation via CHG-1) is independently verified during the secretarial audit to confirm it was properly authorised by the Board or shareholders as required, and filed with the Registrar within the statutory timeline.

The Institute of Company Secretaries of India (ICSI) issues Secretarial Standards (SS-1 for Board meetings, SS-2 for General Meetings, and others) that PCS professionals apply when assessing meeting compliance, and ICSI's Peer Review and disciplinary mechanisms provide oversight of practising members' professional conduct, including secretarial audit engagements. Adherence to the Secretarial Standards is itself examined as part of the audit.

Secretarial audit under Section 204 is specific to the Indian Companies Act framework and applies to the Indian company. For the UAE entity, governance and compliance obligations are governed by UAE Commercial Companies Law and relevant free zone regulations, which follow a different framework without a directly equivalent statutory secretarial audit. PNPC's Dubai office advises on UAE-side corporate governance and compliance separately, coordinated with the Indian secretarial audit where the group structure spans both jurisdictions.

We recommend that any private company approaching ₹40–45 crore in paid-up capital, ₹200+ crore in turnover, or ₹80+ crore in bank/PFI borrowings begin reviewing its statutory register maintenance, Board process discipline, and MCA filing history proactively — well before formally crossing a Rule 9 threshold — so that when secretarial audit becomes mandatory, the company is not starting from a position of catch-up.

A standalone PCS practitioner can competently conduct the audit itself, but many findings in a secretarial audit — related-party transaction tax treatment, FEMA filing accuracy, TDS on director remuneration, statutory audit interplay — sit at the intersection of company law and tax/accounting practice. PNPC's coordinated CS and CA teams examine these cross-disciplinary matters together, and because we already manage many clients' annual MCA compliance and statutory audit, our secretarial audit engagement starts with institutional knowledge of the company rather than from a blank slate.