Guidance Note on Secretarial Audit
Author: Release 1.4
Date: 2018-05-16T03:53:59+00:00

GUIDANCE NOTE

ON

SECRETARIAL AUDIT

Rele
ase 1.4

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Release 1.4, May 2018

© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

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permission of The Institute of Company Secretaries of India.

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taken on the basis of the contents of this book. Any one wishing to act on the basis of
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source.

Published by:

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(ii)

PREFACE TO THE FOURTH EDITION

“Companies are recognising that failure in many non-financial areas can heavily damage the
bottom line, perhaps irreparably.”

~ Beyond the Numbers (KPMG 2000)

Talk of success and failure in non-financial areas and the thought of a strong audit mechanism is
inevitable. The concept of Secretarial Audit, an audit of non-financial compliances required under
the applicable laws in a company, was introduced to cover for this requirement. The term got its
due recognition in the Companies Act, 2013 wherein it was made mandatory for the listed
companies and a specified set of companies on the basis of their financials.

That coupled with the present status of utmost significance of Secretarial Audit goes a long way in
reposing and reiterating the faith of the Regulatory authorities upon not only the mechanism of
such a thorough audit of non-financial compliances but also in the brigade of professionals
exclusively entrusted with the honourable task of carrying out such an audit both diligently and
judiciously, i.e., the Company Secretaries in practice.

Going back to the basics, since the Board of the companies own the overarching responsibility of
ensuring transparent, ethical and responsible governance of the company, it is important that the

Board processes and compliance mechanisms of the company are robust and secretarial audit
ensures that the company has complied with the legal and procedural requirements and that the

Board and other processes and compliance mechanisms are robust enough. Needless to say, the
endeavours of the auditors are focused on attaining the Regulator’s objective of raising the level of
compliances and plummeting the non-compliances.

All said and done, with the recognition accorded by MCA to this non-financial audit, it is imperative
that the Company Secretaries undertaking the role of secretarial auditors keep upto the
expectations of Regulators by submitting quality secretarial audit reports fulfilling its intended
objective.

Keeping in sight the future of this more than significant entity, the Institute has revised the

Guidance Note on Secretarial Audit and is pleased to release its Fourth Edition. The publication
that follows highlights not only the basics but also provides an insight into the skills required, the
checklists, etc. Significant focus has also been placed upon Secretarial standards, board
processes and for the benefit of the professionals, a specimen Qualified Secretarial Audit Report
has been inculcated as well. I am confident that this publication will prove to be of immense
practical value to professionals while carrying out the secretarial audit.

I commend the dedicated efforts put in by the ICSI team led by CS Banu Dandona, Joint Director
and comprising CS Deepa Khatri, Deputy Director; CS Kalpesh Mehta, Assistant Director, Cs

Disha Kant, Assistant Director and CS Khusbu Mohanty under the overall guidance of CS Dinesh

Chandra Arora, Secretary, ICSI, in preparation of this publication.

I would like to place on record my sincere gratitude towards members of the Auditing Standards

Board, ICSI for their suggestions in further strengthening the contents of this publication under the
guidance of CS Vineet K Chaudhary, Chairman, Auditing Standards Board and Central Council

Member, ICSI. I also take this opportunity to thank CS Ahalada Rao V, Vice President and

(iii)

Chairman Corporate Laws and Governance Committee, ICSI for providing his valuable guidance
on the publication. Further, I personally thank all my Council colleagues in giving their
wholehearted support for bringing out this publication.

I sincerely hope that the publication shall prove to be the perfect guide of sorts in assisting the
professionals in gaining better understanding and grasping the true essence of law in its effective
letter and spirit.

Furthermore, inevitably, in any publication, there is always scope for further improvement. I would
personally be grateful to users and readers for offering their suggestions/comments for further
refinement.

Date: May 15, 2018

CS Makarand Lele

President

Place: New Delhi

The Institute of Company Secretaries of India

(iv)

PREFACE TO THE THIRD EDITION

Secretarial Audit is a mechanism which gives necessary comfort to the management, regulators
and the stakeholders, as to the compliance by the company of applicable laws and the existence of
proper and adequate systems and processes in the company. Submission of Secretarial Audit

Reports for the prescribed companies was mandated with effect from financial year 2014-15 under
section 204 of the Companies Act, 2013. Since then, a number of secretarial audit reports have
been filed with the Registrar.

Expectations are such that the secretarial auditors should detect the instances of non-compliances
and in result facilitate taking corrective-measures. There should be an effective due diligence
exercise before the issuance of Secretarial Audit Report. To regulate the quality of such reports
and to guide on the same, ICSI had analysed the Secretarial Audit Reports (approximately 3500)

relating to financial year 2014-15.

Further to introduce best practice standards to perform Secretarial Audit function under section 204
of the Companies Act 2013, Auditing Standards Board (ASB) of ICSI has been constituted in June,

2016. To support the members in effectively carrying out the Secretarial Audits and to enrich the

Secretarial

Audit Reports, this Guidance note has been further revised and updated. The checklists have also
been strengthened. The indicative list of the Sector Specific Laws applicable to various industries is
also widened to include more industries.

I commend the dedicated efforts put in by CS Banu Dandona, CS Lakshmi Arun, Joint Directors,

CS Deepa Khatri, CS Anamika Chaudhary, Deputy Directors and CS Disha Kant, CS Kalpesh

Mehta, CA Hema Babbar, Assistant Directors in revising this publication under the guidance of CS

Alka Kapoor, Joint Secretary, Directorate of Corporate Laws and Governance, ICSI.

I further appreciate and acknowledge the efforts of CS Vineet K. Chaudhary, Central Council

Member and Chairman, Corporate Laws and Governance Committee, ICSI as well as CS Mahesh

Athavale, CS Ashok Tyagi, CS Shaileshri Bhaskar, CS V Sreedharan, CS Vijay Sharma, CS

Divesh Goyal, Practising Company Secretaries for their inputs and guidance in reviewing the
publication.

I also acknowledge the suggestions given by the Members of the Auditing Standards Boards in
further strengthening the contents of this publication.

I am confident that the publication will prove to be of immense benefit to companies and
professionals.

In any publication, there is always scope for further improvement. I would personally be grateful to
users and readers for offering their suggestions/ comments for further refinement.

Place: New Delhi

CS Mamta Binani

Date: 5th August, 2016

President

The Institute of Company Secretaries of India

(v)

PREFACE TO THE SECOND EDITION

Governments, financial institutions, banks and companies all have realized that the corporate
compliant regime lies not in the adequacy of legislations but in its implementation and compliance.

Enactment of various laws is not enough and the desired results cannot be achieved unless their
implementation is geared up.

The frauds and scams, which have been detrimental not only to growth of financial market but have
been a set back to the economy as a whole, have occurred in the past despite and inspite of
having plethora of legislations.

Realising the need to ensure compliance of laws in letter and spirit on continuous basis by an
independent professional, the Companies Act, 2013 mandated the carrying out of secretarial audit
for bigger companies.

The multiplicity of laws, rules, regulations, etc. has necessitated introduction of a secretarial audit
to ensure compliances of laws applicable to a company. This has a two-fold objective:

(a) Firstly, to protect the interests of all the stakeholders;

(b) Secondly, to have effective compliance system and governance process.

Secretarial Audit is a mechanism which gives necessary comfort to the management, regulators
and the stakeholders, as to the compliance by the company of applicable laws and the existence of
proper and adequate systems and processes.

The Legislature has entrusted company secretaries in practice with this responsibility of conducting
secretarial audit. The powers and duties of auditors is mutatis mutandis applicable to the company
secretary in practice conducting secretarial audit.

This Guidance note (Revised edition) highlights the meaning, benefits, process, approach and
scope of Secretarial audit, and professional responsibility for incorrect audit report. This guidance
note also provides checklists with respect to five mandatory laws as specified in Form MR-3. It also
has a chapter on Secretarial standards, board processes and specimen Secretarial Audit Report.

I am confident that this publication will prove to be of immense practical value to professionals
while carrying out the secretarial audit.

I commend the dedicated efforts put in by the ICSI team led by CS Alka Kapoor, Joint Secretary
and comprising CS Banu Dandona, CS Lakshmi Arun, Deputy Directors, CS Deepa Khatri,

Assistant Director, Mr. Chittaranjan Pal, CS Khusbu Mohanty and CS Disha Kant, Assistant

Education Officers under the overall guidance of CS Sutanu Sinha, Officiating Secretary & Chief

Executive, ICSI and the guidance and leadership of CS Vineet Chaudhary, Central Council

Member and Chairman, Corporate Laws and Governance Committee.

I place on record my sincere thanks to; CS Mahesh Athavale, Past President ICSI; CS Pavan

Kumar Vijay, Past President, ICSI; CS V Sreedharan, Past Council Member, ICSI; CS Ahalada

(vi)

Rao, Council Member; CS Ashish Garg, Council Member; Mr. V K Aggarwal, Former Principal

Director; CS Henry Richard, Retd. Regional Director, South Eastern Region, Ministry of Corporate

Affairs and Mr. Vinay Sanduja, Senior Associate, Dua Associates (Advocates & Solicitors) for their
valuable inputs.

In any publication, there is always scope for further improvement. I would personally be grateful to
users and readers for offering their suggestions/comments for further refinement.

Date : 27-03-2015

CS Atul Mehta

Place: New Delhi

President

The Institute of Company Secretaries of India

(vii)

PREFACE TO THE FIRST EDITION

The companies are the engines of modern economy. They drive the economy and in the process,
they are also socially responsible, since they draw resources from the society for their sustenance.

Keeping in tune with the changing global business scenario with complex business operations and
investment pattern coupled with increasing class of sophisticated stakeholders, the newly enacted

Companies Act, 2013 seeks to ‘raise the bar on governance’ in a comprehensive form with relevant
themes such as investor protection, fraud mitigation, inclusive agenda, reporting framework,
corporate social responsibility with self regulation and compliances.

Thus, the new law endeavour to balance the public interests with the private interests - promotes
and rewards private initiative while safeguarding the interests of the public, society, economy,
environment, etc. It also seeks to balance the limited liability of shareholders with the unlimited
liability of the company as well as the interests of the present with that of the future, so as to
ensure perpetuity to serve the posterity with higher and higher prosperity through corporate
democratic principles. This delicate and complex web of balancing requires a regime of compliance
and governance.

2. The secretarial audit is a tool to ensure compliances of all applicable laws to the company and
thereby ensures certain vital compliances which are relevant from the perspective of Corporate

Governance. This audit has genesis in India in the 21st Report of the Standing Committee on

Finance (SCF) submitted in August 2010. The Ministry of Corporate Affairs then submitted to the

Committee as under:

“Secretarial Audit gives a necessary comfort to the investors that the affairs of the company are
being conducted in accordance with the legal requirements and also protects the companies from
the consequences of noncompliance of the provisions of the Companies Act and other important
corporate laws. It is, accordingly, felt and suggested that the Bill may provide for requirement of
conduct of secretarial audit by at least bigger companies by a company secretary in practice.”

Based on this submission, among others, the SCF recommended:

“Keeping in view its significance for ensuring procedural compliance by companies, particularly
with regard to various statutory disclosures and to ensure adherence to prescribed secretarial
standards, the Committee recommend that Secretarial Audit Report may be required to be
attached with financial statements by companies exceeding certain threshold limit of paid up share
capital.”

In tune with this recommendation, the Ministry proposed to the SCF that it would include a new
clause in the Bill as under:

“Every company having a paid up share capital of rupees five crore or more or such other amount
as may be prescribed by Central Government from time to time shall annex with its Board’s Report
made in terms of sub-section (3) of section 120 of the Act, a Secretarial Audit Report given by a
company secretary in practice in such form as may be prescribed.”

3. Based on this understanding, the section 204 of the Companies Act, 2013 now provides as

(viii)

under:

“Secretarial audit for bigger companies 204. (1) 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 forms may be prescribed.”

The Board of Directors of the listed companies and other prescribed companies are required not
only to annex the secretarial report to the Board’s report, but also to explain in full any qualification
or observation or other remarks made in the Secretarial Audit Report. In exercise of its powers
under section 204(1), the Government has notified the format of secretarial audit report in the

Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

4. Secretarial Audit is basically an audit of compliances of applicable laws as is evident from the
format of the report notified in the Rules. Its scope extends to compliances under the Companies

Act, 2013, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996, the Foreign

Exchange (Management) Act, 1999 (to the extent of Foreign Direct Investment, Overseas Direct

Investment and External Commercial Borrowings), the Securities and Exchange Board of India Act,

1992 and rules and regulations made thereunder and all other laws as may be applicable to the
company. This gives the necessary comfort to the Government, Regulators, Board and Key

Managerial Personnel of companies, the investors and other stakeholders that the affairs of the
company are being conducted in accordance with the legal requirements and also protects the
companies from the consequences of noncompliance with the provisions of the Companies Act
and other important corporate laws. This also keeps potential fraudsters away from the companies.

5. Keeping the requirement of secretarial audit in the dynamic business environment, the Institute
has brought out this guidance note to familiarise the members of the complexities and nuances of
secretarial audit and to prepare them to accomplish the task to the utmost satisfaction of all
stakeholders. This guidance note provides a step by step approach to secretarial audit and its
methods.

6. I place on record my sincere thanks to my colleagues on the Central Council and particularly CS

Sanjay Grover, Chairman, Corporate Laws and Governance Committee and CS Anil Murarka,

Chairman, Practising Company Secretaries Committee and other members of these Committees
for their invaluable contribution for finalizing this guidance note. I also take this opportunity to place
on record my sincere thanks to the CS Mahesh A. Athavale, Past President and Practising

Company Secretary and CS V. Sreedharan, Past Council Member and Practising Company

Secretary, who have worked assiduously in giving the final shape to this guidance note.

7. In any publication of this nature, there would be scope for further refinements I would be
personally grateful to the users and readers for offering their suggestions for further improvement.

Place: New Delhi

R. Sridharan

Date: May 3, 2014

President

The Institute of Company Secretaries of India

(ix)

CONTENTS

Sl. No.

Chapter

Page

No.

1.

Secretarial Audit

1-46

2.

Compliances under Companies Act, 2013

47-128

3.

Capital Market Related Laws/Rules/Regulations

129-20

4.

Foreign Direct Investment

202-216

5.

Direct Investment by Residents in Joint Venture/Wholly Owned 217-224

Subsidiary abroad

6.

External Commercial Borrowing

225-229

7.

Secretarial Standards

230-247

8.

General Laws & Specific Events

248-255

9

Board Processes

256-266

10.

Specimen of Qualified Secretarial Audit Report

267-271

(x)

1

SECRETARIAL AUDIT

Genesis of Secretarial Audit

The Corporate sector in India is governed by various Acts and the rules, regulations made
thereunder and every mode of Business has to abide by plethora of applicable laws, rules,
procedures, regulations and the internal regulatory framework.

Under most of the laws, the persons who are responsible for compliance and liable for punishment
for non-compliances are Key Managerial Personnel which include Managing director, Whole time
directors, the Company Secretary, Chief Financial Officer, Manager and officers who have been
designated to ensure compliances of applicable laws, rules and regulations on a company.

Under the Companies Act, 2013, a Company Secretary, along with other Key Managerial

Personnel and Whole time Directors may be treated as ‘officer who is in default’ and will be liable
for penal consequences for non-compliance, while under most of the other laws, persons in charge
of and responsible for the conduct of business of the company are held responsible.

Role of company secretaries have increased manifold under the Companies Act, 2013. Not only
under the Companies Act, 2013 but also under the SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015 [SEBI LODR], SEBI (Prohibition of Insider Trading) Regulations,

2015 and other Regulations, the regulators have expressed faith on the profession of Company

Secretary for furtherance of better control and development of the good governance in the

Corporate Sector in India.

The term “Secretarial Audit” is a mechanism which is connected with the audit of the non-financial
aspects of the company. It gives necessary comfort to the management, regulators and the
stakeholders, as to the compliance by the company of applicable laws and the existence of proper
and adequate systems and processes in the company.

Every Company, while pursuing its business activities, has to comply with the rules and regulations
relating to the Companies Act, Securities laws, FEMA, Industry Specific laws and General laws like

Labour laws, Competition law and Environmental and Pollution related laws and should also
pursue the good governance practices

Secretarial Audit covers non-financial aspects of the business impact on the performance of the
company and verifies compliances of applicable laws, regulations and guidelines. Nonetheless,
this exercise will enhance the capabilities of the management and also mitigates business &
reputation risk to a great extent. It also evaluates the manner in which the affairs of a company are
conducted to a great extent.

The Secretarial Audit postulates for an independent verification of the records, books, papers
and documents by a Company Secretary to check the compliance status of the company according
to the provisions of various statutes, laws and rules & regulations and also to ensure the
compliance of legal and procedural requirements and processes followed by the company.

Secretarial Audit is, therefore, an independent and objective assurance intended to add value and

GUIDANCE NOTE ON SECRETARIAL AUDIT
improve operations of a company. It helps to accomplish the organisation’s objectives by bringing a
systematic, disciplined approach to evaluate and improve effectiveness of risk management,
control, and governance processes.

Recommendation by Parliamentary Standing Committee on Finance (Year 2009)

Report of Parliamentary Standing Committee on Finance

Twenty- first report of Standing Committee on Finance on the Companies Bill, 2009 in the year

2009-2010 recommended Secretarial Audit in listed and bigger companies. The extracts from the

Report are as follows:

•

“Para 7.8: *****Secretarial Audit may also be mandated for bigger companies, including all
listed companies; as it inter-alia provides necessary assurance to the investors that the
affairs of the Company are being conducted in accordance with the legal requirements;

•

Para 10.53: Keeping in view its significance for ensuring procedural compliance by
companies, particularly with regard to various statutory disclosures and to ensure
adherence to prescribed secretarial standards, the Committee recommend that Secretarial

Audit report may be required to be attached with financial statements by companies
exceeding certain threshold limit of paid- up share capital.

•

Para 13.33: In accordance with the suggestions made by the Committee to include
secretarial audit for bigger companies, delineation of functions and role of chief financial
officer and company secretary, the Ministry have proposed to include three new sub-
clauses 178A, 178B and 178C in clause 178. Clause 178A, which deals with Secretarial

Audit is given below:

─ New sub-clause 178A- Provisions to be included in the Bill to mandate Secretarial audit for
bigger companies New Clause 178A-

(1) Every company having a paid up share capital of rupees five crore or more or such
other amount as may be prescribed by Central Government from time to time shall
annex with its Board‘s Report made in terms of sub- section (3) of section 120 of the

Act, a Secretarial Audit Report given by a company secretary in practice in such form
as may be prescribed.

(2) It shall be the duty of the company to give all assistance and facilities to the company
secretary in practice for auditing the secretarial and other records of the company.

(3) The Board of Directors, in their Report made in terms of sub-section (3) of section 120
of the Act, shall explain in full any qualification or observation or other remarks made
by company secretary in practice in his report under sub-section(1).

(4) Where any default is made in complying with the provisions of this section, –

(a) the company and every officer who is in default shall be punishable with fine which
shall not be less than one lakh rupees but which may extend to five lakh rupees;

(b) the company secretary in practice who is in default shall be punishable with fine
which shall not be less than one lakh rupees but which may extend to five lakh
rupees”.

2

SECRETARIAL AUDIT

The section further provides that Secretarial Audit Report is to be submitted in a format prescribed
under the rules. As per sub-rule (2) of rule 9, the format of the Secretarial Audit Report shall be in

Form No. MR.3

Applicability of Secretarial Audit

Section 204(1) of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and

Remuneration of Managerial Personnel) Rules, 2014 provides that

1. every listed company;

2. every public company having a paid-up share capital of fifty crore rupees or more; or

3. every public company having a turnover of two hundred fifty crore rupees or more.

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.

Ascertainment as to whether the Secretarial Audit is applicable on a particular company or not has
to be made by checking below mentioned parameters:

(i) Status of a Company – Public or private;

(ii) Whether the securities of the company have been listed;

(iii) Whether the company is subsidiary or associate company of a listed company;

(iv) Turnover of the company.

The term ‘Turnover’ has been defined in section 2(91) and amended under the Companies

(Amendment) Act, 2017 (effective from 09.02.2018 to mean the gross amount of revenue
recognised in the profit and loss account from the sale, supply, or distribution of goods or on
account of services rendered, or both, by a company during a financial year.

Earlier the term “Turnover” was defined as “the aggregate value of the realisation 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”. [from 12.09.2013 upto 08.02.2018]

In view of considering the turnover/paid up share capital as per latest audited financial statement,
as has been provided in section 149 regarding the appointment of women director/ independent
director, the thresholds specified in section 204 shall be required to be checked through out the
year. Therefore the secretarial audit report shall be required to be annexed with the Board report:

(i) if any time during the year (in respect of which board report is prepared) any security of the
company has remained listed on any recognised stock exchange; or

(ii) if any time during the year (in respect of which board report is prepared) the company been
a public limited company, having turnover of Rs. 250 crores or more or having paid up
share capital of Rs. 50 crores or more.

Applicability of Section 204 to a Private Company which is a subsidiary of a Public

Company

Section 2(71) of the Companies Act, 2013 defines a “Public Company” as a company which

(a) is not a private company; and

3

GUIDANCE NOTE ON SECRETARIAL AUDIT

(b) has a minimum paid-up share capital as may be prescribed.

The proviso to the definition states that “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.”

In view of this, it is clear that Section 204 is applicable to a private company which is a subsidiary
of a public company, and which falls under the prescribed class of companies.

Although, the companies which are not covered under section 204 may opt for conducting

Secretarial Audit voluntarily as it provides an independent assurance of the compliances of
applicable laws by the company.

The section further provides that Secretarial Audit Report is to be submitted in a format prescribed
under the rules. As per sub-rule (2) of rule 9, the format of the Secretarial Audit Report shall be in

Form No. MR-3 which shall be issued by a Company Secretary in Practice (Annexure A).

With the Notification of SEBI (Listing Obligations and Disclosure Requirement) (Amendment)

Regulations, 2018, the Secretarial Audit is mandatory for listed entities and their material unlisted
subsidiaries incorporated in India and shall be annexed with the Annual Report of the company.

Purpose of Secretarial Audit

Secretarial Audit provides an effective mechanism to ensure that compliance of various legislations
and regulations including the Companies Act, SEBI Law, Secretarial Standards and other
corporate and economic laws applicable to the company has been diligently done. This would give
necessary comfort to the Management, Regulators, and the stakeholders.

The periodical Secretarial Audit helps to detect the instances of non-compliances and facilitates
taking corrective-measures well in time to avoid any further risk.

Secretarial Audit facilitates monitoring compliances with the requirements of law through a formal
compliance management programme which can produce positive results to the stakeholders of a
company:

─ Companies that go the extra mile with their compliance programs lay the foundation for
good governance.

─ Companies with an effective compliance management programme have lesser chance of
receiving penalties, both monetary and by way of imprisonment.

─ Companies that imbibe business and personal ethics and an effective compliance
management programme within their work culture often enjoy employee and customer
loyalty and public respect for their brand, which can translate into better market
capitalization and shareholder returns.

─ Recognition for the company as a good corporate citizen.

Benefits of a Secretarial Audit

A secretarial non-compliance, a legal suit or other legal, ethical and governance problems can give
rise to catastrophic effects on the continuing viability of the company. The Statute prescribes
mandatory Secretarial Audits of bigger companies to provide necessary comfort to the

4

SECRETARIAL AUDIT

Stakeholders. Many companies voluntarily conduct Secretarial Audit to minimize the possibility of
various issues which may disrupt their companies’ progress.

The Secretarial Audit lays the groundwork for the establishment of an ongoing Secretarial and

Legal compliances and a prevention program to ensure the company’s goals, structure and
ongoing operations are consistent with the latest developments in business and the law governing
the Corporate Entities.

A comprehensive Secretarial Audit would examine a wide range of issues which may be as
mundane as whether or not the company is qualified to do business in various jurisdictions or as
complex as an analysis of the company’s Board Compliances in order to ensure consistency with
current requirement under the Companies Act, 2013 and the all the events/ Corporate action
occurred during the year are in compliance with the Companies Act, 2013. The topics for audit
would include choice and structure of the entity; the decisions of the board of directors and
documentation (or lack thereof) relating to those decisions; observance of the Secretarial

Standards and Board processes, protection of intellectual property; forms and methods of
maintaining records, pending and threatened litigation, insurance coverage; listing under securities
laws and compliance, and related trade regulations; labour laws, environmental laws; and a review
of compliance of all industry specific laws such as laws relating to say, cement sector, fertilizer
sector, sugar sector and so on.

Naturally, the extent and complexity of the Secretarial Audit would vary depending on the size of
the company in terms of the horizontal and vertical scales i.e. size of business, area of operations,
turnover, product line, age of the company and type of businesses, such as trading, services,

Manufacturing, the number of shareholders and employees, the extent to which the company does
business as a “regulated industry,” and a host of other factors.

A dispensation with such an independent secretarial audit could well lead to significant problems
for the company and its stakeholders. The risks of non-compliance with these many laws and
regulations include:

• Failure to keep proper books and records or non-compliance with the provisions of
corporate laws and securities laws, executing certain unviable or undesirable corporate
actions or transactions with related parties or loan to directors, issue, allotment and transfer
of Security or otherwise, without proper authority of the Board of Directors or the General

Meeting or the Memorandum of Association, etc., could lead to the ability by third parties to
play with the stakeholder’s limited liability protection.

• Failure to obtain proper approvals/permissions/licenses could lead to fines, penalties or/and
imprisonment in some cases, even closure of the business by government or governmental
agencies.

• Failure to comply with certain laws and regulations may lead to initiation of action by the
regulators like MCA, SEBI, RBI or others which may jeopardize the very stability of the
financial and manufacturing operations.

• Failure to adopt proper environment law compliance and policies which are reviewed
periodically could give rise to governmental and civil liability.

• Failure to keep accurate records and minutes of its decision-making procedures, such as
proving that directors are exercising informed judgment, could subject the company and its

5

GUIDANCE NOTE ON SECRETARIAL AUDIT
board to liability to its shareholders and investors.

• Failure to monitor the company’s reporting requirements may put the company into default
with lenders or investors.

• Company Secretary in Practice acts as an extended arm of the regulators in ensuring the
compliances, Detecting and reporting any non-compliance before it takes seriously alarming
shape.

Other benefits to the Stakeholders are:

(a) Promoters

Secretarial Audit assures the promoters of a company that those in-charge of its management
are conducting its affairs in accordance with the requirements of laws and the owners stake is
not being exposed to unintended risks.

(b) Non-executive/Independent directors

Secretarial Audit provides comfort to the Non-executive/Independent Directors that appropriate
mechanisms and processes are in place to ensure compliance with laws applicable to the
company, thus mitigating any risk from a regulatory or governance perspective.

(c) Government authorities/regulators

It also facilitates reducing the burden of the regulators in ensuring compliances and they can
take timely actions against the offenders.

(d) Investors

Secretarial Audit helps the investors in taking informed investment decision, as it evaluates the
company in terms of compliance and governance norms being followed by the company.

(e) Other Stakeholders

It is an effective due diligence exercise for the prospective investors or joint venture partners.

Further Financial Institutions, Banks, Creditors and Consumers can measure the law abiding
nature of company management.

Secretarial Audit Report and Company Secretary in Practice

Section 204 provides that Secretarial Audit Report is to be submitted in a format prescribed under
the rules. As per sub-rule (2) of rule 9, the format of the Secretarial Audit Report shall be in Form

No. MR-3 which shall be issued by a Company Secretary in Practice only.

In order to provide guidance to its members who are in practice to adopt a robust and efficient
process of Secretarial Audit, the Institute of Company Secretaries of India has issued this guidance
note. Further, to facilitate the members of ICSI, the Institute through an agency has a developed a
tool for facilitating conduct of Secretarial Audit. The nomenclature of the tool is Compliance

Management and Auditing Configurator (CMAC).

The CMAC has illustrative checklists for around 35 Industry Verticals and 50 Industry sub-
verticals. The detailed checklist of laws covering the Central and State Acts can be downloaded in
editable MS- Excel Format. This tool is available at ICSI website which is available free to use.

6

SECRETARIAL AUDIT

The link of the tool is http:// 49.50.79.97/CMAC/loginPage.aspx

The detailed procedure including video tutorial for use of this tool is available at the home page of
the tool.

Appointment of Secretarial Auditor

In terms of section 204(1), only a member of the Institute of Company Secretaries of India holding
certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the

Secretarial Audit Report to the company.

As per rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, secretarial auditor
is required to be appointed by means of resolution at a duly convened meeting of the Board of

Directors of the company.

Time of Appointment

It is advisable that the Secretarial Auditor is appointed at beginning of the financial year as
secretarial audit entails checking of compliances on a continuous basis. As a good practice, the

Secretarial Auditor should submit a report to the Board at the end of each quarter as to the
compliances of the company.

ICSI Auditing Standards

ICSI has constituted the Auditing Standards Board to lay down the principles for evaluation of
statutory compliances and corporate conduct in relation to secretarial audit and to inculcate best
auditing practices amongst the members of ICSI.

Upon issuance of these Standards by ICSI, it would become generally accepted principle relating
to the secretarial practices to be followed while conducting secretarial audit by a practicing member
and developing a unified manner for Reporting by the auditors.

Secretarial Auditor’s right to receive Notice of Annual General Meeting

Para 1.2.1 of Secretarial Standard on General Meetings requires that the notice in writing of every

Meeting shall be given to every Member of the company. Such Notice shall also be given to the

Directors and Auditors of the company, to the Secretarial Auditor, to Debenture Trustees, if any,
and, wherever applicable or so required, to other specified persons.

Powers and duties of Secretarial Auditor under the Companies Act, 2013

Section 143 of the Companies Act, 2013 deals with powers and duties of Auditors. Sub-
section(14) of section 143 provides that the provisions of this section shall mutatis mutandis apply
to the Company Secretary in Practice conducting Secretarial Audit under section 204.

Company to provide all necessary information and assistance for conducting Secretarial

Audit

Section 204(2) of the Companies Act, 2013 provides that it is the duty of the company to give all
assistance and facilities to the company secretary in practice, for auditing the secretarial and
related records of the company.

Approach to Conduct Secretarial Audit

The object of the Secretarial Audit is evaluation and form an opinion and to report to the
shareholders as to whether, the company has complied with the applicable laws comprising
various statutes, rules, regulations, guidelines, followed the board processes and to also report on

7

GUIDANCE NOTE ON SECRETARIAL AUDIT
the existence of compliance management system.

This requires knowledge of the corporate laws, securities laws, economic laws, FEMA, other laws
specifically applicable to the company, corporate governance provisions, Secretarial Standards,

SEBI (LODR) Regulations, etc. To be able to give an effective report, a Company Secretary in

Practice is expected to have the following:

(1) Knowledge: While conducting the Audit, the Secretarial Auditor should have the knowledge of
exact nature and activities of the company and the laws which are applicable to the company. He
should have understanding to judge existence of compliance system, Board processes &
procedures and practical knowledge for implementation of secretarial standards etc.

(2) Team: The Secretarial Auditor is required to ensure that his team is appropriately trained, who
can support the preparation of the report. Most importantly they should be informed of the basic
principles of audit and have good ethical values. It is also important that the team should be
regularly updated with the related legislative and administrative updates to build and maintain the
expertise.

(3) Documentation & backup: He is expected to develop a customized checklists, according to
the requirements of the company, which will help in, evaluation process and forming of Opinion.

He is required to keep proper record of documents checked, evidence gathered during the course
of audit.

(4) Third party support and evidences: It would always be helpful to cross verification of the filing
made by the company at MCA, SEBI & other authorities independently. Verification of record and
enquiries can also be made with the other statutory and internal auditors and consultants and

Independent Directors of the Company.

(5) Adhering to the timelines: Adhering the time lines and schedule set to conduct the audit
process will not only gain the confidence of the client but also provide a room to management to
rectify defaults in time and this will also boost the morale and increase the efficiency level of the
team.

(6) Honesty and impartiality: A Company Secretary in Practice has the professional duty to
provide an unbiased view on the compliance status of the Company. A Company Secretary in

Practice should be independent from the company being audited.

The Secretarial Auditor is expected to ensure that activities of the client company are in
accordance with the applicable procedure and that supporting evidence maintained by the
company is genuine.

(7) Maintaining Audit Diary: The Audit exercise needs to be planned and executed professionally
and verifications done by the team members should be recorded daily. Such maintenance of diary
would help in keeping audit trail that would come in handy to ensure the quality of audit.

(8) Back up papers to be maintained: The Secretarial Auditor should maintain Audit Diary and
back up papers like working papers, supporting documents, observations, management
explanations, basis for his conclusions more particularly for qualifications in the report etc. as these
will provide the audit evidence for defending himself in any possible allegation of misconduct so
also peer review and help in defending himself in case of any enquiry or questions from regulators.

The Secretarial Auditor is expected to ensure that activities of the client company are in

8

SECRETARIAL AUDIT
accordance with the applicable procedure and that supporting evidence maintained by the
company is genuine.

Scope of Secretarial Audit

In terms of Form MR-3, the Secretarial auditor needs to examine and report the compliance of the
following five specific laws:

(i) The Companies Act, 2013 (the Act) and the rules made thereunder;

(ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;

(iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

(iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder
to the extent of Foreign Direct Investment, Overseas Direct Investment and External

Commercial Borrowings;

(v) The following Regulations and Guidelines prescribed under the Securities and Exchange

Board of India Act, 1992 (‘SEBI Act’):-

(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011;

(b) The Securities and Exchange Board of India (Prohibition of Insider Trading)

Regulations, 1992/ SEBI (Prohibition of Insider Trading) Regulations, 2015;

(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure

Requirements) Regulations, 2009;

(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and

Employee Stock Purchase Scheme) Guidelines, 1999/ SEBI (Share Based Employee

Benefits) Regulations, 2014;

(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities)

Regulations, 2008;

(f) The Securities and Exchange Board of India (Registrars to an Issue and Share

Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with
client;

(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations,

2009; and

(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations,

1998;

(i) SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

In addition, the form MR-3, point (vi) also refers to ‘Other laws as may be applicable specifically to
the company.’

It may be noted that the scope of MR- 3 includes ‘The Securities and Exchange Board of India

(Listing obligations and Disclosures requirements) Regulations, 2015’.

‘Other areas’ which need to be checked

9

GUIDANCE NOTE ON SECRETARIAL AUDIT

Secretarial Auditor needs to examine and report on the compliance with the applicable clauses of
the following:

(i) Secretarial Standards issued by The Institute of Company Secretaries of India.

(ii) The Listing Agreements entered into by the Company with ….. Stock Exchange(s), if
applicable;

Secretarial Audit report also requires reporting on whether –

─ The Board of Directors of the Company is duly constituted with proper balance of

Executive Directors, Non-Executive Directors, Independent Directors, and Women

Director.

─ The changes in the composition of the Board of Directors that took place during the period
under review were carried out in compliance with the provisions of the Act.

─ Adequate notice is given to all directors to schedule the Board Meetings, agenda and
detailed notes on agenda were sent at least seven days in advance, and a system exists
for seeking and obtaining further information and clarifications on the agenda items before
the meeting and for meaningful participation at the meeting.

─ Majority decision is carried through while the dissenting members’ views are captured and
recorded as part of the minutes.

─ There are adequate systems and processes in the company commensurate with the size
and operations of the company to monitor and ensure compliance with all applicable laws
including general rules like labour laws, competition law, Environmental laws, regulations
and guidelines.

Secretarial Auditor is required to report and provide details of specific events and actions that
occurred during the reporting period having major bearing on the affairs of the company in
pursuance of above referred laws/ rules & regulations.

Scope of Secretarial Audit as decided by the Council of ICSI:

1. As per ICSI communication dated 22nd December, 2014

Consultation meets were held with the Corporates (through Company Secretaries in employment)

as well as Company Secretaries in practice, and taking into consideration the views emerging
therefore, the Council of the ICSI at its 226th meeting held on November 21, 2014 decided on the

Scope of Secretarial Audit includes:

• Reporting on compliance of Five laws as mentioned in form MR-3

─ Companies Act, 2013,

─ Securities Contracts (Regulation) Act, 1956 (‘SCRA’),

─ Depositories Act, 1996,

─ Foreign Exchange Management Act, 1999 to the extent of Foreign Direct Investment,

Overseas Direct Investment and External Commercial Borrowing,

─ Regulations and Guidelines prescribed under the Securities and Exchange Board of

India Act, 1992 as specified in MR-3.

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SECRETARIAL AUDIT

• Reporting on compliance of ‘Other laws as may be applicable specifically to the company’

shall mean all the laws which are applicable to specific Company for example for Banks- all
laws applicable to Banking Industry; for insurance company-all laws applicable to insurance
industry; likewise for a company in petroleum sector- all laws applicable to petroleum
industry; similarly for companies in pharmaceutical sector, cement industry etc.

• Examining and reporting whether the adequate systems and processes are in place to
monitor and ensure compliance with general laws like labour laws, competition law, and
environmental laws.

The provisions relating to audit of accounts and financial statement of a company is dealt in the

Statutory Audit, and that relating to taxation is dealt in Tax Audit, the Secretarial Auditor may rely
on the reports given by statutory auditors or other designated professionals.

2. As per communication dated 15th May, 2015

“Secretarial Audit has become applicable to listed companies & all other specified companies, from
the financial year 2014-2015.

Based on extensive consultations with the stakeholders, the then Council at its 226th meeting held
on November 21, 2014 had laid the scope of Secretarial Audit.

In consonance with the scope in MR-3 it is being re-stated as under:

Examination

&

Specific Examination

& Further Reporting

Further

Reporting
on

Compliance Specific reporting on

Reporting
under:

Compliance of other

laws
as
may
be
applicable
specifically to
the
company

(i) Companies Act, 2013 and

• eg. Banks – all

Whether
there
are
a. Board
of
the Rules made thereunder
laws applicable to Adequate systems and

Directors
banking Industry
processes
in
the

Constitution

(ii)

Securities

Contracts

• Companies
in company
b. Notices,

(Regulation)

Act,1956
petroleum sector – Commensurate with its

Agenda
and

(‘SCRA’) and the rules made
all laws applicable size & operation to

Minutes
of
thereunder
to
petroleum monitor
and
ensure

Board

(iii) Depositories Act,1996
industry
compliance
with

Meetings etc.

and the Regulations & Bye-
applicable
laws
c. Board-
laws framed thereunder
including general laws
processes
like
labour
laws,

(iv)

Foreign

Exchange
competition
law,
competition
law,
environmental laws.

Management Act, 1999 and

environmental the rules
made thereunder to the
extent
of
foreign
direct

11

GUIDANCE NOTE ON SECRETARIAL AUDIT

Investment, Overseas Direct

Investments and External

Commercial Borrowings

(v)

Regulations
and

Guidelines
under
the

Securities
and

Exchange

Board of India Act, 1992 as
enlisted in MR-3

(vi) Secretarial Standards

(not applicable to Secretarial

Audit Report for Financial

Year 2014 15)

(vii)

Listing

Agreement
entered into by the company
with Stock Exchange(s) if any

Reporting of Fraud

Secretarial Auditor in the course of performance of his duties as auditor it has reason to believe
that an offence involving fraud is being committed or has been committed against the Company by
its officers/employees needs to report the fraud. [Pursuant to the provision of section 143 (12 & 14)

read with section 447].

General Principles/Guidelines while conducting Secretarial Audit

Audit is an intelligent exercise and it requires examination of the books and records of business
done by an independent qualified person. It is done by process of verification of documents,
record, returns, registers, filings, information systems, procedures and explanations received from
the auditee.

The Auditor should not have any substantial conflict of interest with the Auditee. Any conflict of
interest, other than substantial conflict of interest, should be disclosed by the Auditor before
accepting the Audit Engagement or as soon as the Auditor becomes aware of the same.

GENERALLY THE CONFLICT OF INTEREST CAN BE ASCERTAINED BY THE FOLLOWING

PARAMETERS:

•

Ownership:

•

Financial Interest:

•

Past Employment Relationship:

The Audit scope determines the intensity of the audit and the size of business operation is an key
factor for calculating the time required for an audit exercise, depth of auditing, aspects to be
covered etc. Audit scope depends on, relevant legal provisions, nature of audit, objectives of audit

& terms of engagement. However, the terms of engagement cannot, restrict the scope of an audit
in relation to matters which are prescribed by legislation.

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SECRETARIAL AUDIT

Before taking up/ commencing the Audit Assignment, the Auditor should document the following:

a. The objective and scope of the audit;

b. The responsibilities of the Auditor and the Auditee, The responsibilities of the

Management;

c. Written representations provided/ to be provided by the Management to the Auditor,
including particulars of the Predecessor or Previous Auditor;

d. The period within which (with milestones) the audit report shall be submitted by the

Auditor;

e. The commercial terms regarding audit fees and reimbursement of out of pocket expenses
in connection with the audit; and

g. Limitations of audit, if any.

Minimum fees to be charged with respect to conduct of Secretarial Audit

There is no minimum fees prescribed by ICSI for conducting Secretarial Audit by Company

Secretary in practice. However, it would be in the fitness of things that Company Secretary in
practice takes proper call about fees considering the nature & size of the company, type of
company and the efforts required to be put in while carrying out Secretarial Audit. It is expected
that member should maintain high standard and quality in audit process and issue of the

Secretarial Audit Report.

Limits for the issue of Secretarial Audit Reports:

The Council of the Institute at its 235th meeting held on February 11, 2016 reviewed the limits for
the issue of Secretarial Audit Reports and decided as below:

• 10 Secretarial Audits per partner/ PCS, and

• an additional limit of 5 secretarial audits per partner/PCS in case the unit is peer reviewed.

These limits will be applicable for the Secretarial Audit Reports to be issued for the financial year

2016-17 onwards.

Process of Secretarial Audit

Secretarial Audit is a process to check compliance with the provisions of all laws/ rules/
regulations/standards/procedures
applicable
to
the
company
including
laws/
rules/
regulations/standards/procedures specifically applicable to the company and; adherence to good
governance practices with regard to the systems and processes of seeking and obtaining
approvals of the Board and/or shareholders, as may be necessary, for the business and other
activities of the company, carrying out activities in a lawful manner and the maintenance of minutes
and records relating to such approvals or decisions and implementation.

The Secretarial Auditor also expresses an opinion as to whether there exist adequate systems and
processes in the company commensurate with the size and operations of the company to monitor
and ensure compliance with applicable laws, rules, regulations and guidelines.

Intimation to earlier Incumbent

Whenever a practicing company secretary is appointed as Secretarial Auditor in place of the

13

GUIDANCE NOTE ON SECRETARIAL AUDIT
existing Secretarial Auditor, he/she should intimate the appointment to the earlier incumbent in
writing, in view of the provisions of clause (8) of Part I of the First Schedule to the Company

Secretaries Act, 1980 and the relevant pronounced judgments.

Acceptance of Appointment

A formal letter for appointment should be issued by the company to the secretarial auditor along
with the copy of the board resolution for appointment. The secretarial auditor shall confirm
acceptance of appointment in writing.

Preliminary Discussions/Surveys

It is important to have relevant information about the company. The secretarial auditor is expected
to take an overview of the operations of the company and interact with the personnel involved to
know about the nature of the business. He may opt for surveys for generating information about
the company.

Preliminary Meeting

The preliminary meeting with the senior management and the staff involved in the audit will give a
fair idea of what is the business and operations of the company and the manner in which audit
activities are to be undertaken. At this stage a time frame of the secretarial audit should be
determined and finalized. The secretarial auditor shall discuss the scope and objectives of the
audit, gather information on important Board processes, evaluate existing control systems and
prepare the audit plan.

Secretarial Standard - 1 i.e. Secretarial Standard on Meetings of Board of Directors also provides
the ‘list of laws applicable specifically to the company’ as one of the illustrative items of business
which shall not be passed by circulation and shall be placed before the Board at its Meeting

Finalization of Audit Plan and Briefing the Staff

It is important to work out an audit plan.

As a part of Audit plan, the Secretarial Auditor is expected to undertake the following :

a. Identification of broad audit areas;
b. References made by the previous audit findings and observations from the Management
and the Predecessor or Previous Auditor, in case of change of Auditor;
c. Determination of subject matters/audit areas requiring special attention, when considered
necessary;
d. Risk Assessment and Materiality;
e. Auditing techniques to be used;
f. Allocation of audit resources for the audit to be undertaken; and
g. Preparation of audit schedule

The audit should be organized to cover adequately all aspects of the enterprise as far as they are
relevant to the audit objectives. Appropriate verification has to be done with the help of Checklists.

The plan also involves briefing the audit staff as to allotment of work, fieldwork responsibilities and
other roles. The audit plan should comprehensively outline the fieldwork and usage of auditing

14

SECRETARIAL AUDIT
tools. The review of controls helps the auditor determine the areas of highest risk and design tests
to be performed in the fieldwork section. It is essential that the audit plan adheres to the timelines.

Detailed checklist for each aspect of secretarial audit should be prepared and audit staff should be
properly sensitized before commencement of audit.

Testing, Interviews and Analysis

The secretarial auditor may use a variety of tools and techniques to gather information about the
company’s operations.

It is a well established principle in any auditing practice that an auditor is not expected to carry out
a 100% checking of every piece of paper and information available in the company, in verifying the
final facts and figures represented in the end document. In financial audit, for instance, the auditor
is not expected to make a thorough scrutiny of each and every invoice raised / voucher created by
the company before accepting the sales figure given in the Balance Sheet.

The following are general techniques of auditing:

(A) sample checking;

(B) test checking;

(C) random checking;

(D) trial and error checking.

The same techniques may be applied and adopted in some of the areas of secretarial audit. For
instance...while verifying the list of past and present shareholders, a company secretary in practice
cannot be expected to check every folio of the Register of Members, whose number could run into
lakhs. Similarly, the number of share transfers registered in a year could run into thousands. If one
is expected to check every transaction in these matters, it could be well almost impossible to meet
the statutory time limits for completing the audit assignment.

Therefore, certain techniques of sample checking and test checking should be applied while
conducting secretarial audit.

The Guiding principles can be adopted while deciding about the extent of checking that is required
based on size of company, nature of industry, number of transactions and other relevant factors.

The following guiding principles be adopted while deciding about the extent of checking that is
required.

(i) The need for every detailed checking is greatly reduced if there are adequate measures of
internal control and checks and balances built into the systems and procedures of the
organization. For instance, the procedure for registration of share transfers could be so
designed that the mistakes and errors committed at one stage are automatically detected
and corrected by another, before the whole process is complete. The system could also
provide for automatic cross verification - particularly in cases where the process is
computerized.

(ii) The principle of materiality is another important concept. The sample chosen for detailed
checking should be representative of the whole, or the ‘population’, in statistical parlance.

(iii) For example, in the case of share transfers, instances of transfer of large blocks of shares
could be chosen for detailed scrutiny. Or, the ‘busy’ period for transfer of shares in the year

15

GUIDANCE NOTE ON SECRETARIAL AUDIT
could be identified and selected for sample checking.

(iv) ‘High risk’ areas could be identified and subjected to more extensive scrutiny than others.

For instance, in the case of shares on which there are restrictions on transfer-statutory or
otherwise, a more extensive examination is warranted.

In conclusion, it may be pointed out that a Secretarial Auditor has to carry out necessary checks t
o verify the records and compliances connected thereto. . While the extent of checking is a matter
of personal judgment, he should safeguard himself against any possible charge of negligence in
respect of inaccurate or incomplete statements, certified by him. A Company Secretary in Practice
is advised to exercise reasonable care & due diligence.

If question arises whether the approach to audit should be full or part or sample basis, then

Company Secretary in Practice is advised to always prefer for complete checking if transactions
are less and if size of the organization is medium or small. However for bigger organization quality
time need to be given throughout the financial year by frequent visits at regular intervals.

Adequate enquiries should be made in respect of matters which are capable of direct verification.

Mere getting certification from experts and or Management may defeat the purpose of this audit.

The Auditor should obtain sufficient & appropriate evidences through the verification of
compliances and other substantive procedures for drawing reasonable conclusions to form an
opinion.

Secretarial auditor should determine whether the controls identified during the preliminary review
are operating properly and in the manner described by the Company.

Fieldwork typically consists of interviewing the staff of the company whether formally or informally,
reviewing procedure manuals, processes, testing and analysing compliance with applicable
policies and procedures and laws, rules, regulations and assessing the adequacy of controls. The
secretarial auditor may visit place of business operations/ factory, if necessary, to verify
authenticity of documents, records and sign boards

This exercise may result in significant findings which the secretarial auditor may bear in mind while
preparing the secretarial audit report.

The Act places the secretarial auditor on the same footing as the statutory auditor in terms of
powers, duties and responsibilities while conducting the audit. [Section 143(14)(b)]

Working Papers

Working papers are a vital tool of the audit process. They form the basis for expression of the audit
opinion. They connect the management’s records and information to the auditor’s opinion. They
are comprehensive and serve many functions. A sample worksheet is placed at Annexure ‘B’.

Management Representation Letter

The Company Secretary in Practice may obtain a management representation letter from the
auditee company. The letter may be signed by Company Secretary/Managing Director/ Senior

Management who would normally have authority to issue the same. Suggested format of the
management representation letter is placed as ‘Annexure C’. The format may be adopted with
changes, depending on the circumstances and facts governing every audit. The Secretarial Auditor
can use this letter of representation as part of his audit evidence.

16

SECRETARIAL AUDIT

A Company Secretary in Practice is advised to exercise all possible care, reasonable skill & due
diligence. Adequate enquiries should be made in respect of matters which are capable of direct
verification. Mere getting certification from management may defeat the purpose of the audit.

Audit Summary for Discussions

It is recommended that the findings during the course of audit are summarized and presented for
initial discussions with the management for their views/ clarifications/replies.

Submission of Secretarial Audit Report

After considering the clarifications/replies of the management, the secretarial auditor shall prepare
the secretarial audit report in Form No.MR-3. The report is addressed to the members but is to be
submitted to the Board. The report shall contain the opinion on the statutory compliances
examined by the auditor and shall state whether in his opinion the Company is carrying out / not
carrying out due compliances of the applicable provisions of the various laws. The report shall be
provided with or without qualifications. The specimen of ‘Qualified Secretarial Audit Report’ is
provided in separate chapter in the Guidance Note.

Signing

The Secretarial Audit Report should be signed by the secretarial auditor who conducted or under
whose supervision the secretarial audit was conducted indicating his FCS/ ACS number along with

Certificate of Practice Number issued by the Institute of Company Secretaries of India.

In case of PCS firm, the secretarial audit report may be signed by the partner who conducted or
under whose supervision the secretarial audit was conducted indicating his FCS/ACS number
alongwith his Certificate of Practice number. The secretarial audit report cannot be signed by an
employee of the PCS firm even if he/she may be a member of the ICSI holding Certificate of

Practice number.

Reporting with Qualification

1. A qualification, reservation or adverse remarks, if any, should be stated by the Secretarial

Auditor at the relevant places in his report in bold type or in italics.

2. If the Secretarial Auditor is unable to express an opinion on any matter, he should mention
that he is unable to express an opinion on that matter and the reasons therefor.

3. If the scope of work required to be performed is restricted on account of restrictions
imposed by the company or on account of circumstantial limitations (like certain books or
papers being in the custody of another person who is not available or a Government

Authority), the Report should indicate such limitations.

4. If such limitations are so material that the Secretarial Auditor is unable to express any
opinion, the Secretarial Auditor should state that in the absence of necessary information
and records, he is unable to report on compliance(s) relating to such areas by the

Company.

Further, the Board of Directors, in its Board’s report prepared under section 134(3) of the

Companies Act, 2013 , shall explain in full any qualification or observation or other remarks made
by the Company Secretary in Practice in the Secretarial Audit Report.

17

GUIDANCE NOTE ON SECRETARIAL AUDIT

Duty to Report Fraud

A very significant duty has been cast on the Company Secretary in Practice under section 143 of
the Companies Act, 2013. It provides that if the company secretary in practice, in the course of the
performance of his duties as auditor, has reason to believe that an offence of fraud involving the
prescribed amount is being or has been committed against the company by officers or employees
of the company, he shall immediately report the matter to the Central Government.

Revised section 143(12) read with the Companies (Audit and Auditors) Amendment Rules, 2015
provides that if an auditor of a company in the course of the performance of his duties as auditor,
has reason to believe that an offence of fraud which involves or is expected to involve individually
an amount of rupees one crore or above, is being or has been committed against the company by
its officers or employee, the auditor shall report the matter to the Central Government.

• The auditor shall report the matter to the Central Government as under:-

(a) the auditor to report the matter to the Board/ Audit Committee, as the case may be,
immediately but not later than 2 days of his knowledge of the fraud, seeking their reply or
observations within 45 days;

(b) on receipt of such reply, the auditor to forward his report and the reply of the Board/Audit

Committee along with his comments to the Central Government within 15 days from the
date of receipt of such reply or observations;

(c) in case the auditor fails to get any reply or observations from the Board/ Audit Committee
within 45 days, he shall forward his report to the Central Government along with a note
containing the details of his report that was earlier forwarded to the Board or the Audit

Committee for which he has not received any reply or observations;

(d) the report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by

Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail in
confirmation of the same.

(e) the report shall be on the letter head of the auditor containing postal address, email,
contact details, seal and signed along with the membership number.

(f) the report shall be in the form of a statement as specified in Form ADT-4.

In case of a fraud involving lesser than rupees one crore, the auditor shall report the matter to

Audit Committee or to the Board immediately but not later than 2 days of his knowledge of the
fraud and he shall report the matter specifying the following:-

(a) Nature of Fraud with description;

(b) Approximate amount involved; and

(c) Parties involved.

The following details of each of the fraud reported to the Audit Committee or the Board during the
year to be disclosed in the Board’s Report:-

(a) Nature of Fraud with description;

(b) Approximate Amount involved;

(c) Parties involved, if remedial action not taken; and

18

SECRETARIAL AUDIT

(d) Remedial actions taken.

In case, company secretary in practice does not comply with the provisions of section 143(12), he
shall be punishable with fine which shall not be less than one lakh rupees but which may extend to
twenty-five lakh rupees.

Further, sub-section (13) of section 143 provides that no duty to which an auditor of a company is
subject to shall be regarded as having been contravened by reason of his reporting the matter

(fraud) if it is done in good faith.

Procedure for reporting of fraud:

Reporting of frauds by auditor involving amount more than Rs. 1 crore

If an auditor of a company, in the course of the performance of his duties as statutory auditor, has
reason to believe that an offence of fraud, which involves or is expected to involve individually an
amount of rupees one crore or above, is being or has been committed against the company by its
officers or employees, the auditor shall report the matter to the Central Government.

Auditor should report such frauds as soon as possible but not later than 62 days of his knowledge
about the frauds:

STEP-I

Report to Board & Audit Committee:

Auditor shall forward his report to the Board of Directors or the Audit Committee, as the case
maybe, within 2 days of his knowledge of the fraud, seeking their reply or observations within 45
forty-five days;

STEP-II

Report to Central Government after reply of board:

On receipt of such reply or observations the auditor shall forward his report and the reply or
observations of the Board or the Audit Committee along with his comments (on such reply or
observations of the Board or the Audit Committee) to the Central Government within 15 fifteen
days of receipt of such reply or observations;

STEP-III

Report to Central Government if no reply received

In case the auditor fails to get any reply or observations from the Board or the Audit Committee
within the stipulated period of 45(forty-five days), he shall forward his report to the Central

Government alongwith a note containing the details of his report that was earlier forwarded to the

Board or the Audit Committee for which he failed to receive any reply or observations within the
stipulated time.

Other Points to be kept in mind:

─ The report shall be on the letter-head of the auditor containing

● Postal Address,

19

GUIDANCE NOTE ON SECRETARIAL AUDIT

● e-mail address and

● contact number and

● signed by the auditor with his seal and shall

● indicate his Membership Number.

─ Report shall be in the form of a statement as specified in Form ADT-4.

Reporting of frauds by auditor involving amount less than Rs. 1 crore

• Sub-rule (3) of revised Rule 13 of the Companies (Audit and Auditors) Rules, 2014 Provides
that in case of fraud involving an amount less than Rs. 1 Crore, the auditor shall report the
matter of fraud to the Audit Committee or to the Board within 2 days of his knowledge of the
fraud.

• The report should specify the nature of the fraud with description, approximate amount of the
fraud and parties involved in the fraud.

• In such case, as per Sub-rule (4), the Board shall disclose in its report (Board’s Report) the
nature of fraud with description, approximate amount of the fraud, parties involved in the
fraud and remedial action taken.

• Name of parties should be disclosed only when the Board or Audit Committee has not taken
any remedial action against the fraud.

Fraud detection and reporting requires the Practicing Company Secretary to focus beyond
compliance. The Delhi High court observed in the matter of Globe Motors Limited v. Mehta Teja

Singh & Company that although an agreement in which a director was interested could not said to
be invalid in view of compliance with the requirements of the Act, yet it is only a formal aspect of
compliance with the statutory provisions; the basic question is as to the conduct of the director and
whether it satisfies the test considering their fiduciary relationship to the company. Justice Sachar
further observed that the directors are expected to display utmost good faith towards the company
in their dealings with the company or on behalf of the company; they should not use the company’s
money or other property or information or other matters in their possession in order to gain any
advantage to themselves. Therefore a practicing company secretary should not be satisfied only
with compliance during secretarial audit. He needs to look beyond and satisfy himself that the
transactions which have taken place during audit period do not contain any fraud element.

Clause (f) of Explanation under section 447 of the Companies Act 2013 defines “ Fraud” in relation
to affairs of a company or anybody corporate includes any act, omission, concealment of any fact
or abuse of position committed by any person or any other person with the connivance in any
manner, with intent to deceive, to gain undue advantage from or to injure the interest of the
company or its shareholders or its creditors or any other person whether or not there is any
wrongful gain or wrongful loss.

A perusal of the definition brings out the following elements of “Fraud”:-

(a) Any act committed by any person or any other person with the connivance in any manner
with intent to deceive the company or shareholders or creditors or any other person
whether or not there is any wrongful gain or wrongful loss.

20

SECRETARIAL AUDIT

(b) Any omission committed by any person or any other person with the connivance in any
manner with intent to deceive the company or shareholders or creditors or any other
person whether or not there is any wrongful gain or wrongful loss.

(c) Any concealment of any fact committed by any person or any other person with the
connivance in any manner with intent to deceive the company or shareholders or creditors
or any other person whether or not there is any wrongful gain or wrongful loss.

(d) Any abuse of position committed by any person or any other person with the connivance in
any manner with intent to deceive the company or shareholders or creditors or any other
person whether or not there is any wrongful gain or wrongful loss.

(e) Any act committed by any person or any other person with the connivance in any manner
with intent to gain undue advantage from the company or shareholders or creditors or any
other person.

(f) Any act committed by any person or any other person with the connivance in any manner
with intent to injure the interest of the company or shareholders or creditors or any other
person whether or not there is any wrongful gain or wrongful loss.

(g) Any omission committed by any person or any other person with the connivance in any
manner with intent to gain undue advantage from the company or shareholders or creditors
or any other person.

(h) Any omission committed by any person or any other person with the connivance in any
manner with intent to injure the interest of the company or shareholders or creditors or any
other person whether or not there is any wrongful gain or wrongful loss.

(i) Any concealment of any fact committed by any person or any other person with the
connivance in any manner with intent to gain undue advantage from the company or
shareholders or creditors or any other person.

(j) Any concealment of any fact committed by any person or any other person with the
connivance in any manner with intent to injure the interest of the company or shareholders
or creditors or any other person whether or not there is any wrongful gain or wrongful loss.

(k) Any abuse of position committed by any person or any other person with the connivance in
any manner with intent to gain undue advantage from the company or shareholders or
creditors or any other person.

(l) Any abuse of position committed by any person or any other person with the connivance in
any manner with intent to injure the interest of the company or shareholders or creditors or
any other person whether or not there is any wrongful gain or wrongful loss.

The Practicing Company Secretary has to examine the transactions during the period of audit to
identify whether any fraud element is present in the transaction. In the past “Fraud” has been
noticed in many cases of scams in the following kinds of transactions:-

• Related Party Transactions

• Excessive managerial remuneration – Insider Trading

• Inter Company transactions

• Mergers/demergers/acquisitions

21

GUIDANCE NOTE ON SECRETARIAL AUDIT

• IPO frauds

• Ponzy schemes

• Public Deposit

• Transfer of Shares

Other means of Corporate fraud are the theft of assets, False expenses, corruption, theft in
formation, fraudulent applications, misuse of assets, dishonest business partners, Fraudulent
billing these areas are not exhaustive but only some examples are given so as to guide fraud
detection.

Professional Responsibility and Penalty for incorrect Secretarial Audit Report

Professional Responsibility under Section 448

Section 448 of Companies Act, 2013 deals with penalty for false statements. The section provides
that if in any return, report, certificate, financial statement, prospectus, statement or other
document required by, or for the purposes of any of the provisions of this Act or the rules made
thereunder, any person makes a statement, –

(a) which is false in any material particulars, knowing it to be false; or

(b) which omits any material fact, knowing it to be material,
he shall be liable under section 447.

Penalty for incorrect Secretarial Audit Report

Section 447 deals with punishment for fraud which provides that any person who is found to be
guilty of fraud, involving an amount of at least ten lakh rupees or one percent. of the turnover if the
company which ever is lower shall be punishable with imprisonment for a term which shall not be
less than six months but which may extend to ten years and shall also be liable to fine which shall
not be less than the amount involved in the fraud, but which may extend to three times the amount
involved in the fraud. In case, the fraud in question involves public interest, the term of
imprisonment shall not be less than three years.

In case where the fraud involves an amount less than ten lakh rupees or one per cent. of the
turnover of the company, whichever is lower, and does not involve public interest, any person guilty
of such fraud shall be punishable with imprisonment for a term which may extend to five years or
with fine which may extend to twenty lakh rupees or with both.

In view of this, a company secretary in practice will be attracting the penal provisions of section

448, for any false statement in any material particular or omission of any material fact in the

Secretarial Audit Report. However, a person will be penalised under section 448 in case he makes
a statement, which is false in any material particular, knowing it to be false, or which omits any
material fact knowing it to be material.

It is pertinent to note that section 448 applies to “any person”. In view of this, a company secretary
in practice, who is an independent professional, will be attracting the penalty, as prescribed in
section 448 in case his observations in the secretarial audit report turns out to be false or he omits
any material fact, knowing it to be false or material.

22

SECRETARIAL AUDIT

Section 204 of the Companies Act, 2013

Section 204(4) further provides that if company secretary in practice contravenes the provisions of
section 204 in issue of the Secretarial Audit Report in Form MR-3, he shall be punishable with fine
which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Company Secretaries Act, 1980

Besides, the Company Secretary in Practice shall be liable for professional or other misconduct
mentioned in First or Second Schedule or in both the Schedules to the Company Secretaries Act,

1980 and where held guilty, be liable for the following actions:

(i) where found guilty of professional or other misconduct mentioned in the First Schedule:

(a) reprimand;

(b) removal of name from the Register of members upto a period of three months;

(c) fine which may extend to one lakh rupees.

(ii) where found guilty of professional or other misconduct mentioned in the Second Schedule:

(a) reprimand;

(b) removal of name from the Register of members permanently or such period as may be
thought fit by the Disciplinary Committee;

(c) fine which may extend to five lakh rupees.

Functions of Company Secretary in Employment

Section 205 of the Companies Act, 2013 provides that the functions of company secretary (in
employment) shall include the following:

(a) to report to the Board about compliance with the provisions of this Act, the rules made
thereunder and other laws applicable to the company;

(b) to ensure that the company complies with the applicable secretarial standards;

(c) to discharge such other duties as may be prescribed.

Significantly, the section provides for reporting about the compliance with the provisions of this Act,
the rules made thereunder and other laws applicable to the company as a part of the functions of a
company secretary.

In addition, the Central Government has prescribed the following additional duties for Company

Secretary (in employment) through rules (10) of the Companies (Appointment and remuneration)

Rules, 2014:

(1) to provide to the directors of the company, collectively and individually, such guidance as
they may require, with regard to their duties, responsibilities and powers;

(2) to facilitate the convening of meetings and attend Board, committee and general meetings
and maintain the minutes of these meetings;

(3) to obtain approvals from the Board, general meeting, the government and such other
authorities as required under the provisions of the Act;

23

GUIDANCE NOTE ON SECRETARIAL AUDIT

(4) to represent before various regulators, and other authorities under the Act in connection
with discharge of various duties under the Act;

(5) to assist the Board in the conduct of the affairs of the company;

(6) to assist and advise the Board in ensuring good corporate governance and in complying
with the corporate governance requirements and best practices; and

(7) to discharge such other duties as have been specified under the Act or rules; and

(8) such other duties as may be assigned by the Board from time to time.

Accordingly, the section read with rules made thereunder provides that company secretary to guide
the management of the company for ensuring compliance with provisions of all Act, Rules,

Regulations, Standards, policy etc. covered in Form MR-3 and other laws as specifically
applicable to the company as a part of the functions of a company secretary.

Steps for preparing for Secretarial Audit: Company’s Perspective

A company should prepare itself for secretarial audit by taking the following steps:

1. Compliance Programme: It is essential for every company to have a compliance
management system in place that is updated from time to time. The compliance
management system covers generally aspects such as its objective, list of applicable laws,

Compliance requirement, Compliance calendar, compliance risk management framework,
establishment of systems and processes for effective compliance, appointment of chief
compliance officers, compliance ownership and so on.

Evaluating or Recommending a Compliance programme in the course of Secretarial Audit

Upon the engagement itself, The Secretarial Auditor should have an evaluation of the
various aspects which help him in identifying the gaps, if any, in the existing compliance
management system in terms of policy, procedure, implementation, compliance risk
management, compliance structure, training & Communication, monitoring & control.

Based on the evaluation of Compliance management system, recommendations may be
made to strengthen the same and performing audit smoothly. The company secretary in
practice can also recommend for compliance management system if the company does
not have one.

A template of Compliance Management System placed at Annexure D.

2. Team: Compliance with various laws and legal parameters by the company is essential to
avoid unwanted litigations. A company may constitute a team of officers responsible for
compliances under different laws.

3. Maintenance of Records : The entity at all levels should imbibe the practice of maintaining
proper records. Concerned employees must be sensitized with the importance of record
management system and ensure availability of records for verification.

4. Preparation of Compliance Chart : A company may prepare compliance chart under
various laws applicable to the company as a checklist. Various charts are readily available
but a customized chart suited to the specific requirements of the company may be a better
option.

5. Conduct Compliance Awareness Programmes: A company may organize compliance

24

SECRETARIAL AUDIT
awareness programmes at all the organizational levels to sensitize the employees about
the requirement and importance of compliance and penalties for non- compliance.

Further section 204 provides that it is the duty of the company to give all assistance and facilities to
the company secretary in practice, for conducting the secretarial audit. Hence, it becomes the
responsibility of the working directors/company secretary of the company to provide the required
information to the Secretarial Auditor to enable him to conduct the Secretarial Audit in a timely and
efficient manner.

25

GUIDANCE NOTE ON SECRETARIAL AUDIT

Annexure A

FORM NO. MR-3

SECRETARIAL AUDIT REPORT

FOR THE FINANCIAL YEAR ENDED

[Pursuant to section 204(1) of the Companies Act, 2013 and rule No.9 of the Companies

(Appointment and Remuneration of Managerial Personnel) Rules, 2014]

To,

The Members,

……….… Limited

I/We have conducted the secretarial audit of the compliance of applicable statutory provisions and
the adherence to good corporate practices by……. (name of the company).(hereinafter called the
company). Secretarial Audit was conducted in a manner that provided me/us a reasonable basis
for evaluating the corporate conducts/statutory compliances and expressing my opinion thereon.

Based on my/our verification of the .....………………………….. (name of the company’s) books,
papers, minute books, forms and returns filed and other records maintained by the company and
also the information provided by the Company, its officers, agents and authorized representatives
during the conduct of secretarial audit, I/We hereby report that in my/our opinion, the company has,
during the audit period covering the financial year ended on, complied with the statutory provisions
listed hereunder and also that the Company has proper Board-processes and compliance-
mechanism in place to the extent, in the manner and subject to the reporting made hereinafter:

I/we have examined the books, papers, minute books, forms and returns filed and other records
maintained by ………….. (“the Company”) for the financial year ended on, according to the
provisions of:

(i) The Companies Act, 2013 (the Act) and the rules made thereunder;

(ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;

(iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

(iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder
to the extent of Foreign Direct Investment, Overseas Direct Investment and External

Commercial Borrowings;

(v) The following Regulations and Guidelines prescribed under the Securities and Exchange

Board of India Act, 1992 (‘SEBI Act’):-

(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011;

(b) The Securities and Exchange Board of India (Prohibition of Insider Trading)

Regulations, 1992;

(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure

26

SECRETARIAL AUDIT

Requirements) Regulations, 2009

(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and

Employee Stock Purchase Scheme) Guidelines, 1999;

(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities)

Regulations, 2008;

(f) The Securities and Exchange Board of India (Registrars to an Issue and Share

Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with
client;

(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations,

2009; and

(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations,

1998;

(vi) ............................................. (Mention the other laws as may be applicable specifically to
the company)

I/we have also examined compliance with the applicable clauses of the following:

(i) Secretarial Standards issued by The Institute of Company Secretaries of India.

(ii) The Listing Agreements entered into by the Company with ….. Stock Exchange(s), if
applicable;

During the period under review the Company has complied with the provisions of the Act, Rules,

Regulations, Guidelines, Standards, etc. mentioned above subject to the following observations:

Note: Please report specific non compliances / observations / audit qualification, reservation or
adverse remarks in respect of the above para wise.

I/we further report that

The Board of Directors of the Company is duly constituted with proper balance of Executive

Directors, Non-Executive Directors and Independent Directors. The changes in the composition of
the Board of Directors that took place during the period under review were carried out in
compliance with the provisions of the Act.

Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed
notes on agenda were sent at least seven days in advance, and a system exists for seeking and
obtaining further information and clarifications on the agenda items before the meeting and for
meaningful participation at the meeting.

Majority decision is carried through while the dissenting members’ views are captured and
recorded as part of the minutes.

I/we further report that there are adequate systems and processes in the company commensurate
with the size and operations of the company to monitor and ensure compliance with applicable
laws, rules, regulations and guidelines.

Note: Please report specific observations / qualification, reservation or adverse remarks in respect
of the Board Structures/system and processes relating to the Audit period.

27

GUIDANCE NOTE ON SECRETARIAL AUDIT

I/we further report that during the audit period the company has.................................

(Give details of specific events / actions having a major bearing on the company’s affairs in
pursuance of the above referred laws, rules, regulations, guidelines, standards, etc. referred to
above)

For example:

(i) Public/Right/Preferential issue of shares / debentures/sweat equity, etc.

(ii) Redemption / buy-back of securities.

(iii) Major decisions taken by the members in pursuance to section 180 of the Companies Act,

2013.

(iv) Merger / amalgamation / reconstruction, etc.

(v) Foreign technical collaborations.

Place :

Signature:

Date:

Name of Company Secretary in Practice

/Firm: ACS/FCS No.

C P No.:

Note : Parawise details of the Audit finding, if necessary, may be placed as annexure to the report.

28

SECRETARIAL AUDIT

Annexure B

SAMPLE WORK SHEET

DETAILS OF CAPITAL STRUCTURE

Particulars

As on

Add:

Less: Reduction

Date of passing

Capital as

01/04/20

Increase
in Capital (if any) resolution
on
in Capital

31/03/20....

(if any)

Authorised Capital

Equity

Preference

Unclassified

Issued Capital

Subscribed Capital

Paid-up Capital

Public Issue

Not Applicable

Rights Issue

Not Applicable

Bonus Issue

Not Applicable

Private Placement/

Not Applicable

Preferential Allotment

(Other than conversion)

Private Placement/

Not Applicable

Preferential Allotment

(arising out of conversion)

Allotment of shares

Not Applicable

pursuant to ESOP

Allotment consequent to

Not Applicable

Scheme of Arrangement/

Merger/Amalgamation etc.

Buy-back of Shares

Not Applicable

Reduction of capital

Not Applicable

Share Forfeited (if any)

29

GUIDANCE NOTE ON SECRETARIAL AUDIT

DETAILS OF DIRECTORS & KMP

(EXISTING AND ANY CHANGE MADE BETWEEN 01/04/20.... TO 31/03/20.....)

Name of

DIN & Residential

Date
of Desig-

Nature

Whether

Number of Date of

Director

PAN

Address

Appoint-
nation

(Independent/
liable to Shares

Cessation

/KMP
ment/last

Promoter/
retire by held in the (If any)

re-appoin-

Professional/
rotation

Company
tment

Executive/
and%
of

Non-Executive/
share-

Nominee) In case
holding
of

Nominee,
mention
whose
nominee he/she is

1

2

3

4

DETAILS OF AUDITOR

AUDITOR

Type of Auditor

Name of Auditor/ Address of the Date
of Tenure
for
the

Firm& PAN

Auditor/Firm

Appointment
appointment

Date
of

Cessation, if any

Statutory Auditor

Secretarial Auditor

Cost Auditor

Joint Auditor

Branch Auditor

Internal Auditor

Others

30

SECRETARIAL AUDIT

MINUTES

(a) Board Meeting

Date of

Gap

Date
of Place of Total No.

Leave of Total No.

Chairman of

Meeting
between
serving

Meeting
of

Directors Absence
of Directors the Meeting
the
two the notice
on the Board granted to Present

Board
and mode
on date of Director

Meetings
meeting

(Days)

1

2

3

4

(b) Meeting by Circulations

Date of the Meeting

Date
of Last

Date
on Date of signing Date on which Minutes

Circulation
of which comments of the Minutes
entered in the Minutes

Draft Minutes
received
from

Book

Directors

(c) Annual/Extra Ordinary General Meeting

Date
of

Date of

Plac

Cut-off
e-Voting

Date of

Date of

Total No.

No.

of

No.

of

Chair-

Meeting
serving
e of

Date

Period
submit-
report
of

Members

Proxy
man of

The

Mee-
for

Ting

Submitted

Members
attended
attended
the
notice
ting

E-voting

Report
to SE
on Book

The

The

Meeting

to ROC

Closure
meeting
meeting
under

Section

121
of
the Act

Name of Scrutiniser for e-

Name of scrutiniser for

Date of submission

Date of display of results
voting
poll/ballot
of report by Scrutiniser
on the website and notice board

31

GUIDANCE NOTE ON SECRETARIAL AUDIT

(d) Committee Meeting

Name of Committee:

Type of

Date of

Date of

Place of

Total No.

Leave of

Total No.

Chairman of

Meeting

Meeting
notice

Meeting
of

Absence
of members
the Meeting
members

Granted

Present
on date of
meeting

DETAILS REGARDING OFFICE OF PLACE OF PROFIT

Name of

Qualifi-

Age

Design-

Date of

Remune

Relation

No. of Date of Reasons

Employee
cation

(as on
ation

Appoint
ration as on
with Share
leaving
for leaving
and PAN

01/04/__)

ment
per last Director/
s held
employ-
salary

Member
ment
drawn
drawn if
any

KEY MANAGERIAL PERSONNEL

Name of

Qualifi-

Age

Design-

Date of

Remune

Date
of

Date of

Date
of

No.

of

Person
cation

(as on
ation

Appoint
ration as
taking
filing of
filing
of

Shares held
and PAN

01/04/__)

ment
per
last
approval

MR-1

MGT-14
salary
from
and
and DIR-
drawn
committee

SRN

12
and

(as
per

Board/Me

SRN
schedule
mbers

V)

CHARGES

Name of

Qualifi-

Age

Design-

Date of

Remune

Date
of

Date of

Date
of

No.

of

Person
cation

(as on
ation

Appoint
ration as
taking
filing of
filing
of

Shares held
and PAN

01/04/__)

ment
per
last
approval

MR-1

MGT-14
salary
from
and
and DIR-
drawn
committee

SRN

12
and

(as
per

Board/Me

SRN
schedule
mbers

V)

32

SECRETARIAL AUDIT

Name
of

Charge ID

Date

Of

Amount
of

Details
of

Whether any

Date
of

Remarks

Charge

Creation/

Charge

Security

Personal

Satisfaction
if

Holder

Modificatio

Provided
property
of
any
n

Director/
other person
involved

FINANCIAL STATEMENTS

(a)

Detailed list of Loans and Advances given by the Company between 1st

April, ______ to 31st March, _____ and their confirmation letters.

(b)

Whether there are any relatives of directors/ shareholders to whom Loans
and Advances have been given?

(c)

Complete list of unsecured loan taken by the Company and their terms
and conditions and with proper bifurcation between from Directors,

Relative of Directors, Members and Body Corporate.

(d)

Complete list of Sundry Creditors containing the following details:

(i) Nature of Balances

(ii) Opening Balance and Transactions made

(e)

Statement of Related Party Transactions as per AS-18 and the Approval
of Board/Shareholder for approving the transaction related to RPT.

(f)

Details of Dividend declared:

Particulars

Amount Paid

Percentage of dividend paid

iii. Dividend Tax Paid

Date of Payment of Dividend

Actual
amount claimed
by
the

shareholder

Amount transferred to unpaid dividend account

Amount transferred to IEPF and SRN of Form I
and 5INV

33

GUIDANCE NOTE ON SECRETARIAL AUDIT

APPROVALS FROM RESERVE BANK OF INDIA

(a)

Whether company has made any foreign investment or
company has received FDI?

(b)

Whether company has filed annual statement related to

Foreign assets and liabilities? If yes, Please mention filling
date

(c)

Whether company is having External Commercial

Borrowing/issued FCCB? If yes provide copy of LRN
issued by RBI and Form ECB 2.

(d)

Whether company has made any investment in

Abroad/provided guarantee to the Foreign Company? If
yes, provide details.

(e)

Whether any Show cause notice received by the company
issued
by

Director
of

Enforcement/

RBI
under

FERA/FEMA/DIPB/other appropriate authority and reply
submitted by the company for the said notices.

PROSPECTUS

Date of Prospectus

Date of Filing of Prospectus with ROC

DEPOSITS

Whether any deposits u/s 73 & 74 of CA 2013 have been
accepted by the company.

If yes, Whether the provisions of the Deposit rules u/s 73 &

74 of CA 2013 have been complied with.

STATUTORY REGISTERS

(i)

Register for application and allotment of shares

(ii)

Register for transfer of shares

(iii)

Register of Director, and Key Managerial Personnel

(iv)

Register of Members

(v)

Register of Charges

34

SECRETARIAL AUDIT

(vi)

Register of contracts in which directors and KMP are
interested

(vii)

Register of Disclosure of Interest by the Directors

(viii)

Register for declaration of interest in the shares held by
another person who is not a beneficial owner

(ix)

Register for payment of Dividend

(x)

Register for unpaid/unclaimed Dividend

(xi)

Register for Fixed Assets along with the locations of the
assets

(xii)

Register of Investments, Loans, Guarantee and Securities
provided by the company

(xiii)

Common Seal Register

(xiv)

Register of issue of duplicate share certificates

(xv)

Register of Debenture-holder

(xvi)

Register of Employee Stock Options

(xvii)

Register of buy-back of shares

35

GUIDANCE NOTE ON SECRETARIAL AUDIT

Filling of E forms

Forms and Returns filed by the Company pursuant to the provisions of the Companies Act,

2013 read with the Rules/ Regulations made thereunder

Financial Year: 20 to 20

Sl.

Form Section & Parti-

Date

Whether filed In case of delay, Status

No.

No.

Rule
culars
of
within
the whether

Applicable
of Filing Filing
prescribed
prescribed
time
procedure
followed
and
additional
fees
paid

1

2

3

4

5

6

7

8

1

2

3

4

5

6

7

8

9

10

36

SECRETARIAL AUDIT

Annexure C

Specimen Management Representation Letter for Secretarial Audit

The following letter is a general guidance. Representation made by management may vary from
one entity to another and from one year to another. It should be adopted in the light of individual
requirements and circumstances.

[XYZ Limited]

M/s ABC & CO,

Date:

Company Secretaries,

ZYZ Road, India

-------—-

Dear Sir,

This representation letter is provided in connection with your audit of the Secretarial Records
maintained under The Companies Act, 2013 (the Act) and the rules made thereunder; (ii) The

Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder; (iii) The

Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder; (iv) Foreign

Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of

Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;

The Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act,

1992 (‘SEBI Act’) and other applicable laws including labour laws like Factories Act, Payment of

Gratuity Act etc for the year ended on 31st March, 20 Environmental Laws and Competition

Laws for the purpose required in it. We the undersigned acknowledge our responsibility for
maintaining the Secretarial records referred above and confirm, to the best of our knowledge and
belief, the following representations:

Company Law

1. The Company has maintained books of accounts as required under Section 128 of the
companies Act, 2013

2. The Company has complied with all the provisions of the Secretarial Standards.

3. The Company has complied with all the provisions of Companies Act, 2013 relating to

Statutory Audit/Cost Audit/Internal Audit.

4. No request for transfer or transmission of shares have been received by the company
during the year other than as recorded

5. Statutory Registers were kept open for public inspection during working hours on all
working days

6. Notice of Board meetings were duly sent to all the directors.

7. Notes and notes to agenda were duly sent to all the directors.

8. No resolutions were passed by way of circulation during the year under review other than.

9. Draft Minutes and final minutes were properly sent to all the directors.

37

GUIDANCE NOTE ON SECRETARIAL AUDIT

10. Company has not obtained any secured loan from any financial institution/banks other than
those mentioned in the register of charges.

11. Notice of annual general meeting has been duly sent to all the members, Directors,

Staturory Auditor and Secretarial Auditors.

12. No show cause notice has been received by the company under the Acts referred above or
any other laws applicable on the company.

13. We have provided to you all relevant information and have given access to all data and
records.

14. There is no pending litigation and claims other than reported in the balance sheet by way
of contingent liability.

15. No event other than reported to you specifically has occurred during the year which has a
major bearing on the company’s affairs in pursuance of the laws, rules, regulations,
guidelines, standards, etc. referred to above.

16. The views of all the dissenting Directors (if any) on important matters have been captured
and recorded in the minute.

17. The venue and time of Board meeting was finalized with the consultation of all board
members.

18. ___________________

19. ___________________

Securities Laws

1. All Price Sensitive Information was informed to the stock exchanges from time to time

2. All investors complains directly received by the company are recorded on the same date of
receipt.

3. The Company has complied with provision of SEBI (LODR) Regulations, 2015.

4. ___________________

Specific Applicable Laws

Labour Laws

1. All the premises and establishments have been registered with the appropriate authorities.

2. The Company has not employed any child labour/Bonded labour in any of its
establishments.

3. The company is ensuring the compliance of PF/ESI and other social security measures to
the contract employees. One of the responsible officers of the company carries out the
survey regarding the compliance of this.

4. ___________________

Environmental Laws

1. The Company is not discharging the contaminated water at the public drains/rivers. The

38

SECRETARIAL AUDIT
company has efficient water treatment plants at its factory premises (if applicable)

2. The company has been disposing the hazardous waste as per applicable rules

Competition Law

List of other laws generally applicable to the company We are attaching herewith the list of laws

1. Applicable specifically to the company.

2. Other Laws applicable to the company

3. ___________________

4. ___________________

[For XYZ Limited]

Date

Director

Director Place:

39

GUIDANCE NOTE ON SECRETARIAL AUDIT

Annexure D

Prologue:

COMPLIANCE MANAGEMENT SYSTEM

Compliance is a permanent and integral part of business processes that is ongoing and needs
continuous tuning in line with the business environment and the applicable regulatory ambit.

Compliance Management System should provide processes for

• preventing non-compliances through mechanism such as Compliance risk Management
framework, Policies, Processes & Procedures, Training and Communication, Code of

Conduct & Ethics programme etc.;

• detecting non-compliances through mechanisms such as effective whistle blowing,
compliance controls, compliance audits etc.;

• responding to non-compliance through remedial action, implementation of control tools for
non-recurrence of such non-compliance etc.

Through an effective Compliance Management System, the business and its constituents learn
about the compliance responsibilities individually and for the organisation as a whole, making them
a part of business processes; review operations to ensure responsibilities are carried out and
requirements are met; and timely corrective action are taken.

The objective of this template is to help the secretarial auditor in evaluating the critical aspects of
compliance management. Check-lists have been provided under each head, along with the intent
of the questions. Secretarial Auditor may fine tune the same to company specific depending on the
nature of industry, size of organisation and other relevant aspects that impact the compliance
management system.

COMPLIANCE MANAGEMENT SYSTEM - TEMPLATE

The Objective

The objective of Compliance Management System is to manage the compliance risk effectively, to
promote ethical culture in the organisation, resulting in the maintenance and enhancement of the
reputation of the Company. Compliance management through systematic processes helps in
achieving compliance of all applicable laws.

The objective of Compliance Management System is -

• To establish and maintain centralised mechanism to ensure compliance with all applicable
laws (both Indian and International).

• To establish and maintain effective co-ordination of functional units and the compliance
department under the overall supervision of the Board.

40

SECRETARIAL AUDIT

• To incorporate changes in the existing applicable laws or introduction of new laws, into the
compliance process in real time manner.

• Effective communication of the changes in the regulatory mandates to the applicable
functional and other units in real time manner.

• To provide training on compliance requirements at regular intervals.

• To introduce and implement ethics programmes for Board, Senior Management and other
staff members.

• To establish pro-active compliance risk management culture into the organisation.

• To establish effective monitoring and control systems.

• To adopt fair market practices.

• To establish mechanisms to prevent, detect, report and to respond to non-compliances.

• To introduce effective whistle blowing mechanism.

• To establish compliance dashboard.

• ..........................................

• ..........................................

The Scope

1. A. Compliance with applicable laws

• .....................

• .....................

• .....................

• .....................

(To be kept updated and amended from time to time)

B. Adherence to Company Specific internal policies and procedures

• Code of Conduct

• Code on prevention of Insider Trading

• Policy on related party transaction

• IT Policy

• ........................................

• ........................................

2 Adherence with Vision and Mission statement of the Company.

3. To devise code of conduct for Board, senior management and employees

41

GUIDANCE NOTE ON SECRETARIAL AUDIT

4. Conducting training on compliance, ethics, code of conduct.

5. Establishment of Corporate Compliance Committee.

6. Appointment of Chief Compliance officer.

7. Quarterly compliance Report to be presented to the Board.

8. Identification and classification of various compliance risks.

9. Organisation of compliance Audit, feed back, remedies.

10. .......................................

11. .......................................

Compliance Risk

Compliance risk is the current and prospective risk to earnings or capital arising from violations of,
or non-conformance with, laws, rules, regulations, prescribed practices, internal policies, and
procedures, or ethical standards. This risk exposes the institution to fines, civil money penalties,
payment of damages, and the voiding of contracts. Compliance risk can lead to diminished
reputation, reduced expansion potential and an inability to enforce contracts.

The Chief Compliance Officer

The Corporate Compliance Officer (CCO) is the custodian of the Corporate Compliance Plan. The

CCO should report on compliance activities that include but are not limited to:

• To establish and review the centralised compliance management system in tune with
business environment, strategic decisions of the company and the regulatory amendments.

• To guide and educate the Board on various compliances, regulatory and policy based
compliances.

• To devise clear compliance structure

• Liaison between Board, Functional heads and compliance staff.

• To advise the Compliance department regularly and as and when required.

• To devise annual compliance plan.

• To define the role and responsibilities of functional units and disseminate the information.

• To organise training for the Board and the staff on ethics and compliance.

• To establish and strengthen the Compliance Dashboard.

• Inform the Board and the functional departments about changes in the applicable regulatory
landscape and its implications on the organisation.

• To establish processes for effective monitoring and control.

• To present quarterly compliance report before the Board.

• .......................................

42

SECRETARIAL AUDIT

• .......................................

• .......................................

Board Level Corporate Compliance Committee

The primary responsibility of the Corporate Compliance Committee is to oversee the company’s

Corporate Compliance Program with respect to:

(I) compliance with the laws, rules and regulations applicable to the company;

(II) Compliance with the Company’s Code of Conduct;

(III) Compliance with Company’s policies and procedures;

(IV) Compliance with established standards;

(V) Compliance with prevention and detection of fraud, misappropriation etc.;

(VI) Oversight of the risk management activities of the company and the protection of
stakeholders;

(VII) Making recommendation to revise the compliance management programme.

The Compliance Department

The company should have a dedicated compliance department which should be independent and
sufficiently resourced. It should not be entrusted with any business targets. They have to work
closely with functional units. The staff of compliance department should have fair knowledge of
applicable laws, internal policies etc and should be imparted training at regular intervals. The Chief

Compliance Officer shall oversee the activities of Compliance Department.

The Compliance Dashboard

• The Compliance Dashboard should alert the company in the risk prone areas or non
compliances.

• It should display the compliance obligations on the compliance calendar or dashboard

• Before the date of regulatory mandate, and e-mail should be sent to the compliance owner.

• The Compliance owner should send the response once compliance is done.

The compliance dashboard helps in simplifying the compliance obligation, effectively managing the
compliance risk, facilitating board oversight, effective co-ordination of functional units.

Compliance System- Checklists

A. Board Oversight

S. No

Question

Yes/

Intent

No

1

Does the

Board approve

The Board should be updated on Compliance with
compliance report on the
the applicable laws at least every quarter, ensuring
applicable Laws?

compliance by all functional heads and presented
by Compliance department/ Chief compliance
officer. This helps in effective Board oversight.

43

GUIDANCE NOTE ON SECRETARIAL AUDIT

2

Does
the

Board
review

Compliance Management programme has to be

Compliance

Management
revisited at regular intervals in tune with the
programme
at
regular
business environment, regulatory changes etc.

intervals?

3

Do the members make use of

The Board Members are expected to visit

Compliance

Dash

Board

Compliance Dashboard at regular intervals in over-
effectively and act upon it
seeing the compliance level in the organisation.

when required?

4

Is the Board updated with the

The Board should be updated with the applicable
applicable laws?

laws at regular intervals that helps the Board in
reviewing
compliance
plan,
overseeing
compliances, reading compliance dash board etc.

B. Chief Compliance officer

S.

Question

Yes/

Intent

No.

No

1

Has the Company appointed Chief

Overall Ownership should lie with an exclusive

Compliance Officer?

individual who has strong hold on laws, rules and
regulations. Appointment of Chief Compliance

Officer helps in effective co- ordination of
compliances by business units.

2

Has the role of Chief Compliance

As part of Compliance programme, the specific
officer been specifically defined?

duties of Chief Compliance Officer be defined. This
helps in casting the responsibility as well.

3

Is the Chief Compliance Officer an

Chief Compliance Officer shall be an independent
independent person?

person who should not have any pecuniary interest
with the company and should not be associated with
any specific business unit.

4

Is the Chief Compliance Officer

Chief Compliance Officer reporting directly to Board

reporting to Board?

helps in direct and effective communication of

compliance aspects with the top management.

The Chief Compliance officer should participate in
important strategic and contractual decisions. This

5

Does the Compliance Officer
participate in major decisions?

helps him in assessing the legal implications of the
same on the company.

44

SECRETARIAL AUDIT

C. System and Process

S.

Question

Yes/

Intent

No.

No

1

Has the company put in place, a

When there are business/functional units at
centralised
mechanism
for
different locations, centralised mechanism of
tracking
and
monitoring
tracking and monitoring compliance helps in
compliance?

effective co-ordination of different business
units.

2

Has the company put in place

The company should have defined process in
the process for development
place for updating the table of applicable laws.

and approval of table of

For example at every quarter or introduction of
applicable laws, function wise
new law or amendment to existing law, as the
and criticality wise?

case may be.

3

Does the company have in-

The process should provide for change in the
built mechanism in place for
regulatory ambit applicable to the company.

alerts whenever there is any
identification of various laws
and its applicability to the
organisation, specifically based
on the functions?

If so, is the implementation
process for the same

4

Has the company paid any

The compliance mechanism should provide for
penalty for any compliance
no-tolerance
to
non-compliances.

Non-
failure? If so, has the company
compliances are to be addressed through
made gap analysis and taken
establishing necessary controls for the same.

remedial measures?

5

Has the company appointed

Compliance Owners at unit level helps in
designated compliance officials
ensuring compliance in the respective business

(Compliance owners) at unit
units.

level?

6

Has the company co-ordinated

Co-ordination of unit level compliances are
the activities of designated
essential for ensuring overall compliance.

compliance official functional
heads,

Chief

Compliance
officer and the Board of

Directors?

7

Is the Compliance Management

The existing Compliance management should

System subject to periodic
be subject to periodic audit that helps in

Audit?

bringing effective control.

45

GUIDANCE NOTE ON SECRETARIAL AUDIT

D. Corporate Compliance Committee

S.

Question

Yes/

Intent

No.

No

1

Has the company constituted

Constituting the Board level Corporate Compliance
corporate compliance committee?

Committee helps in the effective involvement of the

Board in compliance management.

2

Are Functional Heads and Chief

Participation of Functional Heads and the Chief

Compliance Officer participating in

Compliance Officer in the meeting of Corporate
the
meetings
of

Corporate
enhances the quality of discussions and decisions.

Compliance Committee?

3

Does the committee meet atleast

The Committee should meet atleast once in a
in every quarter?

quarter. This may be in line with assessment

E. Compliance Risk Management

S.

Question

Yes/

Intent

No.

No

1

Is compliance risk a part of ERM?

Compliance risk should be classified as one of the
major risks under ERM.

2

Has the company classified the

Some non-compliances may be cognizable and/or
compliance
risk
based
on
non-compoundable. The company should identify
criticality (Legislation- wise)?

the compliances based on criticality. Compliance
risks are to be assessed by Chief Compliance

Officer in consultation with functional heads.

3

Are the Compliance Owners

The Compliance Owners should be aware of
aware of financial implications of
implications of non-compliances.

critical non-compliances?

4

Does the Company undertake

Compliance risk analysis helps establishing effective

Compliance Risk Analysis?

compliance controls.

F. Training and Communication

S.

Question

Yes/

Intent

No.

No

1

Has the company imparted training

Regular training helps in understanding the intent,
to
senior
management

&
process and consequences of compliances in better
employees
on
compliance
manner
programme covering regulatory
aspects and the internal policies?

2

How
does
the
company

Reiterating on ethical issues is essential in any
communicate with the employees
organisation, that would bring overall ethical culture
on ethical issues?

in the organisation.

46

2

COMPLIANCES UNDER COMPANIES ACT, 2013

Introduction

Companies are expected to create an environment which ensures the protection of interest of the
stakeholders viz. shareholders, lenders, employees, customers, vendors, service providers,
regulators, etc. is paramount.

A company will be failing in its duty and commitment to be a responsible and good corporate
citizen, if it does not comply with the provisions of law, as the laws of the land are made with an
intention to safeguard the public interest at large.

GENERAL COMPLIANCE REQUIREMENTS

The Companies Act is the key statute, which a Company has to comply in letter and spirit for
ensuring the betterment of all stakeholders. As per section 204 of the Companies Act, 2013 (the

Act) read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel)

Rules, 2014, every listed company and a company belonging to other class of companies as may
be prescribed i.e. (a) every public company having a paid-up share capital of fifty crore rupees or
more; or (b) every public company having a turnover of two hundred fifty crore rupees or more, are
required to annex to its Board’s report a Secretarial Audit Report, given by a company secretary in
practice. The Secretarial audit report gives thrust on various statutes, systems, processes which
provides an assurance to the investors and regulatory authorities on the governance practices of
the Company.

The Companies Act, 2013 and rules thereunder is the first legislation covered under the scope of
the Secretarial audit. This Chapter provides guidance to the members on checking the compliance
of the provisions of this law.

The Secretarial auditor is expected to update on the amendment in the Act and the Rules, which
may occur from time to time. The secretarial auditor should inter- alia verify about the Maintenance
of statutory registers and records and compliances. The following is a list of documents which a

Secretarial auditor is required to inspect:

1. Memorandum and Articles of Association

2. Forms filed with the Registrar of Companies with receipts.

3. Index of Meetings held during the financial year.

4. Minutes of the Board, its Committees and of General meeting.

5. Proof of Circulation of Notice and Agenda of Board meetings, Committee meetings and the

General meeting

GUIDANCE NOTE ON SECRETARIAL AUDIT

6. Proof of circulation of Draft Minutes and Final Minutes of meeting of Board and its
committees.

7. Attendance Register of Board and committee meetings

8. All statutory registers.

9. Copy of financial statement along with notes to accounts and Auditor Report .

10. Report of Internal Auditor.

11. Notices of annual and event based disclosure of directors’ interests.

12. Copies of contracts made between the company and any of the related parties

13. Shareholder List, details of Share Transfers which have taken place during the financial
year

14. Copy of Share Transfer Deeds.

15. Instruments creating, modifying or satisfying charges.

16. Forms relating to Disclosures from Directors.

17. Certificate from RTA stating the number of shareholders as on the close of the financial
year.

18. Certified true Board Resolution for any type of corporate actions taken by the Company

19. Details of the Holding and Subsidiary Companies

20. Complete details of Shares and Debentures issued during the year.

21. Details of change in shareholding of the promoters and top ten shareholders of the

Company under Section 93.

22. Details with respect to maintenance of cost records and appointment of cost auditor.

23. Details of appointment of Auditor and Internal auditor.

24. The list of Related Party Transactions.

25. Indebtedness Certificate signed by Company Secretary/ CFO of the Company.

26. Listing and Trading Approval(s) from Stock Exchanges.

27. Intimation to Stock Exchanges, Confirmation from National Securities Depository Limited

(NSDL) and Central Depository Services (India) Limited (CDSL) for change of the name of
the company, change in the face value of equity shares, etc.

28. Change of name of the company, change in the face value of the company, new ISIN No
of the Company in respect of the allotment or as a result of any change in capital structure
due to any corporate action taken by the Company during the financial year under audit.

29. Corporate Action Forms filed by the Company with Depositories.

48

COMPLIANCES UNDER COMPANIES ACT, 2013

30. Equity Shareholding pattern and its break up as at the close of the financial year.

31. Any orders received by the company from the High court/Tribunal or from any other
regulatory body.

32. Compliance record under FEMA with respect to FDI,ECB and ODI as applicable.

33. Copies of Shareholders and joint ventures agreement, if any.

34. Copy of Declaration received from Independent Director u/s 149(7).

35. Corporate Social Responsibility (CSR)

36. Directors and Key Managerial Personnel(KMP)

37. Bank Statements relating to transfer of Dividend to Separate bank account, proof of
dispatch of dividend within 30 days of Dividend

38. Advertisement/circular relating to Deposits; Credit rating certificate, deposit insurance, if
any

39. Such other documents as required for the purpose of audit.

A Company Secretary in Practice in order to verify the compliances has to verify the
secretarial records of the company with the help of the following checklists:-

Chapter II- Incorporation of Company and Matters Incidental Thereto

Events covered under this chapter are:

•

Incorporation of Company i.e. Private, Public, Section 8

•

Alteration of Memorandum

•

Alteration of Article

Alteration of Memorandum

In the following cases amendment is required in the Memorandum of Association (MOA) as per
provisions of Section 13 of the Act read with Companies (Incorporation) Rules, 2014

1. Change of Name;

2. Alteration of Authorized Capital;

3. Change in Objects, and

4. Shift of Registered Office

Change in Name

When a company desiring to change its name may do so in accordance with the provisions of

Section 13 read with Section 4 of the Act by passing Special Resolution and the name approved by
the Ministry of Corporate Affairs (MCA) on prescribed application.

49

GUIDANCE NOTE ON SECRETARIAL AUDIT

Alteration of Authorized Capital

A Company may alter its Authorized Capital i.e. Capital Clause by virtue of Section 13 read with

Section 61 by passing an Ordinary Resolution.

The Capital Clause will be altered by prescribed process as per the applicable rules and payment
of relevant stamp duty as may be applicable and levied by concerned state in which the registered
office of the Company is situated.

Change in Objects

A company may change its objects as enshrined in its MOA in accordance with the provisions of

Section 13 of the Act. Accordingly, any alteration of MOA with respect to the objects of the
company is permitted through Special Resolution.

However, Section 13 (8) restricts the change in object of a company which has raised money from
public through prospectus and still has any unutilized amount out of the money so raised unless a
special resolution is passed by the company and the details of such resolution shall be published in
one vernacular language and one English language newspaper in circulation at the place of
registered office of the company as well as on the website of the company indicating the
justification for such change in the object. Shifting of Registered Office

Checklist for Alteration of Memorandum of Association

S. No. Particulars

Remarks

1

Check whether the purpose of Alteration of Memorandum. If the
alteration is for:

a) any purpose other than the purpose mentioned under section

61,
b) alteration as required under section 61 of the Companies Act,

2013, requires special resolution under the Articles of

Association
check whether the company has passed the special resolution and
filed Form MGT-14 with the Registrar as per Companies

(Management and Administration) Rules, 2014

2

Check whether the company has altered its name with the approval of

Central Government

3

Check whether the company has obtained fresh certificate of
incorporation from the Registrar in Form No.INC.25 as per Companies

(Incorporation) Rules, 2014.

4

If the company has shifted the registered office from one state to
another state, it is with the approval from the Central government. The
application to be filed in form INC 23. Check whether the order of the

50

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

Central Government is filed with the Registrars of Companies of both
the states in Form No INC 28 within 30 days from date of receipt of
certified copy of order.

5

In case company has raised money from public through prospectus
and still has any unutilised amount out of the money so raised, a
special resolution has been passed through postal ballot by the
company to change its objects for which it raised the money through
prospectus –

•
the notice contains the details as provided in Rule 32 of the

Companies (Incorporation) Rules, 2014

•
the details, were published in the newspapers (one in English
and one in vernacular language) which is in circulation at the
place where the registered office of the company is situated and
was placed on the website of the company, indicating therein
the justification for such change;
the dissenting shareholders were given an opportunity to exit by the
promoters and shareholders having control in accordance with
regulations specified by the Securities and Exchange Board

Check that the alterations are noted in every copy of the

Memorandum in terms of section 15

Checked by:

Reviewed by:

Date:

Date:

As per Section 12 of the Act, every company shall have a registered office at all times, to which all
communications and notices may be addressed.

Every company within 15 days of its incorporation or any change in the address of its registered
office shall furnish a verification of its registered office in INC-22 prescribed under Companies

(Incorporation) Rules, 2014.

A company is permitted to change its registered office from its existing location to another location-

•

Within the local limits of the same city, town or village

•

Outside the local limits of the same city, town or village but within same state under
jurisdiction of same ROC

•
under jurisdiction of another ROC within same state

•

One State to another State.

51

GUIDANCE NOTE ON SECRETARIAL AUDIT

Indicative list of documents to be checked (Alteration of memorandum)

•

Notice convening general meeting with relevant explanatory statement

•

Documents relating to Conduct of meeting as per Secretarial Standards

•

Minutes of General Meeting

•

Annual Return

•

Financial Statement

•

Advertisement for change in objects /shifting of registered office

•

Amended Memorandum of Association

•

Amended Articles of Association

•

INC23, INC24, INC25, INC26, INC28, MGT14 (along with attachments and challans)

B. Alteration of Articles (Section 14 of Companies Act)

Instances wherein the change in article is required

•

Change in any clause of Articles

•

Conversion of a private company into a public company; or

•

Conversion of a public company into a private company:

A company may alter its Articles by passing a special resolution. This requires that the due
importance and care should be given to check whether the alteration of AoA is not in conflict with
the provisions of the Memorandum of Association or the Companies Act. A copy of every special
resolution altering the Articles must be filed with the Registrar within 30 days of its passing

Checklist:

S. No. Particulars

Remarks

1

The company has passed special resolution with respect to alteration
of articles and has filed form MGT 14.

2

In case of conversion of a private company into a public company or
vice versa, the application was filed in Form No. INC. 27

3

A copy of the order of the Tribunal approving the alteration has been
filed with the Registrar in Form No. INC.27 together with the printed
copy of the altered articles within fifteen days of the receipt of the order
from the Tribunal.

4

Check that the provision for entrenchment has been made by an
amendment in the Articles, with the consent of all the members in case
of a private company/by passing special resolution in case of a public

52

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
company.

5

Every alteration made in the memorandum or articles has been noted
in every copy of the memorandum or articles. Articles and the copy of
every resolution which has the effect of altering the articles and the
copy of every agreement referred to in sub-section (3) of section 117
shall be embodied in or annexed to every copy of the articles issued
after passing of the resolution or making of the resolution.

6

The company sends on payment of fee, a copy of each of the following
documents to a member within seven days of the request being made
by him-

•
the memorandum;

•
the articles;

Every agreement and every resolution referred to in section 117(1) if
they have not been embodied in the memorandum and articles.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked (Alteration of Articles)

•

Notice convening general meeting with explanatory statement

•

Conduct of meeting as per Secretarial Standards

•

Minutes of General Meeting

•

Amended Memorandum of Association

•

Amended Articles of Association

•

INC27, MGT14(along with attachments and challans)

Prospectus and Allotment of Securities:

Points which should be verified:

•

Public Offer of Securities

•

Issue of Prospectus

•

Allotment of Securities

•

Issue of Securities by Depositary Receipt

•

Private Placement

53

GUIDANCE NOTE ON SECRETARIAL AUDIT

A. Private Placement U/S 42 (Read with Companies (Prospectus and Allotment of

Securities) Rules, 2014

S. No. Particulars

Remarks

1

To check whether offer is made only to a select group of people who
have been identified by the board does not exceed 200 in the
aggregate in a financial year for each kind of security. It is to be noted
that any offer or invitation made to qualified institutional buyers or to
employees of the company under scheme of employees stock option
shall not be considered while calculating the limit of two hundred
persons.

2

No allotment against any previous offer / invitation of any kind of
security is pending. Non- banking financial companies and Housing

Finance Companies are exempted from these provisions.

3

Company has passed special resolution for each offer / invitation

(except in case of NCDs, where one resolution in a year for all offers
during the year is sufficient).

4

Explanatory statement contains justification for price and premium, if
any and requirements of section 102, if any.

5

Issue of a private placement offer letter and application in prescribed
form.

Ensure such private placement offer and application form shall not
carry any right of renunciations.

6

Requirements of Private placement offer letter:

a) Was accompanied by serially numbered application form

b) Addressed specifically to the person to whom offer is being
made
c) Sent to only such person in writing / electronically
d) Sent within 30 days of recording names in the list
e) No person other than the addressee was allowed to apply
through application form

7

Check whether that the subscription money is paid either by cheque
or demand draft or other banking channel but not in cash.

8

Company to maintain record of the bank account from which
payments received. Check whether that payment has been made from

54

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
the bank account of the person subscribing to such securities.

9

In case of joint holders, check whether the payment was received
from first applicant only

10

Allotment was completed within 60 days from date of receipt of
application form. If not, application money repaid within 15 days of
completion of 60 days. If not repaid, the application money along with
interest at 12 percent per annum from expiry of 60th day was paid.

11

Board resolution to specifically contain authority for issuance of share
certificates to two directors or by a director and the Company

Secretary where the Company has appointed a Company

Secretary. .

12

Share application money to be kept in separate bank account and was
utilized only for (a) adjustment against allotment or (b) repayment

13

Company filed Return of allotment in prescribed form within 15 days.

14

Check whether the list of allottees attached with the E form.

15

Share certificates were issued within 2 months of allotment of shares /

6 months of allotment of debentures.

16

In case of contravention, money was refunded within 30 days of order
imposing the penalty.

17

Company has made entry in Register of Members Securities holders.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked:

•

Minutes of Board Meeting

•

Notice convening general meeting with relevant explanatory statement

•

Bank Statement

•

Certified copy of the special resolution

•

Register of members/securities holders

•

Valuation report

55

GUIDANCE NOTE ON SECRETARIAL AUDIT

•

Board resolution authorising person to sign certificate

•

Proof of dispatch of PAS-4

•

PAS-3 (including List of Allottees), PAS-4, PAS-5, MGT-14

II. Share Capital and Debentures

Points which should be verified

•

Issue of shares with differential rights

•

Issue of Sweat Equity Shares

•

Issue and redemption of Preference shares

•

Transfer and transmission of shares

•

Rectification of Registers of Members

•

Events covered under this chapters

•

Further issue of share capital

•

Issue of Bonus Share

•

Alteration of Share capital

•

Reduction of Share capital

•

Buyback of Securities

•

Issue & redemption of Debentures

A. Checklist for Issue of shares with differential rights:

S. No. Particulars

Remarks

1

Check whether the articles of association of the company authorize the
issue of shares with differential rights.

2

Whether the issue of shares is authorized by an ordinary
resolution passed at a general meeting of the shareholders.

Incase equity shares of a company are listed on a recognized stock
exchange, the issue of such shares shall be approved by the
shareholders through postal ballot.

3

Whether the shares with differential rights shall not exceed twenty-six
percent of the total post-issue paid up equity share capital including
equity shares with differential rights issued at any point of time.

4

Whether the company having consistent track record of distributable
profits for the last three years;

5

Whether the company has not defaulted in filing financial statements
and annual returns for three financial years immediately preceding the
financial year in which it is decided to issue such shares.

56

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

6

Whether the company has no subsisting default in the payment of a
declared dividend to its shareholders or repayment of its matured
deposits or redemption of its preference shares or debentures that
have become due for redemption or payment of interest on such
deposits or debentures or payment of dividend.

7

Whether the company has not defaulted in payment of the dividend on
preference shares or repayment of any term loan from a public financial
institution or State level financial institution or scheduled Bank that has
become repayable or interest payable thereon or dues with respect to
statutory payments relating to its employees to any authority or default
in crediting the amount in Investor Education and Protection Fund to
the Central Government.

Check whether 5 years have elapsed from the end of the financial year
in which such default was made good

8

Whether the company has not been penalized by Court or Tribunal
during the last three years of any offence under the Reserve Bank of

India Act, 1934, the Securities and Exchange Board of India Act, 1992,
the Securities Contracts Regulation Act, 1956, the Foreign Exchange

Management Act, 1999 or any other special Act, under which such
companies being regulated by sectoral regulators.

9

Whether the Explanatory Statement annexed with the notice of the
general meeting contains the details as required under rule 4(2) of the

Companies (Share capital and Debentures ) Rules, 2014

10

Check whether the company has not convert its existing equity share
capital with voting rights into equity share capital carrying differential
voting rights and vice–versa.

11

Check whether the Entry in Register of Members maintained under
section 88 has contain all the relevant particulars of the shares so
issued along with details of the shareholders.

Check that the Board’s Report for the financial year in which the issue
of equity shares with differential rights was completed contains the
details as required under rule 4(4) of the Companies (Share capital and

Debentures ) Rules, 2014

Checked by:

Reviewed by:

Date:

Date:

57

GUIDANCE NOTE ON SECRETARIAL AUDIT

Checklist for Issue of Certificates of Shares and other Securities including Issue of renewed
or duplicate share Certificate (Section 46)

The certificate of shares shall be issued in pursuance of a resolution passed by the board under
the common seal, if any of the company and signed by two directors or by a director and the
company Secretary wherever the company has appointed Company Secretary and specify the
details of shares held by such person and the date of issue of Shares.

S. No. Particulars

Remarks

1

The company has allotted shares/debentures and entered the names
of allottees in the register of members/debenture holders;

(Note: where the register and index of beneficial owners is
maintained by a depository it shall be deemed to be corresponding to
the register of members)

2

The company has issued and delivered share certificates as per
section 46 of the Act;

3

Whether Board has passed a resolution for the issuance of certificate
of any share or shares;

4

The company has executed Debenture Trust Deed in case of
secured debentures;

5

The company has complied with delivery of certificates within the
time limits prescribed under section 56(4)

6

Proper stamp duty has been paid.

7

The certificates are issued in accordance with the provisions of the

Articles of Association.

Checked by:

Reviewed by:

Date:

Date:

C. In case of Issue of Renewed and Duplicate share certificate:

S. No. Particulars

Remarks

1

Check that whether the duplicate certificate of shares has been
issued, for such certificate which —

(a) is proved to have been lost or destroyed; or

(b) hasbeen defaced, mutilated or torn and is surrendered to the
company.

2

Check whether the prior consent of the Board has been obtained for
issue of the duplicate shares and the supporting documents were

58

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
placed before the board.

3

Check whether the words “duplicate issued in lieu of share certificate

No……” and the word “duplicate” shall be stamped or printed
prominently on the face of the share certificate

4

In case unlisted companies:

•

Check whether the duplicate share certificates has been
issued within a period of three months from the date of
submission of complete documents with the company.

In case of listed companies:

•

Check whether the duplicate share certificate has been issued
within a period of fifteen days, from the date of submission of
complete documents with the company.

5

Check whether entries made in the Register of Renewed and

Duplicate Share Certificates are authenticated by the company
secretary or such other person as may be authorised by the Board.

Check that the register is kept at the registered office of the company
or at such other place where the Register of Members is kept and is
kept in the custody of the company secretary of the company or any
other person authorized by the Board for the purpose.

6

Check whether the certificate of any share or shares is not be issued
in exchange for those which are sub-divided or consolidated, unless
the certificate in lieu of which it is issued is surrendered to the
company

7

Check whether the certificate of any share or shares is not be
issued in replacement of those which are defaced, mutilated, torn or
old, decrepit, worn out, or where the pages on the reverse for
recording transfers have been duly utilised, unless the certificate in
lieu of which it is issued is surrendered to the company

8

Whether the company has stated on the face of the share certificates
and be recorded in the Register maintained for the purpose, Issued in
lieu of share certificate No….. sub-divided/replaced/on consolidation
as applicable.

Checked by:

Reviewed by:

Date:

Date:

59

GUIDANCE NOTE ON SECRETARIAL AUDIT

Indicative list of documents to be checked:

•

Register of members

•

Register of renewed or duplicate shares certificate (SH-2)

•

Minutes of Board Meetings

•

Letter of Allotment or fractional coupons

•

Letter of acceptance or of renunciation

D. Checklist : Calls on Shares/Debentures

S. No. Particulars

Remarks

1

Whether the call on shares/debentures was made by the Board of
directors by means of resolutions passed at the Board meeting in
terms of section 179(3);

2

Check whether the said resolution is filed in form MGT-14 with the

Registrar in case of public companies except IFSC Public
companies

3

Whether call on shares/debentures complied with the stipulations
contained in the Articles of Association;

4

Whether the Board of directors approved the rate of interest
payable on delayed payment of calls in conformity with the
provisions contained in the Articles of Association.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked:

•

Minutes of Board meeting

•

Articles of Association

•

MGT-14

•

Bank statement

•

Copies of Call letter

•

Proof of dispatch of call letters

E. Security Premium account

S. No. Particulars

Remarks

1

Check whether the Security premium account is applied by the

60

COMPLIANCES UNDER COMPANIES ACT, 2013
company

•
towards issue of unutilized shares of the company as bonus
shares

•
in writing off of preliminary expenses

•
in providing premium on redeemable preference shares

•
for purchase of its own shares or of any debentures under
section 68 .

Checked by:

Reviewed by:

Date:

Date:

F. Checklist: Issue of Sweat Equity Shares (Section 54)

S. No.

Particulars

Remarks

1

Check whether the equity shares are issued to the directors or
employees of the company who are eligible in terms of section 54..

2

Check whether the issue is authorized by a special resolution
passed by the company

3

Check whether the resolution specifies the number of shares,

Current market price , consideration and class of directors and
employees.

4

In case of Listed Company, check whether the issue of Sweat Equity

Shares is in compliance with the SEBI (Issue of Sweat Equity)

Regulations, 2002.

In case of an unlisted Company

5

The issue is authorised by a special resolution passed by the
company, ensuring that the special resolution authorising the same is
valid for making the allotment within a period of not more than twelve
months from the date of passing of the special resolution.

6

Explanatory statement to be annexed to the notice of the general
meeting contains the specified particulars [Rule 8 of the Companies

(Share Capital and Debenture) Rules, 2014].

7

The company has not issued sweat equity shares for more than
fifteen percent of the existing paid up equity share capital in a year or
shares of the issue value of rupees five crores, whichever is higher.

Further it is to be ensured that the issuance of sweat equity shares in

61

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks
the Company has not exceeded twenty five percent, of the paid up
equity capital of the Company at any time.

8

The Sweat Equity Shares to be issued are valued at a price
determined by a registered valuer

9

The Sweat Equity Shares issued are locked in / non transferable for
a period of three years from the date of allotment. The fact and the
period of lock in, is stamped in bold on such share certificates.

10

The amount of Sweat Equity shares issued is included as a part of
managerial remuneration while calculating the limits. 10.Details as
per Rule 8(13) of Companies ( Share Capital and Debentures) Rules,

2014 of the Sweat Equity shares are mentioned in the Director’s

Report

11

The company is maintaining Register of Sweat Equity Shares in

Form No. SH.3

12

The Register of Sweat Equity Shares is maintained at the registered
office of the company or such other place as the Board may decide.

13

The entries in the register are authenticated by the Company

Secretary of the company or by any other person authorized by the

Board for the purpose

14

Check the accounting treatment of non-cash consideration for sweat
equity shares

Checked by:

Reviewed by:

Date:

Date:

•

In case of listed company Regulation 10 of SEBI (Issue of Sweat Equity) Regulation, 2002
require that in the general meeting subsequent to the issue of sweat equity, the Board of

Director shall place a certificate from the Auditor of the company to effect that the issue of
sweat equity is in accordance to the resolution passed by the company.

•

Statement to Stock exchange within 7 days of issue of equity disclosing details of the issue.

Indicative list of documents to be checked:

•

Minutes of Board Meeting

•

Special Resolution with Explanatory Statement

•

Minutes of General meeting

62

COMPLIANCES UNDER COMPANIES ACT, 2013

•

Register of members

•

Approvals of registration from sectoral regulators such as RBI, SEBI etc.

•

Valuation Report

•

Board’s Report

•

INC-21, SH-3

•

PAS-3, MGT-14

G. Checklist: Register of sweat equity shares (Section 54) [Rule 8, Companies (Share

Capital and Debentures) Rules, 2014]

S. No. Particulars

Remarks

1

The company has maintained a Register of Sweat Equity Shares in

Form No. SH.3 in accordance with Companies (Share Capital and

Debentures) Rules, 2014.

2

The Register of Sweat Equity Shares is maintained at the registered
office of the company or such other place as the Board may decide

3

Whether the entries have been made forthwith.

4

The entries in the register are authenticated by the Company

Secretary of the company or by any other person authorized by the

Board for the purpose

Checked by:

Reviewed by:

Date:

Date:

Issue and redemption of preference shares (section 55)

Issue of Preference shares

S. No. Particulars

Remarks

1

A company is authorized by its articles to issue preference shares.

2

The preference shares shall be liable to be redeemed within a period not
exceeding twenty years.

A company engaged in the setting up and dealing with or infrastructure
projects may issue preference shares for a period exceeding twenty years
but not exceeding thirty years, subject to the redemption of a minimum of
ten per cent of such preference shares per year from the twenty first year
onwards or earlier, on proportionate basis, at the option of the preference
shareholders.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

3

The issue of preference shares has been authorized by passing a special
resolution in the general meeting of the company;

4

The explanatory statement to be annexed in the notice of general meeting
shall provide complete material facts concerned with and relevant to the
issue of preference shares including details mentioned in sub-rule (3) of
rule 9 of the Companies (Share Capital and Debentures) Rules, 2014.

5

The company, at the time of such issue of preference shares has no
subsisting default in the redemption of preference shares issued either
before or after the commencement of the Act or in payment of dividend due
on any preference shares.

6

The resolution for issue of preference shares has set out the following
matters:

a) priority with respect to payment of dividend or repayment of capital
vis-a-vis equity shares;
b) participation in surplus dividend;
c) participation in surplus assets and profits, on winding-up which may
remain after the entire capital has been repaid;
d) Payment of dividend on cumulative or non-cumulative basis.(e)

Conversion of preference shares into equity shares.

e) Voting rights.

f) Redemption of preference shares.

Check that the entries in the Register of Members are duly made

Check that the share certificates are duly issued

7

All the terms of issue of Preference shares other than those prescribed,
such as when the preference dividend shall be due etc are clearly defined

Redemption of preference shares

8

Check whether the redemption is only on the terms on which they were
issued or as varied after due approval of the preference shareholders.

9

Check that the redemption is only out of profits or out of proceeds of fresh
issue of shares

10

Check that the preference shares redeemed were fully paid

11

Check the premium paid is a per the provisions of the Act

Checked by:

Reviewed by:

Date:

Date:

64

COMPLIANCES UNDER COMPANIES ACT, 2013

Indicative list of documents to be checked:

•

Articles of Association

•

Financial statement

•

Notice with explanatory statement

•

Minutes of General Meeting

•

Register of Members

Transfer and Transmission of Shares (Section 56)

Checklist for Transfer and Transmission of Shares

S. No.

Particulars

Remarks

I. Transfer of Shares

1

The requirements contained in the Articles of Association have
been complied with;

2

The transfer of shares/debentures and the issue of certificates
thereof have been made within the time stipulated under section 56
in accordance with the procedures prescribed;

•

Transfer or Transmission of share:- 1 month from the date of
receipt of the instrument

3

The company receives instrument of transfer in Form No.SH-4 in
respect of physical form of securities.

4

An application has been made in respect of partly paid up shares of
the company. If yes, the company has given notice of application in

Form No. SH-5 to the transferee and received no objection to the
transfer.

5

The company has taken indemnity in respect of instrument of
transfer that has been lost or not delivered within the prescribed
limit.

6

Entries in the register of transfers have been made from time to
time.

7

All transfers have been properly included in the Annual Return.

II. Transmission of shares

8

The shares have been transmitted to the legal representative of the
deceased shareholder in the case of death of a sole shareholder
and in the case of joint holdings only to the survivor(s), except

65

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks
where nomination had been received from the shareholder

9

Transmission of shares is effected upon the production of death
certificate succession certificate or probate or letter of
administration or indemnity duly signed by the legal heirs of the
deceased or as per procedure stipulated by the Board of directors
and/or Articles of Association.

Check that the certificates are issued within the time limits
prescribed under section 56

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked :

•

Instrument of transfer (S.H. 4)

•

Notice to transferee (S.H. 5)

•

Share certificates

•

Letter of Allotment of Securities

•

Order of Court/ Tribunal/ other authority, if any

•

Article of Association

Register of Renewed or Duplicate Share Certificate {Rule 6, Companies (Share Capital and

Debentures), Rules, 2014}

S. No. Particulars

Remarks

1

The renewed share certificate of any share or shares have not been
issued unless the certificate in lieu of which it is issued is surrendered to
the company

2

Where certificates were issued in case of sub-division or consolidated or
in replacement of those which are defaced, mutilated, torn or old,
decrepit, worn out, or where the pages on the reverse for recording
transfers have been duly utilised,, the renewed certificate states on the
face of it, that it is “Issued in lieu of share certificate No..... sub-
divided/replaced/on consolidation”.

3

Prior/Board consent was obtained before issuance of the duplicate
share certificate in lieu of those certificates that are lost or destroyed.

66

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

4

The certificates issued under above stated circumstances state
prominently on the face of it that it is “duplicate issued in lieu of share
certificate No......”. and the word “duplicate” is stamped or printed
prominently on the face of the share certificate.

5

The entries relating to issuance of renewed/ duplicate certificates are
recorded in the Register for Renewed or Duplicate Share Certificate.

6

Check that In case of unlisted companies, the duplicate share
certificates are issued within a period of 3 months and in case of listed
companies such certificate shall be issued within 45 days, from the date
of submission of complete documents with the company respectively.

7

The register for renewed or duplicate share certificates is maintained in

Form No. SH-2 in accordance with Companies (Share Capital and

Debentures) Rules, 2014 and is kept at the registered office of the
company or at such other place where the Register of Members is kept.

8

Entries are incorporated simultaneously in the Register of members
maintained under section 88.

9

All entries made in the Register of Renewed and Duplicate Share

Certificates shall be authenticated by the company secretary or such
other person as may be authorised by the Board for the purposes of
sealing and signing the share certificate.

10

The register is preserved permanently and kept in the custody of
company secretary of the company or any other person authorized by
the Board for the purpose.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked

•

Minutes of Board Meetings/Meeting of Committee of Directors

•

Register of renewed and duplicate share certificates in Form SH-2

•

Register of members

Preferential Allotment by Companies U/S 62

Applicable to Private and Public Companies

Kinds of securities covered:

(i) equity shares,

67

GUIDANCE NOTE ON SECRETARIAL AUDIT

(ii) convertible preference share

(iii) fully convertible debentures,

(iv) partly convertible debentures,

(v) any other security which would be convertible into equity shares at a later date

Whenever a company wants to increase its subscribed capital: It shall allot further shares to:

S. No. Particulars

Remarks

1

Existing equity shareholders in proportion to the paid up share capital
held by them.

Procedure to be followed:

(a) Letter of offer to be sent to existing equity shareholders as notice
by registered post/ speed post / electronic mode or courier or any
other mode having proof of delivery at least 3 days before opening of
the issue

(b) Contents of letter of offer :

1. Specify number of shares offered

2. time limit of minimum 15 and maximum 30 days from date of
offer within which the offer if not accepted, would be deemed
to have been declined (in case of private company, the period
lesser than this shall apply, if 90% of members have given
then consent

3. offer to include a right exercisable by person concerned to
renounce the shares offered to him in favour of any other
person unless the articles provide otherwise

In case 90% of the members of a private company have given their
consent in writing or in electronic mode, the period lesser than those
specified in said sub clause or sub section shall apply.

(c) On expiry of period / renunciation, Board may dispose of the
shares in a manner not disadvantageous to the company and the
shareholders

(d) Check whether the allotment was made within 60 days from the
date of receipt of the share application money to comply with

Companies (Acceptance of Deposits) Rules, 2014.

In case of any preferential offer made by a company to one or more
existing members only, the provisions of sub-rule (1) and proviso to
sub-rule (3) of rule 14 of Companies (Prospectus and Allotment of

Securities) Rules, 2014 shall not apply. Rule 14 of Companies

(Prospectus and Allotment of Securities) Rules, 2014 deals with
private placement.

68

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

2

Employees under ESOP Scheme; subject to prior special resolution
and the conditions specified in Rule 12 of the Companies (Share

Capital and Debenture) Rules, 2014In case of private limited
company, passing of ordinary resolution is sufficient.

3

Any persons: (1) subject to prior special resolution; (2) either for cash
or for consideration other than cash, (3) if price is determined by
valuation report of registered valuer.

Checked by:

Reviewed by:

Date:

Date:

This section does not apply where increase in subscribed capital is caused by exercise of option to
convert debentures / loan into shares of the company provided terms of issue of debentures/ loan
have been approved by special resolution before issue of debentures / raising of loan.

Indicative list of documents to be checked :

•

Minutes of Board Meeting

•

Copy of notice of offer of shares

•

Articles of Association

•

Valuation Report

•

Intimation to accept /decline the shares offered

•

Special / ordinary Resolution to offer of shares to employees under ESOP and minutes
thereof

•

Scheme of employee stock option

•

Special Resolution for offering the shares to any other persons and minutes thereof.

•

PAS-3, MGT-14

Checklist for compliances about Employee Stock Option under Companies Act, 2013 and

Rules made thereunder

Unlisted public companies

The Companies Act, 2013 lays down the provisions for issue of employee stock option under
section 62 (1)(b) and rule 12 of the Companies (Share Capital and Debentures) Rules, 2014. A

PCS is required to verify the following:

S. No. Particulars

Remarks

1

Whether the company has passed the special resolution as required

69

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks
under section 62 (1) (b) of the Companies Act, 2013.

2

If passed, check whether the special resolution provide the classes of
employees entitled to participate in the Employees Stock Option

Scheme;

Check whether such employees are within the meaning of ‘employee’

as given in explanation to Rule 12(1) of Companies (Share Capital and

Debentures) Rules, 2014.

3

Check whether special resolution has been filed with ROC in Form No.

MGT.14 as per Companies (Management and Administration) Rules,

2014.

4

Check that the explanatory statement to the notice of the meeting
contains the disclosures required to be made under the sub-rule (2) of
rule 12 of Companies (Share Capital and Debentures) Rules, 2014.

5

Check that the Director’s Report contains the disclosures required to be
made in such report under sub-rule (9) of the rule12 of Companies

(Share Capital and Debentures) Rules, 2014.

6

Verify the Register of Employee Stock Options maintained in Form No.

SH.6 of Companies (Share Capital and Debentures) Rules, 2014 and
that the register is duly authenticated by the company secretary of the
company or by any other person authorized by the Board for the
purpose.

7

Check that the Independent Directors, if any, are not allotted any Stock
options.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked:

•

Minutes of Board Meeting/Committee meeting

•

Special Resolution approving ESOP alongwith explanatory statement

•

Minutes of General meeting

•

ESOP Scheme

•

Board’s Report

70

COMPLIANCES UNDER COMPANIES ACT, 2013

•

Register of Employee Stock Option (Form SH-6)

•

PAS-3, MGT-14

Checklist: Register of Employee Stock Option (Section 62(1)(b)) [Rule 12 of Companies

(Share Capital and Debentures) Rules, 2014]

S. No. Particulars

Remarks

1

The company has maintained a Register of Employee Stock Options
in Form No. SH.6 in accordance with Companies (Share Capital and

Debentures) Rules, 2014.

2

The Register of Employee Stock Options has been maintained at the
registered office of the company or such other place as the Board may
decide.

3

Whether the entries have been made forthwith.

4

The entries in the register are authenticated by the company secretary
of the company or by any other person authorized by the Board for the
purpose.

Checked by:

Reviewed by:

Date:

Date:

Checklist: Issue of Bonus Share

S. No. Particulars

Remarks

1

Whether Bonus issue is authorised by its articles

2

Whether the bonus is declared only out of

a. Free reserves
b. Securities Premium Account
c. Capital Redemption Reserve Account and not out of revaluation
reserve created out of revaluation of assets.

3

Whether it has, on the recommendation of the Board, been authorised
in the general meeting of the company;

4

Whether the company has defaulted in payment of interest or principal
in respect of fixed deposits or debt securities issued by it;

5

Whether it has defaulted in respect of the payment of statutory dues of
the employees, such as, contribution to provident fund, gratuity and
bonus

71

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

6

Whether the partly paid-up shares, if any outstanding on the date of
allotment, have been made fully paid-up;

7

Check whether the company which has once announced the decision
of its Board recommending a bonus issue does not subsequently
withdraw the same;

Check that the entries are made in the Register of Members

8

Check whether Return of allotment is filed with the registrar in Form

No. PAS.3 within 30 days.

9

Check that bonus share are l not issued in lieu of dividend

10

Check that company has not withdrawn the decision of board for
bonus issue once it is announced.

11

Check that the certificates are issued in the period allowed under
section 56

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked:

•

Articles of Association

•

Minutes of Board Meeting

•

Minutes of General meeting

•

Register of members

•

Auditor’s Report

•

PAS-3, MGT-14

Checklist: Notice for alteration of share capital (section 64)

S. No. Particulars

Remarks

1.

Articles of Association contain the power to alter share capital

2.

Check if the alteration is an effect of any other even mentioned under
section 63

3.

Company has filed a notice with the registrar within a period of thirty

72

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
days of such alteration along with altered memorandum.

4.

The notice is in Form No. SH.7 of the Companies (Share Capital and

Debentures) Rules, 2014 and filed within a period of 30 days.

5.

The effect of alteration is noted in every copy of the Memorandum
and Articles of Association of the company

Checked by:

Reviewed by:

Date:

Date:

Reduction in Share capital (Section 66)

The Reduction in the share capital of the company is subject to the confirmation by the tribunal,
hence, it is advised to have an bird eye views on the correspondence and various communication
and order of the tribunal.

Buy-back of Shares/Securities (Section 68)

S. No. Particulars

Remarks

1

Check whether the Articles of association authorize buy back of
shares or other specified securities.

2

Check whether the buy back is not made out of the proceed of an
earlier issue of the same kind of share/ securities

3

The offer for buy back is not made within 1 year of closure of
preceding offer of buy back.

4

In case, buy back of securities are up to 10% of total paid up equity
capital & free reserves (Including Securities Premium Account),
whether a board resolution was passed authorizing the buy-back.

5

A special resolution has been passed in general meeting, authorizing
the board to buy-back.

(Note: This is not applicable in case the buy- back is ten percent or
less of the paid up capital and free reserves of the company)

6

Check whether the buyback is twenty five percent or less of the
aggregate of paid up capital and free reserves.

7

Check whether the post buy back ratio of aggregate of secured and
unsecured debt owed by the company is not more than twice the paid

73

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks
up capital and free reserve.

8

The explanatory statement is required to be annexed to the notice of
general meeting pursuant to section 102 contains the disclosures
mentioned in the rule 17 (1) of the Companies (Share Capital and

Debentures) Rules, 2014 in this behalf.

9

After passing of special resolution but before buy-back, the letter of
offer has been filed with RoC in Form No. SH.8 with the requisite fee.

10

The letter of offer has been dated and signed on behalf of the board
by not less than two directors of the company, one of whom shall be
the managing director, where there is one.

11

Check that the offer of buy-back has remained open for a period of
not less than fifteen days and not exceeding thirty days from the
date of dispatch of the letter of offer unless any lesser period has
been agreed by the members

12

Check that the verification of offers and communication by the
company has been made within the prescribed period

13

The shares or other securities so bought back are extinguished and
physically destroyed within seven days of the completion of buy-back.

14

The declaration of solvency required pursuant to section 68 (6) of the

Companies Act, 2013 has been filed in Form No. SH.9 as per

Companies (Share Capital and Debentures) Rules, 2014 with RoC.

15

The declaration of solvency has been signed and verified by at least
two directors, one of whom shall be the managing director of the
company, if any.

16

The company maintains a register of shares or other securities which
have been bought back in Form No. SH. 10 as per Companies (Share

Capital and Debentures) Rules, 2014.

17

The company has filed a return within 30 days of completion of buy-

back in Form No. SH.11 as per Companies (Share Capital and

Debentures) Rules, 2014 with RoC and in case of a listed Company
with the Securities and Exchange Board of India.

18

The certificate of compliance in Form No. SH.15 signed by two
directors of the company including the managing director, if any, and
verified by Company Secretary in Practice is annexed to the return

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COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
filed with RoC in Form No. SH.11.

19

Buy back of any kind of shares or other specified securities has been
made out of the proceeds of an earlier issue of the same kind of
shares or same kind of other specified securities.

20

The company has not issued shares of the same kind within a period
of 6 months except by way of bonus issue or discharge of subsisting
obligation.

21

Check whether securities have been physically destroyed within 7
days of the last date of completion of buy back.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked :

•

Articles of Association

•

Minutes of Board meeting

•

Minutes of General meeting

•

Notice authorising buy-back along with explanatory statement

•

Letter of offer (SH-8)

•

Declaration of Solvency (SH-9)

•

Register of shares/other securities bought back (SH-10)

•

Return of Buy-back (SH-11)

•

Certification of Compliance (SH-15)

•

MGT-14

•

Relevant register of securities holders

•

Financial Statement

Return on Buy-Back of Securities (Section 68)

S. No. Particulars

Remarks

1

The buy back of securities has been in accordance with section 68
read with rule 17 of the Companies (Share Capital and Debentures)

Rules, 2014.

75

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

2

The buy-back of securities has been authorized by a special
resolution passed in general meeting.

3

The company has filed the Letter of Offer in Form No.SH-8 in
accordance with the Companies (Share Capital and Debentures),

Rules, 2014, with the Registrar

4

The company has filed the Declaration of Solvency in Form No. SH-9
in accordance with the Companies (Share Capital and Debentures),

Rules, 2014 with the Registrar along with the Letter of Offer. In case
of Listed company, the Letter of Offer has also to be filed with SEBI.

5

The Declaration of Solvency is signed by two directors, one of whom
shall be Managing Director, where there is one and is verified by an
affidavit.

6

The Declaration of Solvency is signed by two directors, one of whom
shall be Managing Director, where there is one and is verified by an
affidavit.

7

The Letter of Offer is dispatched to the security holders not later than
twenty days from its date of filing with the Registrar. For this purpose,
the proof of dispatch may be verified.

8

The company has maintained a Register of Securities bought back in

Form No. SH-10 and the entries therein have been authenticated by
the Company Secretary or by any other person authorized by the

Board.

9

The company has, after the completion of the buy-back, filed with the

Registrar and where it is a listed company, with SEBI, a return on
buy-back in Form No. SH-11 as per the Companies (Share Capital
and Debentures) Rules, 2014 within 30 days of such completion.

10

A certificate in Form No. SH.15 signed by two directors of the
company including the managing director, if any, certifying that the
buy-back of securities has been made in compliance with the
provisions of the Act and the rules made thereunder was attached
with the return.

11

If the books and records are maintained in the electronic form, check
whether the provisions of Rule 27 of Companies (Management and

Administration) Rules, 2014 are complied with

Checked by:

Reviewed by:

Date:

Date:

76

COMPLIANCES UNDER COMPANIES ACT, 2013

Register of shares or other securities bought-back (Section 68)

S. No.

Particulars

Remarks

1

The Register of Shares or other securities bought back by the
company is maintained in Form No. SH.10 in accordance with

Companies (Share Capital and Debentures) Rules, 2014.

2

The register is maintained at the registered office of the company.

3

The custody of the register is with company secretary of the
company or any other person authorised by the Board in this
behalf.

4

The entries in the register are authenticated by the secretary of the
company or by any other person authorized by the Board.

Checked by:

Reviewed by:

Date:

Date:

Checklist: Debentures (Section 71)

S. No. Particulars

Remarks

1

Check whether the issue of debenture is approved by a Special

Resolution passed at a general meeting.

Check that the special resolution is filed in form MGT-14

2

Check that the debenture does not carry any voting rights

3

An issue of secured debentures may be made, provided the date of its
redemption does not exceed ten years from the date of issue.

A company engaged in the setting up of infrastructure projects

Infrastructure Finance Companies, Infrastructure Debt Fund Non-

Banking Financial Companies, Companies permitted by a Ministry or

Department of the Central Government or by Reserve Bank of India or
by the National Housing Bank or by any other statutory authority to
issue debentures for a period exceeding ten years may issue secured
debentures for a period exceeding ten years but not exceeding thirty
years [Rule 18(1) of Companies (Share capital and Debentures) Rule.

2014

4

Check whether form PAS-3 is filed as a return of allotment of
debentures within a period of 30 days

5

In case of any issue of debentures by a Government company which is
fully secured by the guarantee given by the Central Government or one

77

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks
or more State Government or by both, the requirement for creation of
charge shall not apply.

6

Check whether a charge is created on properties or assets of the
company or its subsidiaries or its holding company or its associates
companies. Check whether value which is sufficient for the due
repayment of the amount of debentures and interest thereon

7

Company may issue debentures with an option to convert such
debentures into shares, either wholly or partly at the time of redemption
and shall be approved by a special resolution passed at a general
meeting.

8

The company has appointed a debenture trustee before the issue of
prospectus or letter of offer for subscription of its debentures to public
or to its members exceeding five hundred.

9

Check whether the Debenture trustee shall not have any
disqualification as mentioned in rule 18(2)(c ) of Companies (share
capital and Debentures ) rule, 2014.

10

A trust deed in Form No. SH. 12 or as near thereto as possible has
been executed by the company issuing debentures in favour of the
debenture trustees within three months of closure of the or offer.

Check that the trust deed is open for inspection to any member or
debenture holder and a copy of the same is forwarded to every
member or debtureholder upon his request.

11

The company has created a Debenture Redemption Reserve for the
purpose of redemption of debentures in accordance with the conditions
specified in sub rule (7) of rule 18 of the Companies (Share Capital and

Debentures) Rules, 2014.

12

Check that the amount required to be invested or deposited as
specified in Rule 18 (7) (c) is deposited before 30th day of April

13

Check that the payment of interest on the debentures is being
made as per the terms and conditions of their issue

Checked by:

Reviewed by:

Date:

Date:

Note:

In case, any amount received by a company against issue of commercial paper or any other similar
instrument issued in accordance with the guidelines or regulations or notification issued by the

Reserve Bank of India, Rule 18 shall not apply.

78

COMPLIANCES UNDER COMPANIES ACT, 2013

In case of any offer of foreign currency convertible bonds or foreign currency bonds issued in
accordance with the Foreign Currency Convertible Bonds and Ordinary Shares (Through

Depository Receipt Mechanism) Scheme, 1993 or regulations or directions issued by the Reserve

Bank of India, Rule 18 shall not apply, unless otherwise provided in such Scheme or regulations or
directions.

Indicative list of documents to be checked:

•

Minutes of Board Meeting

•

Notice alongwith explanatory statement

•

Minutes of General meeting

•

Charge documents

•

Prospectus or letter of offer for subscription of debentures

•

Written consent from debenture trustee

•

Requisition signed by debenture holders for meeting

•

Trust deed (SH-12)

•

Financial Statement

•

MGT-14

•

Form PAS-3 as return of allotment

Acceptance of Deposits

•

Limits for Acceptance of Deposit

Private Company: 100 % of the paid up share capital, Free reserves and Securities premium
account or any amount if the company has satisfied all the criteria provided in second proviso to

Rule 3 (3) of the Acceptance of Deposit rules.

Eligible Company: up to 25% of the paid up share capital and including maximum 10% form
members

Public Company Other than Eligible Company: up to 35% of the paid up share capital, free reserve
and securities premium account.

Government Company: up to 35% of the paid up share capital, free reserve and securities
premium account.

Eligible Company:

"eligible company" means a public company as referred to in sub-section (1) of section 76, having
a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred
crore rupees and which has obtained the prior consent of the company in general meeting by
means of a special resolution and also filed the said resolution with the Registrar of Companies
before making any invitation to the Public for acceptance of deposits:

79

GUIDANCE NOTE ON SECRETARIAL AUDIT

Exemption Applicability of Section 73(2)

Clause (a) to (e) of Sub-section 2 of Section 73 shall not apply to private Companies:

(A) which accepts from its members monies not exceeding one hundred per cent. of aggregate of
the paid up share capital, free reserves and securities premium account; or

(B) which is a start-up, for five years from the date of its incorporation; or

(C) which fulfils all of the following conditions, namely:-

(a) which is not an associate or a subsidiary company of any other company;

(b) if the borrowings of such a company from banks or financial institutions or any body
corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is
lower; and

(c) such a company has not defaulted in the repayment of such borrowings subsisting at the
time of accepting deposits under this section:

Checklist for Acceptance of Deposits (Section 73 to 76A)

S. No. Particulars

Remarks

1

Check whether the company has accepted any unsecured loans
which are exempted deposits and have followed the necessary
provisions in respect thereof in order to avail the exemption. If
not, then the same will be treated as Deposits

2

The Company has not accepted any deposits which are
repayable on demand or upon receiving a notice within a period
of less than six months or more than 36 months from the date of
acceptance or renewal of deposit. If, so accepted, the company
has complied with the conditions prescribed in rule 3 of the

Companies (Acceptance of Deposits) Rules, 2014.

3

The company referred to in section 73(2) has passed a
resolution in General Meeting and issued circular to all its
members by registered post acknowledgement due or speed
post or by electronic mode in Form No. DPT-1, while intending
to invite deposits from them.

4

The company referred to section 76, being an eligible Company
as defined under the Rules, has issued circular in the form of
advertisement in Form DPT-1.

5

The form of application contains a declaration by the intending
depositor to the effect that the deposit is not being made out of
any money borrowed by him from any other person

6

Whether the company filed Return of deposits with the Registrar

80

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
in Form No. DPT-3

7

Whether the company referred in section 73(2) has accepted or
renewed any deposit from its members, if the amount of such
deposits together with the amount of other deposits outstanding
as on the date of acceptance or renewal of such deposits is in
excess of 35 % of the aggregate of the paid up share capital,
free reserves and securities premium account of the company.

8

Whether a private company has accepted from its members
monies not exceeding 100% of aggregate of the paid up share
capital, free reserves and securities premium account has filed
the details of monies so accepted to the Registrar as well
disclosed the same in the Board’s report.

9

In case of the eligible company check whether

a. The deposits from members has not exceeded ten per
cent. of the aggregate of the Paid-up share capital, free

Reserves and securities premium account of the
company
b. any other deposit, if the amount of such deposit together
with the amount of such other deposits, other than the
deposit referred to in clause (a), outstanding on the date
of acceptance or renewal has not exceeded twenty-five
per cent. of aggregate of the Paid-up share capital, free

Reserves and securities premium account of the
company.

10

Whether every eligible company has obtained atleast once a
year, credit rating for deposit accepted by it and a copy of the
rating has been sent to the Registrar of Companies along with
the return of Deposit in Form DPT-3.

11

Whether the Company has obtained the Credit rating and
whether the credit rating is reasonable for acceptance of
deposits.

12

The company has provided for security by way of charge as
prescribed in Rule 6, where there are secured deposits

13

The company has executed deposit trust deed in Form No. DPT-

2 at least seven days before issue of circular or advertisement,
in case of secured deposits.

14

Whether the company has maintained the amount as required
under Section 73 and Deposit Rules, in liquid form and created

81

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks
the deposit repayment reserve account

15

Whether company, other than a private company, has disclosed
in its financial statement, by way of notes, about the money
received from the director and every private company has
disclosed in its financial statement, by way of notes, about the
money received from the directors or relatives of directors.

16

Whether the company has received any amount which is
considered as deposit under the definition of Deposit.

17

Whether the Trustee for depositor is an eligible person in term of

Rule 7(3) of the Companies (Acceptance of Deposits) Rule, 2014

18

Whether the company has passed a board resolution for
borrowings and also approved the circular of advertisement of
deposits

19

In case of a Private company whether the company has
passed a special resolution where the limit of acceptance of
deposits has been exhausted.

20

Whether the company has filed the necessary forms, for filing
of board resolutions/ special resolution and the circular of
advertisement with the ROC?

21

Whether the company has issued the necessary fixed deposit
receipt to the respective depositholders

22

In case of repayment of deposits, whether the company has
complied with as per the repayment schedule and repaid the
amounts of deposits accepted as per the scheme for
acceptance of deposits.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked

•

Circulars inviting deposits (DPT- 1)

•

Newspaper clippings

•

Minutes of board meetings

•

Contract of deposit insurance

•

Instrument creating charge

•

Written consent from trustee for depositors

82

COMPLIANCES UNDER COMPANIES ACT, 2013

•

Deposit trust deed (DPT-2)

•

Written requisition calling meeting of depositors

•

Application form for deposits

•

Receipts of amount received by company

•

Register of deposits

•

Return of deposit (DPT-3)

•

Statement regarding deposits (DPT-4)

•

Financial statement

•

Credit Rating

Checklist for Return of Deposits

S. No. Particulars

Remarks

1

Every company referred to in sub-section(2) of section

73 and every eligible company intending to accept
deposits has issued a circular or a circular in the form
of advertisement respectively in Form DPT-1 and has
complied with the requirements of Rule No. 4 of

Companies (Acceptance of Deposits) Rules, 2014

2

Whether the company has created security for
repayment of deposit and interest; (Rule 6)

3

Whether the company has appointed Trustees for
secured deposit in the manner and Deposit Trust

Deed has been executed; (Rule 7)

4

Whether the company has maintained liquid assets
and created a Deposit Repayment Reserve Account;

(Rule 13);

5

The company has, on or before the 30th day of June,
of every year, filed with the Registrar, a return in Form

DPT-3. (Rule 16)

6

Check whether the Form DPT-3 contains the
information therein as on the 31st day of March of that
year duly audited by the auditor of the company.

Checked by:

Reviewed by:

Date:

Date:

83

GUIDANCE NOTE ON SECRETARIAL AUDIT

Registration of Charges

Events Covered under this Chapter:

● Registration of Charge

● Modification of Charge

● Satisfaction of Charge

● Rectification of Charge

Checklist for Charges

S. No. Particulars

Remarks

1

Check whether the Board of Director has been
authorized under section 180(1)(c) of the Companies

Act,2013

If yes, whether the borrowing of the company is with in
the limit approved by the shareholders.

2

The company has registered the particulars of creation
or modification of charge with the Registrar within thirty
days of its creation or modification or within the extended
period after payment of additional fees;

[Form No.CHG-1 (for other than Debentures) or Form

No.CHG-9 (for debentures including rectification of
particulars)].

3

The copy of every instrument evidencing any creation or
modification of charge required to be filed with the

Registrar has been attached and verified as per Rule 3(4)

of the Companies (Registration of Charges) Rules, 2014.

4

The company has reported satisfaction of charge to the

Registrar within the period of thirty days from its payment/
satisfaction in Form No.CHG-4 and obtained certificate of
registration of satisfaction of charge in Form CHG-5.

5

The notice of appointment or cessation of a receiver of,
or of a person to manage, the property, subject to
charge, of a company has been filed with ROC in Form

No. CHG-6.

6

The company has maintained the register of charges in

Form No. CHG -7.

84

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

7

The application for condonation of delay, if any, has
been filed with the Central Government in Form

No.CHG-8.

8

The order passed by Central Government w.r.t.

condonation of delay has been filed with the ROC in

Form No.INC-28.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked

•

Minutes of Board Meeting

•

Instrument creating / modifying charge (CHG-1 or CHG-9)

•

Application for delay (CHG-1)

•

Certificate of Registration (CHG-2)

•

Certificate of modification (CHG-3)

•

Register of charge

•

Satisfaction of charge (CHG-4)

•

Certificate of registration of satisfaction (CHG -5)

•

Notice of appointment/ Cessation of securities (CHG-6)

•

Copy of filing of order (INC-28)

•

Register of charges (CHG-7)

•

Application for Condonation of delay (CHG-8)

S. No. Particulars

Remarks

1

The company has maintained register of charges as per Form

CHG.7 in accordance with the Companies (Registration of

Charges) Rules, 2014.

2

The register contains particulars of all the charges registered
with the Registrar on any of the property, assets or undertaking
of the company.

3

The register contains the particulars of the property acquired
subject to a charge as well as particulars of any modification of
a charge and satisfaction of charge.

85

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

4

Entries in the register are authenticated by a director or the
secretary of the company or any other person authorised by the

Board for the purpose.

5

The register is maintained at the registered office of the
company and is preserved permanently

Checked by:

Reviewed by:

Date:

Date:

Checklist for Management and Administration

Points which should be verified

•

Register of Members

•

Declaration of Beneficial Interest

•

Register of significant beneficial owners

•

Closure of Register of members

•

Annual Return

•

Inspection of Registers and retunrs

•

Annual General meeting

•

Extra ordinary general meeting

•

Notice of the meeting

•

Explanatory statement

•

Quorum

•

Chairman

•

Voting by electronic mean

•

Postal Ballot

•

Resolution by Circulation

Checklist: Register of Members/ Debenture holders/ Other security holders (Section 88)

S. No. Particulars

Remarks

1

In case of Company limited by share check whether the
company has maintained the register of members as per Form

No. MGT.1

86

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

2

In case of Company not having share capital, The Register
contains such particulars as mentioned in Rule 3 (2) rules.

3

The company maintains register of debenture holders or any
other security holders as per Form No.MGT.2

4

Check Whether the Registers are maintained at the Registered
office of the Company. If the same iis maintained at the RTA,
check if the company has passed necessary resolution to that
effect.

5

Whether the entries in the register has been made with in

Seven days of the approval of the committee or Board of

Directors.

6

If the aforesaid registers are maintained at some other place in

India in which more than one-tenth of the total members
entered in the register of members reside or some other place
within the city, town or village where registered office is
situated, whether a special resolution has been passed.

7

Whether the index of members is maintained by the company,
when the number of member is equal to or more than fifty.

8

Whether the change occurred due to corporate action/ transfer
of shares has been incorporated within seven days of such
change approved by the board

9

Whether the rectification made pursuant to order of a
competent authority is indicated in the register of members.

10

In case of the listed companies, the particulars of pledge,
charge, lien or hypothecation by the promoters shall be
indicated.

11

In case of Foreign Registers, check whether:

The Articles of the company authorises maintenance of the
foreign register.

12

The company has within thirty days from the date of the
opening of any foreign register, filed with the Registrar notice of
the situation of the office where such register is kept in Form

No.MGT.3 in accordance with the Companies (Management
and Administration) Rules, 2014.

13

Notice of every change is incorporated in the aforesaid register
or its discontinuance is filed with registrar within thirty days in

Form No. MGT. 3.

87

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

14

The company maintains a duplicate register at its registered
office and changes are duly incorporated from time to time.

15

The entries are authenticated by the company secretary of the
company or person authorised by the Board by appending his
signature to each entry.

Checked by:

Reviewed by:

Date:

Date:

Declaration of Beneficial Interest:

S. No. Particulars

Remarks

1

The company has made a note of the declaration received in
form MGT. 4 & MGT 5, w.r.t. beneficial interest in any shares, in
the register of members.

2

The company has filed form No. MGT.6 with the Registrar within
a period of thirty days from the date of receipt of aforesaid
declaration.

Checked by:

Reviewed by:

Date:

Date:

Closure of Register of Members:

S.

Particulars

Remarks

No.

1

Check whether the register of members or the register of
debenture – holders or the register of other security holders for
any period or periods not exceeding in the aggregate forty-five
days in each year, but not exceeding thirty days at any one time.

2

Whether the previous notice of at least seven days has been
given by the company.

3

Whether the notice has been given by way of an advertisement
at least once in a vernacular newspaper and once in English
language in an English newspaper within the jurisdiction in which

88

COMPLIANCES UNDER COMPANIES ACT, 2013

S.

Particulars

Remarks

No.

the registered office of the company is situated and also
published the notice on the website as required in rule.

Checked by:

Reviewed by:

Date:

Date:

Checklist Particulars of Beneficial Interest in Shares (section 89)

S. No. Particulars

Remarks

1

The company has received the declaration from the
member/beneficial owner in the prescribed form MGT-4/MGT-5.

2

Such declaration is noted in the register of members.

3

The company has filed within 30 days of the receipt of the
declaration, a return in Form No.MGT.6 as per Companies

(Management and Administration) Rules, 2014 with the

Registrar in respect of such declaration with fee.

Annual Return:

S. No.

Particulars

Remarks

1

The company has filed annual return within sixty days from
the date of holding of the annual general meeting (AGM).

2

Where no AGM is held in any year, the annual return has
been filed within sixty days from the date on which the annual
general meeting should have been held together with the
statement specifying the reasons for not holding the annual
general meeting, if the annual general meeting.

3

The annual return is prepared in Form No. MGT.7 referred to
in Rule 11 of the Companies (Management and

Administration) Rules, 2014.

4

The annual return has been signed by a director and the
company secretary.

5

In case company does not have a company secretary, the
annual return has been signed by a director and Company

Secretary in practice.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks

6

In case of a listed company or a company having paid-up
share capital of ten crore rupees or more or turnover of fifty
crore rupees or more, the annual return has been certified by
a Company Secretary in practice and the certificate is in Form

No. MGT.8 of aforesaid rules.

7

Whether the company has placed a copy of annual return on
website of the company, if any and the web link of such
annual return shall be disclosed in the Boards Report.

Checked by:

Reviewed by:

Date:

Date:

Notice, Conduct of the Annual General meeting and minutes

S. No.

Particulars

Remarks

1

Check whether the AGM is held before the due date of AGM.

The first AGM is held within a period of nine months from the
date of closing of the first financial year of the company.

Subsequent AGM was held in each case, within a period of six
months from the date of closing of the financial year.

The provisions of Section 91 of the Companies Act read with

Companies (Management and Administration) Rules, 2014.

Listing Regulations if applicable have been complied with

2

The meeting was held within 15 months of the last annual
general meeting.

3

Check whether the extension for holding the meeting was
obtained from the Registrar, where applicable.

4

AGM was called during business hours, that is, between 9
a.m. and6 p.m. on any day that is not a National Holiday.

5

The AGM was held either at the registered office of the
company or at some other place within the city, town or village
in which the registered office of the company is situate or in
case of unlisted company, it may be held at any place in India,
if consent is given in writing or electronic mode by al members
in advance.

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COMPLIANCES UNDER COMPANIES ACT, 2013

S. No.

Particulars

Remarks

6

Notice:

Check whether the Notice of AGM was given before 21 clear
days from the date of meeting.

7

In case of shorter notice, check whether the company has
received the consent of members in writing or electronic mode
has been received from not less than 95 percent. of members
entitled to vote at the meeting.

8

Notice convening the meeting specifically mentioned that it
was AGM

9

Whether the notice contains any special business other than
the ordinary business.

10

In case Company does not provide facility for E voting, Check
whether the notice does not contain any business which is to
be dealt by Postal Ballot only.

11

Whether Attendance Sheet, Proxy Form and Route Map of the

Company has been annexed with every copy of the Notice.

12

Day, Date and hour of the meeting were mentioned in the
notice along with the statement of business to be transacted

13

Notice was given to every member/ assignee of insolvent
member/legal representative of the deceased member,

Auditor, Director of the company

14

In case the company has given notice of the AGM through e
mail the following items shall be verified:

1. Whether the company has provided opportunity to the
members at least once in a financial year to register
and update their e mail.

2. Whether the subject line of the email state the name
of company, notice of the type of meeting, place and
date on which meeting is scheduled.

3. Whether the notice of the general meeting was
simultaneously placed on the website of the company.

15

Explanatory statement setting out material facts of all the
proposed resolution, (as required ) was attached to the notice

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks
in respect of special business as contemplated by section 102

16

Whether the explanatory statement contain the nature of
concern or interest , financial or otherwise of Director,

Manager, KMP and relatives along with the share holding in
other company as required under section 102.

Quorum

17

Check whether the requisite quorum was present at all the
general meeting held during the year including Annual

General Meeting.

18

If meeting was adjourned for want of quorum, section 103(2)

was complied with.

19

In case of requisitioned meeting, provisions of section 100
read with rule 17 of the Companies (Management and

Administration) Rules, 2014 were complied with.

Chairman

20

The provisions of the articles as to Chairman were complied
with

21

Proxies:

None of the proxies represented more than 50 members and
holding in aggregate not more than 10% of the total share
capital of the Company carrying voting rights.

22

Appropriate statement in respect of proxies appeared in the
notice.

23

Instrument of proxy was in the prescribed form, in writing and
signed by the appointer or in case of body corporate be under
its seal and signed by the officer of the company.

24

Inspection of Proxy register was offered to the members within

24hours before the meeting as well as during the meeting.

25

None of the members was prevented from voting except
where company had exercised its right of lien/ calls were due,
as provided under the Articles of association of the Company.

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COMPLIANCES UNDER COMPANIES ACT, 2013

S. No.

Particulars

Remarks

26

Whether the company is required to conduct voting by
electronic means if Yes;

Whether the voting was carried out in compliance with rule 20
of the Companies (Management and Administration) Rule

2014.

27

Whether the voting is done by Show of hand, if yes

1. Whether the poll was demanded by any eligible
member of the company,

2. Whether the Poll was conducted in compliance with
section 109.

28

Postal Ballot:

Whether postal ballot was conducted in compliance with the
provisions of section 110 read with Rule 22 of the Companies

( Management and Administration) Rule 2014

29

Circulation of Members Resolution :

Whether the company has received the requisition for the
circulation of ant resolution from the members.

30

If yes, Whether the requisition was made by the eligible
members as required under section 100.

31

If yes, whether the Members’ resolution were circulated in
compliance with section 111.

Resolution requiring Special Notice

32

Check whether the article of the company provides for matters
which require special notice.

Whether the company has moved any resolution which require
special notice under the article of the company or under the

Companies Act, 2013

Whether such resolution have backing of members holding
atleast 1% of the voting power/holding shares of not less than

`5,00,000.

Report on Annual General Meeting:

33

In case of listed company Check whether the Report of

93

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks

Annual General Meeting was filed in Form MGT 15 by all the
listed public companies within 30 days of the conclusion of

AGM.

34

The report is duly signed and dated by the Chairman of the
meeting or in case of his inability to sign, by any two directors
of the company, one of whom shall be the Managing director,
if there is one and company secretary of the company

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked :

•

Minutes of Board Meetings.

•

Notice of Annual General Meetings.

•

Register of members

•

Register of Proxies.

•

Attendance Register.

•

Application for extension of date of holding AGM, if any

•

Approval of extension of date to hold AGM from ROC.

•

Proof of sending notice.

•

Advertisement regarding Book Closure.

•

Filings with stock exchange.

•

Minutes of AGM & report of AGM.

Checklist: Registration of Resolutions and Agreements (section 117)

Illistrative list of resolutions required to be filed with ROC

Special resolution

The following matters require sanction by special Resolution

Section

Particulars

5(4)

Articles

Inclusion of Entrenchment provisions in the articles of
association of a public company

94

COMPLIANCES UNDER COMPANIES ACT, 2013

Section

Particulars

12(5)

Registered office of the Change of the registered office outside the local limits

Company
of any city, town or village where such office is
situated.

13(1) & (8) Alteration
of
and Alteration of the memorandum of the company to
memorandum
change the objects for which the money has been
raised from public through prospectus and still has
any unutilized amount out of the money so raised.

14

Alteration of articles

Alteration of any clause of the articles.

27(1)

Variation
in
terms
of Variation in terms of contract referred to in the
contract or the objects in prospectus or objects for which prospectus was
prospectus
issued.

41

Global depository receipt

Issuance of depository receipts in any foreign
country.

48(1)

Variation of shareholders Variation of the rights attached to the shares of any
rights
class.

54

Issuance of sweat equity Issuance of sweat equity shares of a class of shares
shares
already issued.

62(l)

Further issue of share Issue of further shares to employees under a scheme

(b)/(1)

capital
of employees’ stock option.

(c)/(3),

Issue of further shares to any person whether or not
those persons include the existing members or
proviso
employees for cash or for a consideration other than
cash, if the price of such shares is determined by the
valuation report of a registered valuer.

For approving the terms of issue of debentures or
loan containing an option to convert such debentures
or loans into shares.

66

Reduction of share capital

Reduction of share capital subject to the confirmation
of the Tribunal.

67(3)(b)

Restriction on purchase by Approving any scheme for the purchase of, or
company orgiving of loans subscription for, fully paid up shares in the company
by it for purchase of its or its holding company, if the purchase of, or the
shares
subscription for, the shares held by trustees forthe
benefit of the employees or such shares held by the

95

GUIDANCE NOTE ON SECRETARIAL AUDIT

Section

Particulars
employee of the company.

68

Power of company to Buy back of securities.

purchase its own securities

71

Debentures

Issue of debentures with an option to convert whole
or part of the debentures into shares at the time of
redemption.

94

Place of keeping and To keep registers, returns etc., at any other place
inspection
of
registers, than the registered office, where more than one-tenth
returns, etc.

of the total number of members reside

140

Removal, of auditors

Removal of the auditor before the expiry of his term
after obtaining the previous approval of the Central

Government

149(1),

Company to have Board of Appointment of more than fifteen directors by a
directors
company Re-appointment of an independent director
proviso/
after expiry of a term of five consecutive years.

(10)

165(2)

Number of directorships

Specifying number of companies (10/20) in which
director of the company may act as director.

180

Restrictionson powers of Certain powers to be exercised by the Board of

Board
directors only with the consent of company

185

Loan to directors, etc.

Approving a scheme pursuant to which any loan may
be given to a managing or whole - time director

186

Loan and investment by Giving of any loan or guarantee or providing any
company
security or the acquisition exceeds the limits of sixty
per cent. of its paid- up share capital, free reserves
and securities premium account or one hundred per
cent. of its free reserves and securities premium
account, whichever is more.

196

Appointment of managing Appointing the person as a managing director, whole-
director,
whole
time time director or manager who has attained the age of
director or manager

70 years.

371

Effect of registration under To adopt table F in schedule I, if required
this Part

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COMPLIANCES UNDER COMPANIES ACT, 2013

Resolution which have been agreed by all the members but which, if not so agreed to,
would not have been effective unless passed as special resolutions

(a) Board Resolution/agreement relating to appointment, re-appointment or renewal of the
appointment, or variation in the terms of appointment of managing director

(b) Resolution passed by class of members

(c) Members’ resolutions authorising the board to exercise powers under section 180(1)(a) &(c)

(d) Board resolutions for exercising following powers:

• Make call

• Buy back of securities

• Issuing securities

• Borrowing monies

• Investing funds

• Granting loans/ giving guarantees/providing securities

• Approving financial statement and Board’s report

• Diversifying business

• Approving amalgamation/merger/ reconstruction

• Taking over of a company/acquiring control in substantial stake in another company )

• Making political contributions

• Appointing or removing KMP

• Appointing internal auditor

• Appointing secretarial auditor

Checklist: Report on Annual General Meeting (section 121)

S. No. Particulars

Remarks

1

In case of a listed company, it has filed with the Registrar in Form

No. MGT.15 of the Companies (Management and Administration)

Rules, 2014 the report on the AGM, within thirty days of the
conclusion of the annual general meeting.

2

The report is duly signed and dated by the Chairman of the meeting
or in case of his inability to sign, by any two directors of the
company, one of whom shall be the Managing director, if there is
one and company secretary of the company.

97

GUIDANCE NOTE ON SECRETARIAL AUDIT

Checklist: Minutes Book of Meetings [Section 118 and Rule 25 of the Companies

(Management and Administration) Rules, 2014

S. No. Particulars

Remarks

1

Minutes book has been maintained in respect of:

1. General meetings of the members;

2. Meetings of the creditors.

3. Meetings of the Board; and

4. Meetings of each of the committees of the Board. Resolutions
passed by postal ballot are recorded in the minute book of
general meetings.

2

The pages of the minutes book have been consecutively numbered.

3

Each page of minutes of proceedings of a meeting of the Board or of a
committee thereof is initialed or signed and the last page of the record
of proceedings of each meeting is dated and signed by the chairman of
the said meeting or the chairman of the next succeeding meeting.

4

Each page of minutes of proceedings of a general meeting is initialed
or signed and the last page of the record of proceedings of each
meeting is dated and signed by the chairman of the same meeting
within the aforesaid period of thirty days.

5

Each page of the minute books of general meeting in respect of every
resolution passed by postal ballot is initialed or signed and the last
page dated and signed by the Chairman of the Board within thirty days
or in the event of there being no Chairman of the Board or the death or
inability of that Chairman within that period, by a director duly
authorized by the Board for the purpose.

6

The minute books of general meetings, and the minutes books of the

Board and committee meetings are maintained in the custody of the
company secretary or any director duly authorised by theboard.

7

In case of a company other than a company referred to in Chapter XB
or Chapter XC of the Securities and Exchange Board of India (Issue of

Capital and Disclosure Requirements) Regulations, 2009 having its
equity shares listed on a recognised stock exchange or a company
having not less than one thousand members, whether the company
has provided e-voting facilities to its members to exercise their vote at
general meetings and if so, whether Rule 20 of the Companies

(Management and Administration) Rules, 2014 has been complied
with.

98

COMPLIANCES UNDER COMPANIES ACT, 2013

Declaration and Payment of Dividend

Checklist on Declaration and Payment of Dividend

S. No. Particulars

Remarks

1

Whether the company has observed the Secretarial Standards on

Dividend.(SS-3)

2

Whether the company has failed to comply with the provisions of

Section 73 and 74 of the Companies Act, 2013.

3

Whether the company has adequate profits to declare dividend.

4

Check whether the company has not declared and paid any
dividend from reserves other than free reserves as defined in
section 2(43).

5

Check whether carried over previous losses and depreciation not
provided in previous year(s) are set off against profits of the

Company of the current year.

6

In case of in adequate profit, whether the company has declare
dividend in accordance with Rule 3 of the Companies (Declaration
of Dividend ) rule,2014

7

In case of inadequate profits or absence of profits, and the
dividend is declared out of reserves, the rate of dividend declared
has not exceeded the average at the rates at which dividend was
declared by it in the three years immediately preceding that year

8

The company has before declaration of dividend transferred such
percentage of profits to reserves as decided by the board
voluntarily..

9

The company has followed the procedures prescribed in Rule 3
before the dividend is declared out of reserves (as applicable).

10

Whether the company has declared interim dividend

If Yes, Whether the company has complied with the provisions of

Section123(3) of the Companies Act,2013

11

The amount of dividend, including interim dividend, was deposited
in a scheduled bank in a separate account within five days from
the date of declaration of such dividend.

12

Unpaid Dividend Account

99

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

Whether the company has paid dividend within 30 days from the
date of declaration

13

The company has transferred the total amount of dividend which
remains unpaid or unclaimed within 30 days from the date of
declaration to unpaid dividend account, within seven days from
the expiry of the said 30 days.

14

The company has prepared a statement containing the names
and other details to whom the unpaid dividend is to be paid along
with the amount of unpaid dividend and place the same on the
website of the company and also on any other web-site approved
by the Central Government for this purpose, within 90 days

15

The dividend is paid by the company by cheque or warrant or by
any electronic mode and not in cash.

16

The company has transferred the amount remaining unpaid or
unclaimed for a period of seven years from the date of transfer to
the Unpaid Dividend Account to the Investor Education and

Protection Fund and has filed the Statement of amounts credited
to IEPF in prescribed form.

17

The company has followed the procedures prescribed in Rule 3
before the dividend is declared out of reserves (as applicable.)

18

Whether all the shares of which dividend has not been paid or
claimed for seven consecutive years or more are transferred to

IEPF.

19

Check whether the company has balance of Application money
due for refund, matured debenture, matured deposit etc. as
prescribed in section 125 of the companies Act, 2013.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked

•

Statement containing names of unpaid dividends

•

Website of company

•

Statement of transfer of unpaid dividend A/c to IEPF with receipt

100

COMPLIANCES UNDER COMPANIES ACT, 2013

•

Financial statement

•

Minutes of Board Meeting

•

Bank account details of scheduled bank

•

Details of payment of dividend

•

Details of unpaid dividend account

Accounts of Companies

Events covered in this chapter

•

Books of accounts

•

Boards Report

•

Corporate Social Responsibility

Checklist for Accounts of Companies

S. No. Particulars

Remarks

1

Whether the book of accounts of the Company are kept at the

Registered office of the company.

2

Whether the Board has decided to keep the Book of account any
other please in India

If yes, whether the notice in writing giving full address of such place
is filed with the Registrar.

3

In case the company is having Subsidiaries or associate

Companies, Whether the company has prepared the Consolidated
financial statement of the company.

4

Whether the company has obtained approval for the voluntary
revision of financial statements or Boards Report. Revised financial
statement or report shall not be prepared or filed more than once in
a financial statement

5

Whether the financial statements are approved by the Audit
committee, board of directors, before signing on behalf of the board
and thereafter adopted in the Annual General Meeting.

6

Check whether the Board resolution for approval of accounts have
been filed with the Registrar within 30 days in form MGT 14

7

Whether the financial statement are signed by the person
authorized by the board or by the two Director of which one should
be atleast Managing Director if any, and the CEO, CFO and CS

Wherever they are appointed

Checked by:

Reviewed by:

Date:

Date:

101

GUIDANCE NOTE ON SECRETARIAL AUDIT

Annual Report containing the Financial statements (Section 137)

S. No. Particulars

Remarks

1

The company has filed financial statements duly adopted at the
annual general meeting of the company, within thirty days of the
date of annual general meeting.

2

The company has filed the financial statements with the Registrar
together with Form AOC-4 as per Rule 12(1) of the Companies

(Accounts) Rules, 2014.

3

Whether the company falls in the class of companies notified by the

Central Government from time to time to mandatorily file their
financial statement in Extensible Business Reporting Language

(XBRL) format, and if yes, whether it has been filed in such manner.

4

Financial statements even if not adopted by members have been
filed within the 30 days from the date of AGM.

5

After the holding of adjourned AGM, adopted financial statements
are filed within 30 days of the date of adjourned AGM.

6

Where AGM for any year has not been held, the financial
statements duly signed along with the statement of facts and
reasons for not holding the AGM, have been filed with the Registrar
within thirty days of the last date before which the AGM should have
been held.

Checklist for Board’s Report: The board’s report of the company shall comprise the
following information whichever is applicable to the company.

S. No. Particulars

Remarks

1

Number of meetings of the Board, including dates of Board and

Committees meetings held indicating the number of Meetings
attended by each Director

Directors’ Responsibility Statement shall states the following:-

2

(i) Applicable Accounting Standards

(ii)Accounting Policies & Records

(iii) Preparation of accounting policies on going concern basis

(iv) Adequate Internal Financial Controls

(v) Compliance with all applicable law

102

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

3

Declaration by Independent Directors under section 149(6)

4

Disclosure on Reappointment of Independent Director

5

Company’s policy on Director’s,

appointment & remuneration including debentures Qualification,

Attributes, Independence of Director, etc.

6

Explanation or comments by the Boardon every qualification,
reservation or adverse remark or disclaimer made by the Auditors
in Audit report. Not applicable to the Government companies.

7

Secretarial Audit Report

8

Particulars of Loans, guarantees or investments u/s 186.

9

Contracts or arrangement with Related Party

10

State of the company’s affairs.

11

Amounts proposed to be carried to reserves, if any.

12

Amount recommended as dividend, if any.

13

Material Changes & Commitments affecting occurring between
date of financial position of the Financial Statements & Board

Company, occurring Report after Balance Sheet Date.

14

Energy Conservation Technology absorption, FOREX earnings &
outgo, in prescribed manner.

15

Statement indicating development & implementation of Risk

Management Policy.

16

Details about CSR Committee, Policy, its implementation and
initiatives taken during the year.

17

Manner in which Formal Annual Evaluation of performance of

Board, its Committees and individual directors has been carried
out.

18

Company’s website if any, any changes in the CSR policy and
policy on directors appointment and remuneration is made and
given in brief in the Board’s Report or not.

103

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

19

Financial Highlights & Change in the nature of business.

20

Details of Directors/KMP appointed/resigned during the year.

21

Name of the companies which have become/ceased to be
subsidiaries, JVs or Associate companies during the year.

22

Prescribed details of deposits covered under Chapter V of the Act.

23

Details of significant and material orders passed by the regulators,
courts, tribunals impacting the going concern status and
company’s operations in future.

24

Details in respect of adequacy of internal financial controls with
reference to Financial Statements.

25

Separate section containing a report on performance and financial
position of each of subsidiaries, associates & JVs included in the

Consolidated FS of the Company.

26

Disclosure on establishment of Vigil Mechanism.

27

Disclosure about receipt of any commission by MD / WTD from a

Company also receiving commission / remuneration from it Holding
or subsidiary.

28

Ratio of remuneration of each director to the median employee’s
remuneration and other prescribed details.

29

The composition of the Audit Committee Further, if the Board has
not accepted any recommendation of the Audit Committee the
same shall also be disclosed along with reasons therefore.

30

Issue of Equity Shares with Differential Rights Sweat Equity,

ESOS, etc.

31

Disclosure in respect of voting rights not exercised directly by the
employees in respect of shares to which the scheme relates.

32

Corporate Governance disclosure requirements.

33

Disclosures under Sexual Harassment of Women at Workplace

(Prevention, prohibition & redressal) Act, 2013.

34

Voluntary revision of financial statements.

35

Check whether the Board’s report is signed appropriately as per the
board resolution passed by the Board

104

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

36

Check whether the Board resolution for approval of accounts have
been filed with the Registrar within 30 days in form MGT-14

Checked by:

Reviewed by:

Date:

Date:

Corporate Social Responsibility

Section 135 of the Companies Act, 2013 provides that every company having net worth of rupees
five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of
rupees five crore or more during the immediately preceding financial year.

The list of the various activities which may be included by Companies in their CSR policies are
provided in Schedule VII of the Companies Act, 2013.

Checklist for Corporate Social Responsibility

S. No. Particulars

Remarks

1

Check if the constitution of CSR Committee is applicable to
company

2

If yes, whether the company has constituted Corporate Social

Responsibility Committee of the Board consisting of three or more
directors, out of which at least one director is an independent
director.

Where a Company is not required to appoint an Independent

Director under sub-section (4) of 149, it shall have in its Corporate

Social Responsibility Committee two or more Directors.

3

Whether the Company has CSR Policy approved by the CSR

Committee.

Whether the CSR Committee has recommended list of CSR projects
or programme within the purview of schedule VII.

Whether the monitoring process of such projects or programme has
been established by the company.

4

The Composition of CSR Committee is disclosed in the Board’s

Report.

Check whether the CSR activities were under taken as per CSR
policy and projects, programs or activities excludes activities
undertaken in pursuance of its normal course of business

105

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

5

Corporate social Responsibility Committee has recommended the
amount of expenditure to be incurred on the activities referred in the

Corporate Social Responsibility policy.

6

The company has instituted a transparent monitoring mechanism for
implementation of the CSR projects or programs or activities
undertaken by the company.

7

The company has disclosed the contents of the policy in Board’s
report and at its website, if any.

The Board’s report includes an annual report on CSR containing
prescribed particulars.

8

In case the company does not spend the specified amount (i.e. at
least two percent of the average net profits made during the three
immediately preceding financial years), Board’s report specifies the
reason for not spending the amount.

Check if the Net profits of the Company are in accordance with the
provisions section 198 of the Act or not.

9

In case the company has build CSR Capacities of their own
personnel, Check whether the expenditure including expenditure on
administrative overheads shall not exceed five percent. of total CSR

Expenditure of the company in one financial year.

10

The company has complied with all other requirement of the CSR

Rules.

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked

•

Balance sheet and P&L account

•

CSR Policy

•

Board Report

•

Minutes of Board Meeting

•

Minutes of CSR Committee

•

Company website, if any.

•

Details of expenses towards which amount has been spend under CSR

106

COMPLIANCES UNDER COMPANIES ACT, 2013

•

Company’s policy on Directors Appointment and remuneration including criteria for
determining qualifications, positive attributes, independence of a director and other matters.

•

Audit & Auditor

Section 139(2) of the Companies Act, 2013 provides that, every listed company and the following
classes of companies excluding one person companies and small companies shall not re- appoint
the auditor after the completion of the terms:-

(a) all unlisted public companies having paid up share capital of rupees ten crore or more;

(b) all private limited companies having paid up share capital of rupees fifty crore or more;

(c) all companies having paid up share capital of below threshold limit mentioned in (a) and (b)

above, but having public borrowings from financial institutions, banks or public deposits of
rupees fifty crores or more

Terms for Individual and Firm of Auditor are as under:

For an individual as auditor not more than one term of five consecutive years; and for an audit firm
as auditor not more than two terms of five consecutive years.

Checklist for Audit and Auditors:

S. No. Particulars

Remarks

1

Check whether the Company has complied with
provision of section 139(2) of the Act.

2

Whether the term of the auditor is being completed
during the audit period

3

Whether the fresh appointment of auditor was made at
the General meeting of the company.

4

Whether the company has appointed more than one
audior.

5

Whether the Certificate of Eligibility and Written
consent has been received from the auditor.

6

Whether the audit committee has recommended the
appointment of the auditor.

7

Whether the company has informed to the auditor for
appointment and filed notice of the appointment in
from ADT-1 with the registrar.

8

Check whether the resolution related to the fixed

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks
remuneration of the Auditors is passed by the Board

9

Check whether the Auditor to whom the company has
appointed shall not be having the common partners.

10

Whether the company has removed / proposed to be
remove the auditor of the company.

11

Whether the auditor has resigned from the office of
the auditor.

12

Whether the members of the company has provided
by a resolution for rotation of the team of the auditor
under section 139(3).

13

Whether the auditor of the company provide other
services if yes, Check whether same shall be
approved by the audit committee/ Board of Directors
of the company and does not include the services
mentioned in the Section 144 of the Companies Act,

2013.

14

Whether the Auditors comments, qualification.

Observation included in the audit report has been read
at the annual General meeting of the company.

15

Whether the Auditor/ Authorized representative of
auditor has attended the annual general meeting of
the company.

16

Whether any fraud has been reported by the auditor to
the audit committee/ Board of the company.

17

Check if the Company is required to appoint a Cost

Auditor or not

18

The Board shall appoint an individual, who is a Cost

Accountant or a firm of cost accountants in practice,
as cost auditor on the recommendations of the Audit
committee, which shall also recommend remuneration
for such cost auditor.

19

Check if the remuneration recommended by the Audit

Committee shall be considered and approved by the

Board of Directors and ratified subsequently by the

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COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
shareholders

Checked by:

Reviewed by:

Date:

Date:

Appointment and Qualification of Directors

Points which should be verified:

•

Appointment of Directors

•

Appointment of Additional Director, Alternate Director and nominee directors

•

Vacation of office of Director

•

Resignation of Director

•

Removal of Directors

•

Register of Directors

Checklist for Appointment and Qualification of Directors

S. No. Particulars

Remarks

1

Check whether the Article of the company provides for the
appointment of Director, Additional Director, Alternate Director,
and Nominee Directors as may be applicable to the company or
any specific resolution passed by the company in this regard.

2

Check whether during the audit period company has minimum
number of directors as required under section 149 of the Act/

SEBI (LODR) Regulations w.r.t.

•

Total Number of Director

•

Woman Director

•

Independent Director

•

Resident Director

3

Check whether none of the directors is disqualified from being
appointed as a director [Section 164 (1) & (2)].

4

Whether any of the directors has vacated office of Director
during the year (Section167).

5

Whether the consent in writing has been obtained from every

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks
director by the company in form DIR -2.

6

The company has filed the details of appointment in for with the

Registrar of Companies as an attachment of Form DIR-12 along
with the DIR – 2 and Resolution as required.

7

Whether the person proposed to be appointed is having valid

DIN.

8

Whether the particulars specified in DIN are correct and updated
with the Registrar.

9

Whether the Director of the company hold directorship within the
limits prescribed under the Companies Act, 2013 and SEBI

(LODR) Regulations, 2015.

For reckoning the limit of the directorships of twenty companies,
the directorship in dormant companies shall not be included

10

Check whether company is having at least one director who
stays in India for a total period of not less than one hundred and
eighty two days during the financial year

11

Whether the company has followed the provisions for
determination of office of directors by retirement by rotation

(Section 152).

12

The company has received any intimation from a members
proposing a person for office of a director, and notice in writing
signifying the candidature as a director has been received by the
company not less than 14 days before the meeting (Section 160).

This is not applicable in case of appointment of an independent
director or a director recommended by the Nomination and

Remuneration Committee, if any

13

The appointment of additional director, alternate and nominee
director, filling up of casual vacancies has been done as provided
in section 161.

14

Check whether the person appointed as alternate director to
independent Director shall also satisfy the Criteria of

Independence as provided in the Act.

15

Check whether the term of office of the additional director shall

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COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
hold office up to the date of the next Annual general meeting.

16

Check whether in case of the casual vacancy, the director
appointed shall hold the office up to the date on which the
deceased director would have held the office of the Director.

17

The company has ensured that the appointment of directors is
voted individually (Section 162).

18

The provisions of section 168 were complied with at the time of
resignation of director.

19

Whether the Boards report of the company contain the fact of

Resignation of the Director.

20

Whether the company has maintained a Register of directors and

Key managerial personnel and their shareholding and is updated
regularly.

21

Whether any of the directors has been removed from the Board, if

so, Check Whether provision of Section 169 is complied with.

Independent Director

22

Whether all the independent directors of the company have
fulfilled the Criteria of Independence provided under section

149(6) of the Act and have submitted a declaration of
independence to the company

23

In case of Appointment of Independent Directors whether the
explanatory statement under Section 102 has been annexed
to the Notice of the meeting along with the opinion of the
board.

24

Whether the company has issued the appointment letter to the
independent directors and the terms and conditions of the
same has been placed on the website of the company.

25

In case of re appointment of an Independent Director for the
second term, check whether the Special Resolution has been
passed by Members at general meeting.

26

In case it is a listed company, whether it has any director
elected by small shareholders and if so, whether such
appointment is in compliance with rule 7 of the Companies

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

(Appointment and Qualification of Directors) Rules, 2014).

Checked by:

Reviewed by:

Date:

Date:

Indicative list of documents to be checked

•

Articles of Association

•

Minutes papers of Board Meetings

•

Notice and minutes of Annual General Meeting, Report of AGM

•

Register of directors and KMP

•

Board’s Report

•

DIR-2, DIR-6, DIR-8, DIR-9 (if any), DIR-10 (if any), DIR-11, DIR-12 MGT-14, MR-1 (Only for

Managing Director, Whole Time Director or Manager)

•

Declaration of independence given by Independent Directors

•

Filings with Stock Exchanges

•

Balance sheet and P&L account and Board’s Report

Checklist: Particulars of Appointment of Directors and key managerial personnel (Section

170)

S. No. Particulars

Remarks

1

The person to be appointed as director has given his consent to act
as director to the company in Form No. DIR-2.

2

The company has filed Form No. DIR-12 as per Companies

(Appointment and Qualification of Directors) Rules, 2014 along with
such consent in DIR- 2 with the Registrar within thirty days of such
appointment.

3

Check whether the date of obtaining DIN precedes the date of
appointment as director.

4

The company has received the notice of resignation from the
director in writing.

5

The company has filed Form No. DIR-12 as per Companies

(Appointment and Qualification of Directors) Rules, 2014 along with
notice of resignation within thirty days of such change.

Meeting of the Board and Its powers

•

Secretarial Standard -1

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COMPLIANCES UNDER COMPANIES ACT, 2013

•

Powers of the Board

•

Loan to Directors

•

Loan and Investment by a Company

•

Related party Transaction

Checklist for Meeting of the Board and Committees:

S. No.

Particulars

Remarks

1

Check Whether the company has observed the Secretarial

Standards on Board meeting (SS-1)

2

Whether the Board meetings of the company is held as per the
schedule of meeting provided in the Corporate governance report
and Annual Return..

3

Whether any board meeting was conducted through video
conferencing and the compliances in respect thereof have been
complied by the company.

4

Whether the company has followed the proper board processes
relating to preparation and sending of Notice& Agenda and in
respect ofConduct of meeting and Recording of the minutes.

5

Whether the Documents placed at the board meeting were initialed
by Directors of the company .

6

Whether the minutes of the meeting were recorded in a fair manner
along with dissenting views of the members and were entered
within the time prescribed and are signed appropriately.

7

Check the constitution of the committee members in every meeting

8

Check if the notice and policy are uploaded on the website of the

Company

In respect of the Listed entities

9

Whether the company has intimated about the Board meeting to
the Stock Exchanges within the prescribed time limits.

10

Whether the Notice of the board meeting has been published in
the newspapers.

11

Whether the outcome of the meeting was informed to the stock
exchanges within the prescribed time limit from the conclusion of
the meeting.

Checked by:

Reviewed by:

Date:

Date:

113

GUIDANCE NOTE ON SECRETARIAL AUDIT

Power of Board:

S. No.

Particulars

Remarks

1

Check whether the Article of the company has authorized the Board
of the company to execute various powers on behalf of the company.

2

Whether Board has exercises any powers provided under section

179(3) of the Act on behalf of the Company.

3

Whether such power has been executed by means of resolutions
passed at the meeting of the board.

4

Whether board has delegated specific power as provided in Section

179.

Check whether the Conditions of such delegation shall be fulfilled.

5

Whether the resolution passed for exercising the power of Board has
been filed with the Registrar in form MGT- 14.

6

Whether the Company in general meeting has restricted on the
exercise of any of the power of the Board as provided in Section

179.

7

Whether the Board has exercised any power which is to be
exercised by the company in General meeting

If so, Whether the board has authorized by the company to exercise
the same through a resolution.

Checked by:

Reviewed by:

Date:

Date:

Restrictions on power of Board ( Events covered u/s 180)

S. No. Particulars

Remarks

1

Check whether the special resolution has been passed by the
members for exercising powers under Section 180 of the Companies

Act, 2013

2

In case the company has passed a resolution under section

180(1)(c), whether the resolution specify the total amount up to which
money may be borrowed by the Board of Directors.

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COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks

3

Whether the company while passing resolution under section 180

(1)(a) stipulate any condition for use, disposal and investment of the
proceeds.

4

Whether the company has contributed in to any bonafide and

Charitable funds.

If yes, whether the contribution is with in the 5% of the average net
profit of the company during three immediately preceding financial
years.

If the amount is more than the limit specified above, whether the
permission of the company in general meeting has been obtained.

5

Whether the company has made any political contribution during the
financial year.

If yes, Whether same has been disclosed in the Profit and loss
account of the company.

6

Whether the company has disclosed the contribution made by the
company in to National Defense fund.(if any)

7

Disclosure of Interest in other body corporate:

Whether the Directors of the company has disclosed their interest in
any other company/ companies , body corporates, firms or other
association of Individuals including shareholding in form MBP-1.

8

Disclosure of interest in Contract and arrangements:

Whether the Directors of the company has disclosed their Concern/
interest, directly/ indirectly in any contract or arrangement entered
and proposed to be entered by the companies as required under
section 184.

Checked by:

Reviewed by:

Date:

Date:

Loan to Directors:

S. No.

Particulars

Remarks

1

Check whether any loans are appearing to have been given to
directors

2

Check whether the Company is falling under the exempted category
or not.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

3

If the loan is granted check whether the company has sanctioned
any specific schemes for the directors and employees of the
company.

4

If the loan is advanced to a Managing or Whole Time Director ,
check whether it is as a part of the conditions of service extended
by the company to all its employees or pursuant to any scheme
approved by the members by a special resolution.

5

Whether the transaction relating to Loan, Guarantee, Advances,
directly or indirectly has been entered by the company with “Any
other person in whom the director is interested” covered under
section 185 of the Companies Act, 2013.

If yes, Whether the company has complied with Section 185 read
with other applicable provisions of Companies Act, 2013.

Checked by:

Reviewed by:

Date:

Date:

Documents to be verified:

•

Financial Statement of company

•

List of Holding, Subsidiary, Associate and joint venture companies.

•

Disclosure of Interest (MBP- 1)

•

Shareholding of Directors, KMP and relatives of Directors in other Companies

Loan and investment by Company:

S. No. Particulars

Remarks

1

Check whether the Company has made investment through Investment
companies.

2

Check Whether the company has filed with the Registrar a return in

Form CRL-1 disclosing number of layers of subsidiaries in excess of the
layers.

3

Whether there is subsequent change in the layer of subsidiaries.

If yes, Whether the same is in compliance with rule (2) of the

Companies (Restriction on number of layers) Rules, 2017.

4

Whether the company has extended any loan, Guarantee or has made
investment in the securities of Other body corporates

If yes, whether same is exceeding sixty per cent. of paid-up share
capital, free reserves and securities premium account or one hundred

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COMPLIANCES UNDER COMPANIES ACT, 2013

S. No. Particulars

Remarks
per cent. of free reserves and securities premium account of the
company.

If yes, Whether same has been previously authorised by a special
resolution passed in a general meeting.

5

Whether the company has disclosed in the financial statement of the
company, as well as in the Directors’ report , the full particulars of the
loans given, investment made or guarantee given or security provided
along with the purpose for which the loan or guarantee or security is
proposed to be utilized by the recipient of the loan or guarantee or
security.

6

Check Whether the loan is not provided on a interest rate lower than
the prevailing yield of respective period of Loan.

7

Whether the company is in default of the repayment of Deposit.

8

Whether the company has maintained the register in form MBP -

2 containing particulars of the loan and investment made by the company.

9

Whether the investments of the company are held in the name of the
company.

If NO, Whether the company has maintain the register in form MBP-3
chronologically and the particulars of investments in shares or other
securities beneficially held by the company but which are not held in its
own name and the company shall also record the reasons for not
holding the investments in its own name and the relationship or contract
under which the investment is held in the name of any other person.

10

Whether the entries in the register are authenticated by the company
secretary of the company or by any other person authorised by the

Board for the purpose.

Checked by:

Reviewed by:

Date:

Date:

Checklist: Register of loans guarantee, security and acquisition made by company (Section

186)

S. No. Particulars

Remarks

1

The company from the date of its incorporation, has maintained a
register in Form MBP -2 as per Companies (Meetings of Board and its

Powers) Rules, 2014 and enter therein separately, the particulars of
loans and guarantees given, securities provided and acquisitions of

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GUIDANCE NOTE ON SECRETARIAL AUDIT
securities.

2
authenticated by the company secretary of the company or by any
other person authorised by the Board for the purpose.

3

The register is kept at the registered office of the company.

4

The register has been preserved since incorporation and is kept in the
custody of the company secretary of the company or any other person
authorised by the Board for the purpose.

Checklist: Register of Investments not held in its own name (Section 187)

S. No. Particulars

Remarks

1

A register of investments not held in the name of the company is
maintained as per Form No. MBP 3, in accordance with Companies

(Meetings of Board and its Powers) Rules, 2014.

2

The entries in the register are made chronologically, the particulars
of investments in shares or other securities beneficially held by the
company but which are not held in its own name are to be entered.

3

The company has also recorded the reasons for not holding the
investments in its own name and the relationship or contract under
which the investment
is held in the name of any other person.

4

The company has also recorded when such investments are heldin
a third party’s name for the time being or otherwise.

5

The register is maintained at the registered office of the company
and is preserved permanently.

6

The custody of the register is with the company secretary of the
company or if there is no company secretary, any director or any
other officer authorised by the Board for the purpose.

7

The entries in the register are authenticated by the company
secretary of the company or by any other person authorised by the

Board for the purpose.

Related Party Transactions:

In the following transactions the prior approval of the company is required through a resolution
passes at a general meeting for entering in to a related party transaction with related party.

118

COMPLIANCES UNDER COMPANIES ACT, 2013

S No. Nature of Transaction

Limit

1
sale, purchase or supply of any goods amounting to ten percent or more of the
or materials
turnover of the company or rupees one
hundred crore, whichever is lower,

2
selling or otherwise disposing of, or amounting to ten percent or more of net worth
buying, property of any kind;
of the company or rupees one hundred crore,
whichever is lower

3
leasing of property of any kind;
amounting to ten percent or more] of the net
worth of company or 3[ten per cent or more of
turnover] of the company or rupees one
hundred crore, whichever is lower.

4
availing or rendering of any services;
mounting to ten percent or more] of the
turnover of the company or rupees fifity crore,
whichever is lower

5
appointment of any agent for purchase amounting to ten percent or more] of the
or sale of goods, materials, services or turnover of the company or rupees fifity crore,
property;
whichever is lower

6
such related party's appointment to at a monthly remuneration exceeding two and
any office or place of profit in the a half lakh rupees
company, its subsidiary company or
associate company; and

7
underwriting the subscription of any exceeding one percent. of the net worth
securities or derivatives thereof, of the
company

Checked by:

Reviewed by:

Date:

Date:

Checklist for related Party Transactions

S. No. Particulars

Remarks

1

Check whether the company has prepared a list of related parties as
per section 2(76) of the Act and there exists a system to check
whether any contracts / arrangements are being entered into with
any of those Parties.

Also any suitable mechanism is derived to intimate the same to the
secretarial department.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

2

Check whether the company has maintained the register of contract/
arrangement entered by the company along with the details of
contract and arrangement in Form MBP-4.

3

If the company is claiming exemption from the applicability of the
section on the grounds that the transactions are in the ordinary
course of business and are on arms length basis.

Check whether the Board has taken an informed decision about the
nature of transaction based on criteria given in Rule 15

4

Check whether the company has entered into a contract/
arrangement with any related party through a board resolution at a
meeting of the board.

5

The company has obtained prior approval of the shareholders by a
resolution in case of a company having paid up share capital of not
less than such amount, or transactions not exceeding such sums as
specified in Rule 15 of the Companies (Meetings of Board and its

Powers) Rules, 2014.

6

Check whether a member of the company, who is a related party
and with whom the transaction is being entered into, has not voted
on such resolution for approving the same.

In case of companies in which 90 percent. or more members in
number are relatives and related parties the above condition will not
apply.

7

The company has annexed explanatory statement to the notice of
the board or general meeting as may be applicable disclosing the
details required under rule 15.

8

Check whether any director or related party is appointed as an office
or place of profit in the company, its subsidiary or associate
company and complied with applicable provisions of Section 188.

9

Check whether omnibus approval for the related party transactions
has been given by the Audit committee and is in accordance with

Rule 6A of the Companies (Meeting of Board and its powers) Rules,

2014

10

Whether any contract has been entered by the company without the
approval of the board/ approval of the company;

If Yes, Whether such contract or Arrangement has been ratified by
the board / Company as the case may be.

Checked by:

Reviewed by:

Date:

Date:

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COMPLIANCES UNDER COMPANIES ACT, 2013

Checklist: Register of contracts with related party and contracts and Bodies etc. in which
directors are interested (Section 189

S. No. Particulars

Remarks

1

Check if the company has maintained one or more registers in Form

MBP4 as prescribed under Companies (Meetings of Board and
itsPowers) Rules, 2014.

2

The entries are made at once, in chronological order.

3

The entries in the register(s) are authenticated by the company
secretary of the company or by any other person authorised by the

Board for the purpose.

4

The register(s) is kept at the registered office of the company and is
preserved permanently and is in the custody of the company
secretary of the company or any other person authorised by the

Board for the purpose.

5

The register(s) is placed before the next meeting of the Board and
signed by all the directors present at the meeting.

Checked by:

Reviewed by:

Date:

Date:

Checklist for Payment to director for loss of Office in connection with transfer of under
taking, property and shares:

S. No. Particulars

Remarks

1

Check whether any payment has been made to the managing director
or whole time director or manager of the company by way of
compensation for the loss of office or as consideration for retirement
from office;

2

If yes, same has been provided as per the terms of Appointment.

If No, Check whether no payment shall be made to the managing
director or whole time director or manager of the company by way of
compensation for the loss of office, if
a. the company is in default in repayment of public deposits or
payment of interest thereon;
b. the company is in default in redemption of debentures or
payment of interest thereon;
c. the company is in default in repayment of any liability, secured or
unsecured, payable to any bank, public financial institution or any
other financial institution;
d. the company is in default in payment of any dues towards income
tax, VAT, excise duty, service tax or any other tax or duty, by
whatever name called, payable to the Central Government or any

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks

State Government, statutory authority or local authority (other
than in cases where the company has disputed the liability to pay
such dues);
e. there are outstanding statutory dues to the employees or
workmen of the company which have not been paid by the
company (other than in cases where the company has disputed
the liability to pay such dues); and
f. (f) the company has not paid dividend on preference shares or
not redeemed preference shares on due date.

Checked by:

Reviewed by:

Date:

Date:

Checklist for Appointment and Remuneration of Managerial Personnel

S. No. Particulars

Remarks

1
check whether the company has not appointed the Managing

Director and a Manager at the same time

2

Check whether the Managing Director/ Whole time director/

Manager shall not be appointed for a term exceeding 5 years at a
time.

3

In case of Reappointment, Check whether the re-appointment has
not been made earlier than 1 year before the expiry of term.

4

Check whether the managing Director/ Whole time Director/
manager have satisfied the conditions provided under section

196(3).

5

Incase the company is appointing. Re appointing any person who
have attended the age of 70, Check whether the special resolution
has been passed at the general meeting and the Explanatory
statement in this regard has been attached with the notice of the
meeting.

6

Check whether the appointment of the MD or WTD has been made
in accordance with section 197 and schedule V of the Companies

Act, 2013

7

Check whether the notice convening Board or General meeting
considering such appointment shall include the terms and condition
of appointment.

8

Check whether the company has filed form MR-1 within 60 days of

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COMPLIANCES UNDER COMPANIES ACT, 2013
such appointment.

Check whether the copy of the Board resolution is filed to the

Registrar within 30 days of passing of the Board resolution.

Checked by:

Reviewed by:

Date:

Date:

Checklist for Managerial Remuneration:

S. No.

Particulars

Remarks

1

Whether the Articles of the company authorize to provide
managerial remuneration

2

Whether the company in general meeting has passed a resolution
for authorizing the payment of remuneration exceeding 11% of the
net profit of the company.

3

Whether the net profit is calculated in the manner laid down in

Section 198.

4

Check whether the company has made default in payment of due
to bank/ PF I /NCD.

If yes, whether the company has obtained the prior approval of

Bank / PFI /NCD / other security holder before obtaining approval in
general meeting.

5

Whether the special resolution has been passed for paying
remuneration exceeding
to one managing director; or whole time Director or

•

5% of the net profit of the company,

•

10 % of the net profit of the company if there is more than
one such directors remuneration.

to Director who are neither managing Director not whole time
director.

•

1% of Net profit of the company if the company has MD,WTD
or Manager

•

3% of the net profit of the company.

6

Whether the company has adequate profit during the year to pay
remuneration to its Directors.

If No, Whether the company has paid remuneration in accordance

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks
with the schedule v of the Act.

7

Whether the Directors of the company providing his services, which
are of professional nature and possesses the requisite qualification
for, practice of such profession.

8

Whether the Directors are not receiving sitting fess more than the
rupees one lakh per meeting.

9

Check whether the siting fee payable to Independent Directors and

Women Directors shall not be less than the sitting fee payable to
other directors.

10

Whether any director draws or receives, directly or indirectly,
excess remuneration form the limit prescribed or without the
approval as required under section 197.

11

In case of listed company, whether the company in its board’s
report has disclosed the ratio of the remuneration of each director
to the median employees remuneration.

12

Whether the auditor of the company in his report under section 143,
has given a statement as to whether the remuneration paid by the
company to its directors is in accordance with the provisions of

Section 197 of the act.

13

Whether the company has filed all necessary forms, ie. Form MGT

14 and form MR 2 within the specified time period with the ROC, for
intimating the payment of remuneration to the managerial
personnel

Checked by:

Reviewed by:

Date:

Date:

Checklist on Key Managerial Personnel:

S. No.

Particulars

Remarks

1

Whether the company is required to appoint the Key Managerial
personnel’s including Company Secretary

2

Check whether the company has appointed the following whole
time key managerial personnel :

•

Managing Director/ Whole time Director / Chief Executive

124

COMPLIANCES UNDER COMPANIES ACT, 2013

S. No.

Particulars

Remarks
officer

•

Company Secretary

•

Chief financial officer

3

Appointment of key managerial personnel is made by a board
resolution and the resolution containing the terms and conditions
of the appointment.

4

Whether the company has filed a return in form MR-1 (only for
public company) within 60days of such appointment with the
registrar.

5

Whether an intimation has been filed in form DIR-12 to the

Registrar within 30 days of Appointment.

6

Whether the copy of the Board resolution is filed to the Registrar
within 30 days of passing of the Board resolution..

7

Whether any individual is holding the position of Chairperson and
managing Director of the company.

If yes, Check whether the article of the company provides for the
same and/ or company carry the multiple businesses.

8

Check whether the Key Managerial Personnel are not holding
office of KMP in more than one company except in its one
subsidiary company at the same time.

9

Whether the any vacancies of the whole time KMP has been filled
up by the Board with in a period of 6 Months or such lesser period
as may be required under any other laws.

10

Whether the KMP has provided the disclosure of his/ her interest
to the company

11

Whether the entries in the Register of Contracts for KMPs has
been made.

Checked by:

Reviewed by:

Date:

Date:

125

GUIDANCE NOTE ON SECRETARIAL AUDIT

Checklist: Return of Appointment of Managerial Personnel (section 196)

S No.

Particular

Remarks

1

The Board has passed a resolution for the appointment of

Managerial Personnel, viz. managing director, whole-time director
or manager, subject to approval by members at the next general
meeting.

2

A copy of the Board resolution for appointment of the Managing
director has been filed with MCA within 30 days of the
appointment of the Managing Director.

3

The notice convening the board/general meeting for considering
the appointment includes the terms and conditions of such
appointment and remuneration payable and other matters,
including interest of director(s) in such appointments, if any.

4

A return of appointment of a Managing Director, Whole Time

Director or Manager, has been filed within sixty days of the
appointment, with the Registrar in Form No. MR.1 and form DIR-

12 as per Companies (Appointment and Remuneration of

Managerial Personnel) Rules, 2014 along with such fee as may be
specified for this purpose.

5

The provisions of Section 203 of the Act relating to the
appointment of Key Managerial Personnel and the Rules
thereunder have been complied with i.e.

a. Company was required to have whole time KMP and as such
has appointed KMP.

b. Chairperson of the company is not the Managing director or

CEO of the company.

c. Chairperson of the company is the Managing director or CEO
of the company, but has been authorised by the articles.

d. Chairperson of the company is the Managing director or CEO
of the company, since company has multiple business.

e. Board Resolution was passed for appointment of company
containing terms and conditions of appointment and
remuneration.

f. None of the KMPs hold such office in more than one
company.

g. KMPs hold a similar position in another company, which is a

126

COMPLIANCES UNDER COMPANIES ACT, 2013

S No.

Particular

Remarks
subsidiary company.

h. None of the KMPs is a director in any other company.

i. KMPs are directors in other companies with the permission of
the Board.

j. KMPs holding such position as on 1st April 2014 in more than
one company have chosen to be KMP of only one company
within a period of six months.

k. A person is appointed as managing director/ manager in two
companies with the unanimous approval of the board for
which specific notice was given.

l. Vacancy created in the position of KMP was filled within six
months

Checklist: Register of Directors and Key Managerial Personnel and their Shareholding

[Section 170 read with Rule 17 of Companies (Appointment and Qualification of Directors)

Rules, 2014

S. No. Particulars

Remarks

1

The necessary particulars as prescribed in the rule 17 are
incorporated in the register including details of securities held by
each of them in the company or its holding, subsidiary, subsidiary of
company’s holding company or associate companies.

2

The register is maintained at the registered office of the company.

Checklist Register of Directors’ Attendance (Table F of Schedule I)

S. No. Particulars

Remarks

1

The company has maintained a Register of Directors’ Attendance of
the board meeting and the committee meetings is kept for that
purpose.

2

Every director present at any meeting of the Board or of a

Committee thereof has signed against his name.

3

The requirements as specified in the Secretarial Standards have
been complied with.

127

GUIDANCE NOTE ON SECRETARIAL AUDIT

Checklist of other important returns

S. No.

Particulars

Remarks

1

In case company makes any allotment of its securities, it has,
within thirty days thereafter, filed with the Registrar a return of
allotment in Form PAS-3 as per Companies (Prospectus and

Allotment of Securities) Rules, 2014.

2

A certified list of allottees stating their names, address,
occupation, if any, and number of securities allotted to each of
the allottees was attached with PAS-3. Certification has been
done by the signatory of the Form No. PAS-3.

Checklist: other Registers

These registers are not statutory but statistical in nature and PCS is advised to comment about the
maintenance of these registers though he need not qualify his report in case of non-compliance.

S. No. Particulars

Remarks

Register of Shareholders’ Attendance

1

The company has maintained a register of shareholders’ attendance
at the general meetings or has kept the attendance slips collected
from the members at the meeting.

Register of Proxies

2

The register of proxies containing details of proxies lodged in
respect of every general meeting is maintained.

Register of Documents Sealed

3

The company has maintained a register of documents on which
common seal is affixed.

4

The register contains the following:

•

Number and date of the minutes authorising the use of the
seal.

•

Date of sealing.

•

Persons in whose presence the seal was affixed.

•

Document sealed.

•

Location of document.

128

3

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

A. SECURITIES CONTRACTS (REGULATION) ACT, 1956 AND RULES MADE THEREUNDER

The Securities Contracts (Regulation) Act, 1956 (SCRA) defines various terms in relation to
securities and provides the procedure for the stock exchanges to get recognition from Government/

SEBI, procedure for listing of securities of companies and operations of the brokers in relation to
purchase and sale of securities on behalf of investors. The Central Government promulgated the

Securities Contracts (Regulation) Rules, 1957 (SCRR) for carrying into effect the objects of the

SCRA, 1956. A company listed on a stock exchange is required to comply with the provisions of

SCRA and SCRR.

Check list for Compliances under Securities Contracts (Regulation) Act, 1956 and the Rules made
there under:

Sl.

Particulars

Compliance Remarks

No.

1.

Check whether the company has issued securities to the

public.

2.

3.

Whether the conditions of listing agreement/SEBI (LODR)

Regulations 2015 have been complied with, on receipt of
approval for listing of securities? (Section 21)

4.

Whether any application for listing of securities has been

refused by the stock exchange. [Section 17A(3)]

5.

If the permission is refused, whether the company has

repaid all moneys, if any, received from applicants in
pursuance of the offer document within a period of eight
days? [Section 17A (3)]

6.

In case the stock exchange refused to list the securities,

whether the company has made an appeal to the Central

Government or the Securities Appellate Tribunal, as the
case may be, within the time limit as prescribed under the

Act and Section 40 of the Companies Act, 2013 against
such refusal. (Section 22 & 22A)

7.

What was the outcome of the appeal?

8.

If listed, whether the company has complied with Rule

19A of SCRR with respect to continuous listing

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl.

Particulars

Compliance Remarks

No.

requirement with the stock exchange.

Note: To check this, PCS may check the annual report of
the company and the shareholding pattern filed by the
company with the stock exchange under Regulation 31 of
the

SEBI

(Listing

Obligations
and

Disclosure

Requirements) Regulations, 2015.

9.

In case the company is aggrieved by the order of

Securities Appellate Tribunal, whether the company has
filed an appeal to the Supreme Court within sixty days
from the date of communication of the decision or order of
the Securities

Appellate Tribunal. (Section 22F)

10.

Check whether the company has contravened any

provisions which may attract the penal provisions
provided under Sections 23A to 23H

11.

Whether the company has been granted immunity by

Central Government. (Section 23 O)

12.

If yes, whether it has been withdrawn by the Central

Government, if it is satisfied that such person had, in the
course of the proceedings, not complied with the
condition on which the immunity was granted or had
given false evidence. (Section 23 O)

13.

Check whether the Company has been delisted by the

Stock exchange?

Checked by:

Reviewed by:

Date:

Date:

B. DEPOSITORIES ACT, 1996

According to section 2(e) of the Depositories Act, 1996, Depository means a company formed and
registered under the Companies Act and which has been granted a certificate of registration under
section 12(1A) of the Securities and Exchange Board of India Act, 1992.

The Depository holds electronic custody of securities and also arranges for transfer of ownership of
securities on the settlement dates.

Chapter II of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 states that
no issuer shall make a public issue or rights issue of specified securities unless it has entered into

130

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS
an agreement with a depository for dematerialization of specified securities already issued or
proposed to be issued.

Section 29 of the Companies Act, 2013 also mandates that every company making public offer and
such other class or classes of companies as may be prescribed, shall issue the securities only in
dematerialized form by complying with the provisions of the Depositories Act, 1996 and the
regulations made thereunder.

However, unlisted company may convert its securities into dematerialized form or issue securities
in physical or dematerialized form.

Rule 9 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 provides that the
promoters of every company making a public offer of any convertible securities may hold such
securities only in dematerialized form. Also the entire holding of convertible securities of the
company by the promoters held in physical form up to the date of the initial public offer shall be
converted into dematerialized form before such offer is made and thereafter such promoter
shareholding shall be held in dematerialized form only.

Checklist for compliances under Depositories Act, 1996

Sl. No.

Particulars

Remarks

1.

Check the Tripartite agreements entered into by the company with
the RTA and depository for dematerialisation of securities.

(NSDL/CDSL)

2.

Check that the provisions of section 29 of the CompaniesAct, 2013
and the rules made thereunder have been complied with.

3.

Check that the company has complied with clause 55A of SEBI

(Depositories and Participants) Regulations, 1996 with respect to the
reconciliation of share capital audit. The company shall file the Report
within 30 days from the end of the quarter. i.e. April 30, July 30,

October 30 and January 30 of every year.

Check whether the Company or its RTA has ensured to establish
continuous electronic means with the Depository, as required under
regulation 56 of SEBI (Depositories and Participants) Regulations,

1996

4.

Check whether there is any contravention which may attract the
penal provisions provided under Sections 19A to 19G.

5.

Whether the company has been granted immunity by Central

Government. (Section 22B)

6.

If yes, whether it has been withdrawn by the Central Government, if it
is satisfied that such person had, in the course of the proceedings,
not complied with the condition on which the immunity was granted or
had given false evidence. (Section 22B)

131

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Remarks

7.

In case the company is aggrieved by the order of Board, may prefer
an appeal to the Central Government or the securities appellate
tribunal, as the case may be within a stipulated time as may be
prescribed. (Section 23)

Note: PCS may check the certified copy of quarterly audit report submitted to the stock exchange
by the company with respect to reconciliation.

Checked by:

Reviewed by:

Date:

Date:

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Takeover of companies whose securities are listed on one or more recognized stock exchanges in

India is regulated by the provisions of SEBI (Listing obligations and Disclosure Requirements)

Regulations, 2015 and the Securities and Exchange Board of India (Substantial Acquisition of

Shares and Takeovers) Regulations, 2011. The compliances under the regulations include event
based/continual disclosures, open offer requirements including public announcement, escrow
account, obligations of acquirer/target company/merchant banker, undertaking/authorization, offer
price etc.

Checklist for Compliances under SEBI (Substantial Acquisition of shares and Takeovers)

Regulations, 2011-For Acquirer Company:

Sl. No. Particulars

Remarks

1.

The Company has appointed merchant banker registered with SEBI.

2.

The acquirer has made a public announcement through a merchant
banker with respect to substantial acquisition of shares or voting
rights and acquisition of control in the target company within the
timelines prescribed under regulation 13 for different types of
acquisitions such as market purchase/conversions etc. (Note: The

PCS may check from the documents of the target company for
ensuring compliance with the same)

3.

To check in the event, the acquirer makes a public announcement of
an open offer for acquiring shares of a target company in terms of
regulations 3, 4 or 5, whether he has delisted the company in
accordance with the provisions of the SEBI (Delisting of Equity

Shares) Regulations, 2009. (Regulation 5A)

4.

Where an offer made for delisting is not successful, whether
announcement within two working days in respect of such failure in
all the newspapers in which the detailed publicstatement was made.

(Regulation 5A)

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Remarks

5.

Where delisting offer made, whether through the manager to the
open offer, within five working days from the date of the
announcement of failure of delisting offer, a draft of the letter of offer
if filled with SEBI. (Regulation 5A)

6.

The requirement specified under regulation 5A, with respect to
announcements and the timelines have been followed, in
case of failure of delisting offer

7.

The acquirer through its manager to the open offer has sent the
public announcement to all the stock exchanges where the shares of
the target company are listed within the specified time limit.

8.

The copy of the public announcement has also been sent to SEBI
and the target company at its registered office within one working day
of date of the public announcement.

(Note: The PCS may check the copy of the documents mentioned in
point 7 and 8 available by the merchant banker for verifying the
same)

9.

To check no voluntary offer is made by the acquirer or any person
acting in concert with him who has acquired shares of the target
company in the preceding fifty-two weeks without attracting the
obligation to make a public announcement of an open offer.

(Regulation 6)

10.

Whether the acquirer and persons acting in concert with him, who
have made a public announcement of voluntary offer to acquire
shares of a target company has not acquired any shares of the target
company for a period of six months after completion of the open offer
except pursuant to another voluntary open offer or competing offer.

(Regulation 6)

11.

To check that if a person is a wilful defaulter, he/ she shall not make
a public announcement of an open offer for acquiring shares or enter
into any transaction that would attract the obligation to make a public
announcement of an open offer. (Regulation 6A)

12.

Whether open offer for acquiring shares to be made by the acquirer
and persons acting in concert with him under regulation 3 and
regulation 4 made for at least twenty-six per cent of total shares of
the target company, as of tenth working day from the closure of the
tendering period. (Regulation 7)

13.

Whether voluntary offer is made for at least such number of shares
as would entitle the holder thereof to exercise an additional ten per
cent of the total shares of the target company, and shall not exceed

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Remarks
such number of shares as would result in the post-acquisition holding
of the acquirer and persons acting in concert with him exceeding the
maximum permissible non-public shareholding applicable to such
target company. (Regulation 7)

14.

Where different payment modes are given whether detailed public
statement and the letter of offer shall contain justification for such
differential pricing. (Regulation 9)

15.

The acquirer has published detailed public statement not later than
five workings days of the public announcement. (Note: The PCS may
check the copies of newspaper clipping for ensuring the compliance
of the same)

16.

The acquirer has after publication of detailed public statement in the
newspaper, sent a copy of the same to –

(i) The SEBI;

(ii) All the stock exchanges where the shares of the target
company are listed;

(iii) The target company at its registered office.

(Note : The PCS may check the document provided by merchant
banker for verifying the same)

17.

Whether the contents of public announcement is as per Regulation

15.

18.

Where escrow account is in the form of a bank guarantee, whether
such bank guarantee was in favour of the manager to the open offer
and was be kept valid throughout the offer period and for an
additional period of thirty days after completion of payment of
consideration to shareholders. (Regulation 17)

19.

Escrow account is created not later than two days prior to the date of
detailed public statement, as required under regulation 17.

20.

Within five working days of the detailed public statement the draft
letter of offer is to be filed with SEBI. Simultaneously a copy of the
same has been sent to the target company.

21.

The letter of offer shall be dispatched to the shareholders whose
names appear in the Register of Members of the Target Co. as on
the identified date, not later than seven working days from the receipt
of comments from SEBI.

22.

If no comments received from SEBI then within seven working days
from the expiry of the period stipulated in sub-regulation (4) of
regulation 16. (Regulation 18)

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Remarks

23.

Where any revision of the open offer, whether by way of an upward
revision in offer price, or of the offer size, the acquirer made
corresponding increases to the amount kept in escrow account under
regulation 17 prior to such revision. (Regulation 18)

24.

Whether acquirer and persons acting in concert with him acquired or
sell any shares of the target company during the period between
three working days prior to the commencement of the tendering
period and until the expiry of the tendering period. (Regulation 18)

25.

Whether tendering period remained open for ten working days.

(Regulation 18)

26.

The letter of offer has been sent to the custodian of shares
underlying depository receipts (in case the company has issued

GDRs or ADRs) of the company.

27.

The offer price and offer size requirements are complied with as per

Regulation 7 and 8.

28.

In case of upward revision in offer price, or of the offer size, the
acquirer has made announcement about the same in all the
newspaper as prescribed under these regulations. (Note : The PCS
may check the copy of newspaper clipping for verifying the same)

29.

The acquirer has informed about such upward revision to SEBI, all
the stock exchanges on which the shares of the target company are
listed, and the target company at its registered office.

30.

The acquirer has disclosed during the offer period every acquisition
made by the acquirer or persons acting in concert with him of any
shares of the target company to each of the stock exchange on which
the shares of the target company are listed and to the target
company at its registered office within twenty- four hours of such
acquisition.

31.

The acquirer shall issue an advertisement one working day before
the commencement of the tendering period, announcing the schedule
of activities for the open offer, the status of statutory and other
approvals, unfulfilled conditions, if any, and their status, the
procedure for tendering acceptances and such other material detail
as may be specified in all the newspapers in which the detailed public
statement pursuant to the public announcement was made.

(Regulation 18)

32.

The acquirer has sent such post offer advertisement to-

(i)

all the newspaper in which the detailed public statement

135

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Remarks
pursuant to the public announcement was made

(ii)

SEBI;

(iii)

all the stock exchanges on which the shares of the target
company are listed; and

(iv)

The target company at its registered office.

33.

Has the acquirer acquired or sold any share of the target company
during the period between three working days prior to the
commencement of the tendering period and until the expiry of the
tendering period. (Regulation 18)

34.

The acquirer has issued a post offer advertisement within five
working days after the offer period giving details including aggregate
number of shares tendered, accepted, date of payment of
consideration.

35.

The acquirer has sent such post offer advertisement to-

i. All the newspapers in which the detailed public statement
pursuant to the public announcement was made;
ii. SEBI;
iii. all the stock exchanges on which the shares of the target
company are listed; and
iv. The target company at its registered office.

36.

Where conditional offer is made the acquirer and persons acting in
concert with him not acquired, during the offer period, any shares in
the target company except under the open offer and any underlying
agreement for the sale of shares of the target company pursuant to
which the open offer is made. (Regulation 19)

37.

After payment of consideration to the shareholders, the acquirer has
transferred the unclaimed balances, if any, lying at the credit of the
special escrow account, to the Investor Protection and Education

Fund established under the SEBI (Investor Protection and Education

Fund) Regulations, 2009, at the end of seven years from the date of
deposit thereof.

38.

In case of withdrawal of open offer, the acquirer shall through the
manager to open offer has made an announcement within two
working days in the same newspaper in which public announcement
to the open offer was published providing the grounds and reasons
for withdrawal of open offer.

39.

The acquirer has informed in writing with such announcement to - (i)

SEBI;(ii) all the stock exchanges on which the shares of the target
company are listed; and (iii) The target company at its registered

136

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Remarks
office.

40.

Where any competing offer is made, whether such offer is made
within fifteen working days of the date of the detailed public
statement made by the acquirer. (Regulation 20)

41.

The open offer for acquiring shares once made shall not be
withdrawn except as per the provisions of Regulation 23

42.

Where acquirer or any person acting in concert is already
represented by a director on the board of the target company, such
director has not participated in any deliberations of the board of
directors of the target company or voted on any matter in relation to
the open offer. (Regulation 24)

43.

In the event it was required to alienate any material assets of the
target company or any of its subsidiaries, where the acquirer has not
expressed its intention to alienate in the detailed public statement
and the letter of offer, it has been debarred from causing such
alienation within the period of two years. In case the alienation was
made within 2 years, such alienation has been approved by the
shareholders by special resolution by way of postal ballot by the
shareholders of the target company. (Note: The PCS may check

Form No. MGT-14 for verifying the special resolution passed for such
alienation)

44.

Upon receipt of the detailed public statement, the board of directors
of the target company shall constitute a committee of independent
directors to provide reasoned recommendations on such open offer,
and the target company shall publish such recommendations and
such committee shall be entitled to seek external professional advice
at the expense of the target company. (Regulation 26)

45.

Whether during the offer period, unless the approval of shareholders
of the target company by way of a special resolution by postal ballot
is obtained, the board of directors of either the target company or any
of its subsidiaries has not done any of the activity specified in

Regulation 26(2)

46.

The recommendation on open offer made by the committee of
independent directors of the target company, has been published in
the same newspaper where the public announcement of the open
offer was published at least two working days before the
commencement of the tendering period.

47.

The copy of such recommendations published, has been sent to :-

(i)

SEBI;

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Remarks

(ii)

all the stock exchanges on which the shares of the target
company are listed; and

(iii)

the manger to the open offer

48.

The manager to open offer has submitted the due diligence certificate
along with the draft letter of offer filed under regulation 16 to SEBI.

(Note: PCS may check the copy of the due diligence certificate)

49.

The manager to open offer shall file a report with the Board within
fifteen working days from the expiry of the tendering period
confirming status of completion of various open offer requirement.

(Note : PCS may check the copy of the report submitted to SEBI)

50.

In case of event based disclosures as prescribed under regulation

29(1) and (2), such disclosures have been made to the target
company at its registered office and to all the stock exchanges where
the shares of the target company are listed within the two working
days of the receipt of intimation of allotment of shares, or the
acquisition of shares or voting rights in the target company

51.

The continual disclosures as specified in regulation 30(1) and (2),
have been made within seven working days from the end of each
financial year to every stock exchanges where the shares of the
target company are listed and to the target company at its registered
office by the promoters.

52.

The disclosure regarding shares encumbered by promoter or by
persons acting in concert with him and also any invocation of such
encumbrance or release of such encumbrance shares, have been
made to all the stock exchanges where the shares of the target
company are listed and to the target company at its registered office
within seven working days from the creation or invocation or release
of encumbrance, as the case may be.

(Note: The PCS may check the copy of the formats submitted to
stock exchange and target company)

53.

The PCS may check the copy of the formats prescribed for various
disclosures/Reports for ensuring compliance of SEBI (SAST)

Regulations 2011.

Obligations of Target Company in case of an open offer

Sl. No.

Particulars

Remarks

1.

During the offer period, no person representing the acquirer or any
person acting in concert with him is to be appointed as director on
the board of directors of the target company, whether as an

138

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS
additional director or in a casual vacancy.

2.

In the event the acquirer or any person acting in concert is already
represented by a director on the board of the target company, such
director has not participated in any deliberations of the board of
directors of the target company or vote on any matter in relation to
the open offer.

3.

Once a Public Announcement is made, the board of directors of the

Target Company has ensured that the business of the target
company is conducted in the ordinary course. Alienation of material
assets, material borrowings, issue of any authorized securities,
announcement of a buyback offer etc. is not permitted, unless
authorized by shareholders by way of a special resolution by postal
ballot.

4.

The target company has furnished to the acquirer within two working
days from the identified date, a list of shareholders and a list of
persons whose applications, if any, for registration of transfer of
shares, in case of physical shares, are pending with the target
company.

5.

After closure of the open offer, the target company has provided
assistance to the acquirer in verification of the shares tendered for
acceptance under the open offer, in case of physical shares.

6,

Upon receipt of the detailed public statement, the board of directors
of the target company has constituted a committee of independent
directors to provide reasoned recommendations on such open offer,
and the target company has published such recommendations and
such committee shall be entitled to seek external professional
advice at the expense of the target company. The recommendations
of the Independent Directors are published in the same newspaper
where the Detailed Public Statement is published by the acquirer
and are published at least 2 working days before opening of the
offer. The recommendation will also be sent to SEBI, Stock

Exchanges and the Manager to the offer.

Event Base Checklist for SEBI (Substantial Acquisition of Shares and Takeovers)

Regulations, 2011

S.No. Event

Remarks

1.

Whether acquisition is 25% or more

2.

if yes, whether company has made public announcement

3.

is the offer size as per the regulation

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S.No. Event

Remarks

4.

Whether the mode of payment is as per requirement

5.

Whether the consideration for listed securities is as per the regulation

6.

Whether any acquisition is under exempt category

7.

if yes, are the conditions for exemption are followed

8.

Whether merchant banker is appointed

9.

Whether the public announcement is made

10.

Whether the copy of public announcement is sent to SEBI and target
company at its registered office

11.

Whether the public announcement contents all the information as required
under regulation

12.

Whether draft offer letter is filed with Board

13.

Whether escrow account is opened

14.

Whether the draft letter of offer is given to target company and custodian

15.

Whether the letter of offer dispatched to shareholders

16.

Whether post issue advertisement is given

17.

Whether any offer is withdrawn

18.

Whether offer is opened within time frame after withdrawal

19.

Whether any person from the acquirer appointed as director of target
company

20.

Whether the acquirer has made disclosure (5% and more) to SEBI and
target company

21.

Whether acquirer has made continual disclosure (25% or more) to SEBI and
target company

22.

Whether disclosure of encumbered shares made

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

D. SEBI (Prohibition of Insider Trading) Regulations, 2015

The Securities and Exchange Board of India (SEBI) formulated the SEBI (Insider Trading)

Regulations, 1992 under the powers conferred on it under the SEBI Act, 1992. Besides, SEBI felt
the need. To ensure a clear regulatory policy that is not only easily comprehendible but is also
comprehensive led to this Committee being set up under the chairmanship of Justice N. K. Sodhi,

Former Chief Justice of the High Courts of Kerala and Karnataka and the Former Presiding Officer
of the Securities Appellate Tribunal.

SEBI has issued and notified the SEBI (Prohibition of Insider Trading) Regulations, 2015

(Regulations) on 15th January, 2015 based on recommendations of the Justice Sodhi Committee.

These Regulations are effective from 15th May, 2015.

The revised disclosure formats, i.e. Form A to Form D were effective from 16.09.2015. Every listed
company has to comply with the provisions of SEBI (Prohibition of Insider Trading) 2015.

Checklist for Compliances under SEBI (Prohibition of Insider Trading) Regulations, 2015

(effective from May 15, 2015)

Sl. No.

Particulars

Remarks

1.

Any action has been initiated by SEBI against the company or any
of its promoter, director, Key Managerial Personnel, officer or
employee under the PIT regulations in the past or present.

2.

The company or any of its promoters, director, Key Managerial

Personnel, officer or employee has been convicted by SEBI with
respect to Insider Trading in the past or present.

(Note: Please mention the action taken by SEBI in the audit report
as qualification)

3.

The company has appointed a compliance officer. Every listed
company, market intermediary and other persons formulating a
code of conduct shall identity and designate a compliance officer to
administer the code of conduct and other requirements under these
regulations. (Regulation 9)

4.

Whether the Board of Directors of every listed company has
formulated a code of practices and procedures for fair disclosure of
unpublished price sensitive information as per Schedule A to these
regulations.

5.

The Code must be hosted on the website of the company and a
copy of the same must be sent to the stock exchange.

6.

The Company has appointed a Chief Investor Relation Officer, who
is also a senior officer of the company to deal with dissemination of
information and disclosure of unpublished price sensitive
information, as per the principles set out in Schedule A of these
regulations.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Remarks

7.

The Company has formulated code of conduct to regulate, monitor
and report trading by insiders as per Schedule B of these
regulations.

8.

The Company has formulated an internal code of conduct for
governing dealing in securities as per the minimum standards set
out in Schedule B.

9.

Every such code of practices and procedure relating to
unpublished price sensitive information and every document
thereto has been promptly intimated to the stock exchange where
the securities are listed.

10.

Whether the trading plan has been formulated in compliance

with Regulation 5? If yes, whether necessary compliances have
been made.

11.

Whether the disclosures were taken from the KMPs of the

Company and from those relating to trading by such person’s
immediate relatives, and by any other person for whom such
person takes trading decisions. (Regulation 6)

12.

To check whether the connected person or class of connected
persons have made disclosures of holdings and trading in
securities of the company in such form and at such frequency as
may be determined by the company in order to monitor compliance
with these regulations. (Regulation 7)

13.

Whether every code of practices and procedures for fair disclosure
of unpublished price sensitive information and every amendment
thereto has been promptly intimated to the stock exchanges where
the securities are listed. (Regulation 8)

14.

Whether any action has been sanctioned by the Board for the
violation/ contravention of the provisions these regulations.

(Regulation 10)

15.

The Compliance officer has reviewed and monitored the trading
plans if any, submitted by any insider and approved the trading
plan that it has not violated these regulations.

16.

Whether The Compliance officer has received undertaking or
declaration from insider with respect to the trading plan, as the
case may be.

17.

The Compliance officer has notified the trading plan to the stock
exchange(s), If any.

18.

The Company maintains the record of the said disclosures as

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Remarks
required for a minimum period of five years.

19.

The Company has received the initial disclosure from every
promoter, Key Managerial Personnel (KMP) and Directors with
respect to the securities held by them in Company.

20.

The Company receives disclosure by every person on appointment
as KMP or Director or upon becoming a promoter within seven
working days of such appointment
or becoming promoter.

21.

The Company is regular in receiving continual disclosure from the
promoter(s), employees and directors with respect to the number of
securities acquired or disposed of within two trading days of such
transaction, if such transactions exceed Rs.10,00,000 or such
other value as may be specified
in a calendar quarter.

22.

The Company has notified the particulars of such trading to

the stock exchange(s) within two trading days of receipt of the
disclosure or from becoming aware of such information.

23.

The Company is regular in receiving disclosures of holding &
trading of securities of the company by any other connected person
or class of connected persons, held or traded by them. The

Company has in its discretion require this information & set out the
frequency for seeking such information.

24.

The Compliance officer has provided reports of trading to the

Chairman of Audit Committee, if any or to the Chairman of the

Board of Directors as per the frequency stipulated by the Board of

Directors.

25.

The Company follows Chinese wall procedures & processes as per
the norms contained in the code of conduct, wherever applicable.

26.

The Compliance officer determines the timing of closure of the
trading window and re-opening of the trading window.

27.

The Compliance officer has put in place appropriate procedure for
pre-clearance of trades for its employees.

28.

The Designated Person have not entered into any contra trade as
per the specified period as mentioned in the code of conduct which
shall be not less than six months from the
date of trade in securities of the Company.

29.

The profit arises from the Contra trade, if executed inadvertently or
otherwise, has been liable to be disgorged for remittance to SEBI
for credit to the Investor Protection and Education Fund

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Remarks
administered by the SEBI under the Act.

30.

Any action taken against persons responsible for non- adherence
with respect to formulation of code of conduct.

31.

Any other prevention mode with respect to insider trading as
adopted by the Company.

Checked by:

Reviewed by:

Date:

Date:

Event based checklist of SEBI (Prohibition of Insider Trading) Regulations 2015

S.No.

Compliance

Remarks

1.

Code of conduct adopted by the company

2.

Compliance with the requirement of closure of trading
window.

3.

Compliance with Applicable disclosures to the stock
exchange for change in promoter holding.

4.

Compliance officer has obtained trading plan and
compliance with respect to that is observed

5.

Grey list for securities

Checked by:

Reviewed by:

Date:

Date:

Periodic Compliances checklist of SEBI (Prohibition of Insider Trading) Regulations 2015:

S. No.

Compliance

Remarks

1.

Quarterly disclosure of statement of transaction

2.

Quarterly disclosure of statement of holding of securities

3.

Annual disclosure of holding of statement of holding of
securities

Checked by:

Reviewed by:

Date:

Date:

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

SEBI (ICDR) Regulations, 2009

Sl. No.

Particulars

Remarks

General Compliances:

1.

The compliances relating to filing of offer documents,
appointment of merchant bankers and intermediaries have
been complied with. (The draft offer document has to be filed
with SEBI at least thirty days prior to registering a
prospectus, red herring prospectus or shelf prospectus with

ROC or filing the letter offer with the designated Stock

Exchange (Regulation 6).

(Note: The draft offer document has to be made available to the
public for at least 21 days from the date of such filing with SEBI. A
statement on the comments received from public on draft offer
document
has
to
be
filed
with

SEBI.

The
observations/suggestions of SEBI on draft offer documents have
to be carried out while registering of prospectus with ROC. A copy
of letter of offer is to be filed with SEBI and with stock exchanges
where the securities are proposed to be listed, simultaneously
while registering the prospectus with ROC)

2.

The issuer has deposited, before opening pf subscription, an
amount calculate at the rate of one percent of the amount of
securities offered for subscription to the public.

3.

The company has submitted the necessary documents as
required under Regulation 8 before the opening of the issue,
during the issue and after the issue?

Whether the Company has submitted at the time of filing draft
offer document with the recognised stock exchange where the
specified securities are proposed to be listed, submit the

Permanent Account Number, bank account number and
passport number of its promoters to such stock exchange.

(Regulation 8)

4.

The due diligence reports have been filed with SEBI (pre issue
diligence reports/post issue diligence reports)

5.

The company has complied with the requirements relating to
lock in period.

6.

Where warrants have been issued along with public issue or
rights issue, the tenure of such warrants has not exceeded a
period of eighteen months from the date of allotment in public/
rights issue.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Remarks

7.

The utilization of proceeds for General Corporate Purposes
have not exceeded twenty five per cent of the amounts
generated by the issuer.

8.

The issuer company has not made:

(a) a public issue of equity securities, if the issuer or any of its
promoters or directors is a wilful defaulter; or

(b) a public issue of convertible debt instruments if,

(i) the issuer or any of its promoters or directors is a wilful
defaulter, or

(ii) (ii) it is in default of payment of interest or repayment of
principal amount in respect of debt instruments issued by
it to the public, if any, for a period of more than six
months.

9.

All application moneys received has been refunded to the
applicants in case of non-receipt of minimum subscription

(i) ninety per cent of the offer within:

(ii) fifteen days of the closure of the issue, in case of a non-
underwritten issue; and

(iii) seventy days of the closure of the issue, in the case of an
underwritten issue where minimum subscription including
devolvement obligations paid by the underwriters is not
received within sixty days of the closure of the issue.

(Note: The PCS may check the refund orders/ certificate of
posting for the compliance of the provision)

10.

When the issue size exceeds five hundred crore rupees, the
issuer shall make arrangements for the use of proceeds of the
issue to be monitored by a public financial institution or by one
of the scheduled commercial banks named in the offer
document as bankers of the issuer (Regulation 16)

(Note: The PCS may check the copy of report of the monitoring
agency in schedule IX, which has to be filed on a quarterly
basis, till at least ninety five percent of the proceeds of the
issue, excluding the proceeds under offer for sale and amount
raised for general corporate purpose have been utilized.

(Note: the PCS may check the documents from the merchant
banker w.r.t. its compliance)

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Remarks

11.

The issuer has within forty five days from the end of each
quarter, publically disseminated the report of the monitoring
agency by uploading the same on its website as well as
submitting the same to the stock exchange(s) on which its
equity shares are listed.

12.

The specified securities are to be allotted and/or application
moneys to be refunded within fifteen days from the date of
closure of the issue and where securities are not allotted/
application moneys refunded interest undertaken in the offer
document has to be paid, in case of delayed payments and the
payment has to be done by NEFT / RTGS. (Note: The PCS
may check the refund orders /Certificate of posting to ensure
compliance of the same.)

The pre-issue advertisement is required to be made after
registering the red herring prospectus (in case of book built
issue)or prospectus (in case of fixed price issue) with Registrar
of companies in one English national daily newspaper with
wide circulation, Hindi national daily newspaper with wide
circulation and one regional language newspaper with wide
circulation at the place where the registered office of the issuer
is situated in format specified in Part A of schedule XIII.

(Note: The PCS may check the copies of the newspaper
clippings for compliance of the same.)

13.

The issuer is required to make an announcement of the floor
price or price band along with financial ratios computed for both
the upper and lower end of the price band at least 5 working
days before the opening bid (in case of IPO) and at least one
working day before the opening of the bid (in case of FPO) in
all newspapers in which pre-issue advertisement was made.

The announcement shall also be sent to the stock exchanges
where the securities are proposed to be listed for disclosure on
their website.

(Note: The PCS may check the copies of the newspaper
clippings for compliance of the same.)

The issuer must take care that the cap on the price band shall
be less than or equal to one hundred and twenty per cent of the
floor price and the floor price or the final price shall not be less
than the face value of the specified securities. (Regulation 30)

14.

Receipt of minimum promoters’ contribution and allotment of
their securities are in accordance with the requirements of

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Remarks

Regulation 32. (Note: the PCS may verify from the copy of the
resolution passed by the board of directors of the issuer for
allotting specified securities to promoters towards amount
received against promoters’ contribution, before opening of the
issue; and a certificate from a Chartered Accountant, before
opening of the issue, certifying that promoters’ contribution has
been received in accordance with these regulations, which
shall also contain the names and addresses of the promoters
who have contributed to the promoters’ contribution and the
amount paid by each of them towards such contribution)

15.

An issuer making a public issue of specified securities
providing for green shoe option for stabilising the post listing
price of its specified securities, may do so only after
shareholder approval in the General Meeting and satisfying
other relevant conditions as specified under Section 45. (Note:

The PCS may check copy of resolution passed in the general
meeting of shareholders and the agreement in between the
issuer and the stabilizing agent.)

16,

A report on activities under green shoe option stabilizing agent
are required to be reported to SEBI on daily basis and during
the stabilisation period and a final report to the SEBI in the
format specified in Schedule XII.

(Note: the PCS may verify the copies of such report for
compliance.)

17.

Whether the application money received has been utilized in
accordance with the section 40 of Companies Act, 2013.

18.

Whether the disclosures made in the red herring prospectus
while making an initial public offer are updated on an annual
basis by the issuer and shall be made publicly accessible.

19.

Check whether the outstanding subscription money is called
within twelve months from the date of allotment in the issue
and where the applicant has failed to pay the call money within
the twelve months, such shares has been forfeited.

20.

Whether the issuer has altered the terms (including the terms
of issue) of specified securities which and the same may
adversely affect the interests of the holders of that specified
securities, if so, the consent in writing of the holders of not less

148

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Remarks
than three-fourths of the specified securities of that class or
with the sanction of a special resolution passed at a meeting of
the holders of the specified securities of that class has been
obtained. This is only for holders of Convertible portion of the

PCDs. Hence applicable only if an issue of such an instrument
has been made.

(Note: The true copy of the resolution may be checked for
compliance of the same.)

21.

The issuer is required to appoint a compliance officer for
monitoring the compliance of securities laws and for redressal
of investor grievances.

22.

The lead merchant banker is required to submit post issue
reports to SEBI. (Initial report within 3 days from the closure of
the issue and final report within 15 days of date of finalisation
of basis of allotment.)

23.

The lead merchant banker is required to submit post issue
reports to SEBI. Initial report within 3 days from the closure of
the issue as specified in Part B of Schedule XVI and Final
report within 15 days of date of finalization of basis of allotment
or within fifteen days of refund of money in case of failure of
issue as specified in Part D of Schedule XVI.

24.

The post issue advertisement is issued within ten days from the
date of completion of the various activities in at least one

English national daily newspaper with wide circulation, one

Hindi national daily newspaper with wide circulation and one
regional language daily newspaper with wide circulation at the
place where registered office of the issuer is situated
containing all the details as specified.)

(Note: The PCS may check the copies of newspaper clippings
for compliance of the same.)

25.

The issue of debentures with an option to convert such
debentures into shares, wholly or partly, shall be approved by a
special resolution passed at a general meeting. (Note: The

PCS may check the e-form MGT. 14 filed with ROC for the
details of the issue)

26.

The issuer has created Debenture Redemption Reserve in
accordance with section 71 of Companies Act, 2013

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Remarks

27.

In case of secured debentures, the issuer has created charge
on the security.

(Note: The PCS may check the e-form CHG.9 for verifying the
same.)

28.

Where the value of non-convertible portion of partly convertible
debt instruments exceeds fifty lakhs the same may be rolled
over without change in interest rate only when 75% of holders
of convertible debentures have approved the rollover through a
resolution by postal ballot

(Note: The PCS may check MGT. 14 for the compliance of the
same.)

RIGHTS ISSUE

29.

Certified true copy of the resolution passed by the Board of

Directors for issue of securities under proposed rights issue/
approving the proposed rights issue.

30.

The stock exchange has been informed 2 working days prior to
the Board Meeting which proposes to consider a rights issue.

31.

Certified true copy of the resolution passed by the

Shareholders, if any;

• increase in the authorised share capital required) (special
resolution).

• for issue of securities under proposed rights issue

(Note: The PCS may check the copy of Form No. SH 7,

MGT14 filed with ROC

32.

A pre-issue advertisement for the rights issue has to be made
in accordance with the details specified in the regulation, at
least three days before the opening of the issue in at least one

English national daily newspaper with wide circulation, one

Hindi national daily newspaper with wide circulation and one
regional language daily newspaper with wide circulation at the
place where registered office of the issuer is situated

(Note: The PCS may check the copies of the newspaper
clippings for the compliance of the same.)

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Remarks

(Note: The PCS may check the E-form MGT.14 filed with ROC
for verification.)

33.

In case the company has issued convertible debt instruments,
it is to be ensured whether the issuer company has made
reservation of equity shares of the same class in favour of the
holders of such instruments proportion to the convertible part
thereof, before e opening a rights issue of equity shares. Check
whether the equity shares so reserved were issued at the time
of conversion of convertible debt instruments on the same
terms at which equity shares offered in rights issues were
offered.

(Note: The true copy of the resolution may be checked for
compliance of the same and also the returns filed on allotment
of the same to the debenture holders.)

34.

To check if 7 working days’ notice was given for Record Date.

To also check if all the directors at a duly convened meeting
had approved the Letter of Offer.

35.

The issuer is in compliance with the conditions for continuous
listing of equity shares as specified in the listing agreement
with the recognised stock exchange where the equity shares of
the issuer are listed.

36.

The promoters have complied with the SEBI (SAST)

Regulations, in case of taking in additional shares.

37.

Necessary disclosures have been made by the promoters
under the SEBI (SAST) and SEBI (PIT) Regulations, with Stock

Exchanges where the shares are listed/SEBI post the rights
issue.

38.

The company has complied with the provisions of Companies

Act 2013 (covered elsewhere in the guidance note).

Bonus Issue:

39

For the issue of bonus shares following points must be taken
into consideration as per section 63 of Companies Act, 2013
a. Whether the issuer company is authorised by its articles;
b. The company has on recommendation of the Board, been
authorised in the general meeting of the company;
c. it has not defaulted in payment of interest or principal in

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Sl. No.

Particulars

Remarks
respect of fixed deposits or debt securities issued by it;
d. it has not defaulted in respect of the payment of
statutory dues of the employees, such as, contribution to

Provident Fund, gratuity and bonus;
e. the partly paid-up shares, if any outstanding on the date of
allotment, are made fully paid-up;
f. The company which has once announced the decision of
its Board recommending a bonus issue, shall not
subsequently withdraw the same.

The bonus shares shall not be issued in lieu of dividend.

40.

A certificate from the Managing director/ Company Secretary
that the proposed bonus shares would be ranking pari-passu in
all respects including dividend with the existing equity shares of
the company should be checked. (Note: This certificate is
required as per the stock exchange norms. The certificate
requirement is not prescribed under SEBI (ICDR) Regulations,

2009 but there is a clause that the The shares issued in the
issue shall be pari-passu with the existing shares in all respects
including dividends.)

41.

SEBI (ICDR) Regulations, 2009 but there is a clause that the

The shares issued in the issue shall be pari-passu with the
existing shares in all respects including dividends.)

42.

To confirm that all the existing securities of the company were
fully paid-up and listed on the Exchange at the time of the
bonus issue.

43.

To check if the Bonus has been issued only out of free
reserves To check if the bonus is issued out of reserves built
out of the genuine profits or securities premium collected in
cash only and reserves created by revaluation of fixed assets
shall not be capitalised for the purpose of issuing bonus
shares.

44.

In case the company has issued convertible instruments, to
check if the company has made reservation of equity shares of
the same class in favour of the holders of outstanding
compulsorily convertible debt instruments if any, in proportion
to the convertible part thereof.

45.

A certified true copy of the acknowledgement of FCGPR form

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Sl. No.

Particulars

Remarks
has been submitted by the company to Reserve Bank of India
in respect of allotment of bonus shares to foreign
entities/shareholders within 30 days of issue of shares.

46.

Check whether the bonus issue was implemented within two
months from the date of the meeting of its board of directors
wherein the decision to announce the bonus issue was taken
subject to shareholders’ approval.

47.

In case of unlisted company the issuer company shall comply
with section 63 of the Companies Act, 2013 which has been
discussed earlier.

PREFERENTIAL ISSUE:

It may be noted that the provisions of this Part shall not apply where the preferential issue of
specified securities is made to the lenders pursuant to conversion of their debt, as part of a debt
restructuring scheme implemented in accordance with the guidelines specified by the Reserve

Bank of India, subject to the following conditions:

(a) the guidelines for determining the conversion price have been specified by the Reserve

Bank of India in accordance with which the conversion price shall be determined and which
shall be in compliance with the applicable provisions of the Companies Act, 2013;

(b) the conversion price shall be certified by two independent qualified valuers, and for this
purpose ‘valuer’ shall be a person who is registered under section 247 of the Companies

Act, 2013 and the relevant Rules framed thereunder:

Provided that till such date on which section 247 of the Companies Act, 2013 and the
relevant Rules come into force, valuer shall mean an independent merchant banker
registered with the Board or an independent chartered accountant in practice having a
minimum experience of ten years;

(c) specified securities so allotted shall be locked-in for a period of one year from the date of
their allotment:

Provided that for the purpose of transferring the control, the lenders may transfer the
specified securities allotted to them before completion of the lock-in period subject to
continuation of the lock-in on such securities for the remaining period, with the transferee;

(d) the lock-in of equity shares allotted pursuant to conversion of convertible securities issued
on preferential basis shall be reduced to the extent the convertible securities have already
been locked-in;

(e) the applicable provisions of the Companies Act, 2013 are complied with, including the
requirement of special resolution.

(f) The provisions of this Chapter shall not apply where the preferential issue, if any, of
specified securities is made to person(s) at the time of lenders selling their holding of
specified securities or enforcing change in ownership in favour of such person(s) pursuant

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GUIDANCE NOTE ON SECRETARIAL AUDIT
to a debt restructuring scheme implemented in accordance with the guidelines specified by
the Reserve Bank of India, subject to the conditions of Regulation 70(6) of these
regulations.

Checklist

S No.

Particulars

Remarks

1.

The listed issuer may make a preferential issue only when
special resolution has been passed by the shareholders of
the company. (Note: The PCS may check copy of e-form

MGT 14 filed with the ROC.)

2.

Check whether the additional disclosures as specified in
the regulations were also made in the explanatory
statement of the notice for the general meeting proposed
for passing special resolution.

3.

To prepared a private placement offer letter in Form No.

PAS 4 in Form GNL 4 in accordance with the Companies

Act, 2013 and the same has been addressed to the
proposed investors / allottees.

4.

To maintain a register of all the persons, to whom the

preferential offer is going to be made in accordance with

Form No. PAS 5 of the Companies Act, 2013.

5.

Check whether the Allotment pursuant to the special
resolution in case of preferential issue has been completed
within a period of fifteen days from the date of passing of
such resolution or the receipt of approval from the stock
exchange, whichever is later.

6.

Where allotment is :

I. for consideration other than cash check the following
documents

• Certified copy of valuation report

• Certified copy of Shareholders Agreements.

• Certified copy of approval letters from the
concerned Ministry and RBI if applicable.

II. pursuant to CDR Scheme/ Order of High Court/ NCLT/

NCLAT check the following document

• Certified copy of relevant scheme/ order

III. pursuant to conversion of loan of financial institutions
check the following document:

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

S No.

Particulars

Remarks

• Certified copy of the Loan Agreement executed by
the company.

Check if the consideration is paid in cash, it was received
from the respective allottee’s bank account.

7.

To check if the allottees have made necessary disclosures
under Regulation 29(1)/29(2) of the SEBI (SA ST)

Regulations,2011 and Regulation 7 of the SEBI (PIT)

Regulations, 2015 within the stipulated time to the stock
exchanges. To check if the preferential allotment attracts
the provisions of the SEBI (SAST) Regulations with regard
to the obligation to make an open offer.

8.

To check if the number of allottees pursuant to one
resolution does not exceed 50 and that the total numbers
of allottees in preferential allotments in a financial year do
not exceed 200.

9.

Check the copy of the confirmation submitted by the

Managing

Director/

Company

Secretary
of
the
issuercompany w.r.t. compliance with the regulations.

QUALIFIED INSTITUTIONAL PLACEMENT

1.

Check the copy of special resolution approving the
qualified institutional placement passed by its shareholders
and Form MGT 14 filed with ROC. To check if the
resolution specifically mentions that the allotment is

Qualified InstitutionalPlacement.

2.

Check that the minimum number of allottees for each
placement of eligible securities made under qualified
institutional placement is not less than:

• two, where the issue size is less than or equal to
two hundred and fifty crore rupees;

• five, where the issue size is greater than two
hundred and fifty crore rupees:

3.

Check the copy of special resolution for allotment with
respect to completion of allotment within a period of twelve
months from the date of passing of the resolution.

4.

Check whether the issuer company has complied with

Regulation 31 of the SEBI (LODR) Regulations, 2015 with
regard to filing of shareholding pattern.

155

GUIDANCE NOTE ON SECRETARIAL AUDIT

S No.

Particulars

Remarks

5.

To check if the Information Memorandum has been
privately circulated duly numbered to the prospective
investors.

6.

To check if return of allotment has been filed within the
stipulated time with the ROC.

7.

Check whether the placement document shall be serially
numbered and copies shall be circulated only to select
investors. (Regulation 84)

8.

Whether the qualified institutional placement has been
made at a price not less than the average of the weekly
high and low of the closing prices of the equity shares of
same class quoted on the Stock exchange within two
weeks preceding the relevant date. (Regulation 85)

9.

The aggregate of the proposed qualified institutions
placement
and
all
previous
qualified
institutions
placements made by the issuer in the same financial year
shall not exceed five times the networth of the issuer as
per the audited balance sheet of the previous financial
year. (Regulation 89)

E. Issue of Securities through Employee Stock Options

Compliance by an Unlisted Company

• A unlisted Company issuing securities to employees under employee stock option scheme
has to comply with the provisions of Section 62(1) (b ) read with Rule 12 of

Companies(Share Capital and Debentures) Rules 2014.

Compliance by a listed Company

• A listed Company has to comply with Securities and Exchange Board of India (Share Based

Employee Benefits) Regulations, 2014, the provisions of the Listing Regulations, read the
provisions of Section 62(1)(b) of the Companies Act, 2013 and rule 12 of Companies(Share

Capital and Debentures) Rules 2014.

Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014

(these regulations)

The Securities and Exchange Board of India (SEBI) on 28 October 2014 has notified new

Regulations called Securities and Exchange Board of India (Share Based Employee Benefits)

Regulations, 2014 which have replaced the erstwhile ESOP guidelines. The New Regulations are
effective from the date of notification of these regulations.

Repeal and Exceptions

(1) Securities and Exchange Board of India (Employee Stock Option Scheme and Employee

156

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Stock Purchase Scheme) Guidelines, 1999 are hereby repealed.

(2) Notwithstanding such repeal, –

(a) prohibition on acquiring securities from the secondary market as provided in SEBI
circular CIR/CFD/POLICYCELL/3/2014 dated June 27, 2014 shall continue till the
existing schemes are aligned with these regulations;

(b) all listed companies having existing schemes to which these regulations apply are
required to comply with these regulations in their entirety within one year of the same
coming into effect, subject to the following exceptions:

(i) trusts holding shares, for the purposes of implementing employee benefits
schemes of the company, beyond the permissible limits as provided under these
regulations, shall have a period of five years to bring down its holding in shares to
such limits;

(ii) trusts holding shares, for the purposes of implementing GEBS or RBS, which
exceed ten per cent. of the total value of the total assets of the trust(s) as provided
under these regulations, shall have a period of five years to bring down its holding
in shares to such limits;

(iii) for the purposes of sub-regulation (9) of regulation 3 and ensuring compliance with
the requirement of maintaining adequate public shareholding, those trusts holding
shares of the company which are shown either as ‘promoter’ or ‘public’

shareholding, shall be permitted to continue to be shown them as such for a
further period of only three years;

(iv) trustees of a trust may continue to vote in respect of shares held by such trust for a
period of three years, commencing from 28th of October, 2014.

Applicability of these regulations

The provisions of these regulations shall apply to any company whose shares are listed on a
recognised stock exchange in India, and has a scheme:

(i) for direct or indirect benefit of employees; and

(ii) involving dealing in or subscribing to or purchasing securities of the company, directly or
indirectly; and

(iii) satisfying, directly or indirectly, any one of the following conditions:

(a) the scheme is set up by the company or any other company in its group;

(b) the scheme is funded or guaranteed by the company or any other company in its
group;

(c) the scheme is controlled or managed by the company or any other company in its
group.

Types of schemes covered under these regulations

The provisions of these regulations shall apply to following, -

(i) employee stock option schemes;

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GUIDANCE NOTE ON SECRETARIAL AUDIT

(ii) employee stock purchase schemes;

(iii) stock appreciation rights schemes;

(iv) general employee benefits schemes; and

(v) retirement benefit schemes.

Treatment of Preferential allotment to employees

• Nothing in these regulations shall apply to shares issued to employees in compliance with
the provisions pertaining to preferential allotment as specified in the Securities and

Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,

2009.

• The provisions pertaining to preferential allotment as specified in the Securities and

Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009
shall not be applicable in case of a company issuing new shares in pursuance and
compliance of these regulations.

Section 62(1) (b) of the Companies Act, 2013, Securities and Exchange Board of India (Share

Based Employee Benefits) Regulations, 2014 and the listing agreement are applicable for listed
companies while private and unlisted public companies are required to follow the articles of
association, the Companies Act, 2013 and the rules made thereunder.

Checklist for compliances under Securities and Exchange Board of India (Share Based

Employee Benefits) Regulations, 2014 and Companies Act 2013

S No. Particulars

Compliance

Remarks

1.

Whether the company has used the direct route or

through irrevocable trust route for issue of

Employees share Based Benefit Schemes, including

ESOPs?

2.

Whether the implementation through trust was

decided upfront at the time of taking approval of the
shareholders for setting up of the schemes.

3.

In case the scheme involves secondary acquisition

or gift or both, whether the scheme is mandatorily
implemented through trust.

4.

Whether a director, KMP, promoter, holding/

subsidiary/ associate companies, any relative of
director/KMP/ promoter, any person beneficially
holder ten per cent or more of the paid up capital of
the company is not appointed as trustee.

5

Whether approval of shareholders is obtained

authorising the trust to implement the scheme.

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

S No. Particulars

Compliance

Remarks

6.

Whether the trust deals only in delivery based

transactions and not in derivatives.

7.

Whether secondary acquisition in a financial year by

a trust does not exceed two per cent of the paid up
capital as at the end of the previous financial year.

8.

Whether the total number of shares under

secondary acquisition held by the trust is within the
prescribed limits.

9.

Whether the trust holds shares acquired through

secondary acquisition for a minimum period of six
months, subject to exceptions.

10

Whether the off market transfers by the trust has

been made only under circumstances specified in
these regulations.

11.

Whether the trust sells shares in the secondary

market only under the circumstances specified
under these regulations.

12.

Whether the company has constituted compensation

committee for administration of the scheme.

13.

Whether the employee is eligible to participate in the

scheme. i.e. the employees are permanent
employees of the company or its subsidiary or
holding
company
either
in

India
or
abroad.Independent Directors and Promoters shall
not be allowed to participate in the schemes.

14.

Whether the scheme is approved by the

shareholders through special resolution.

15.

Check whether the explanatory statement to the

special resolution complies with Rule 12 of the

Companies (Share Capital and Debentures) Rules,

2014.

16.

Check whether other procedural aspects as

prescribed under Rule 12 of Companies (Share

Capital and Debentures) Rules 2014.

17.

Whether the specified disclosures as prescribed

under Rule 12 of Companies (Share Capital and

159

GUIDANCE NOTE ON SECRETARIAL AUDIT

S No. Particulars

Compliance

Remarks

Debentures) Rules 2014 has been made in the

Board’s Report.

18.

Whether the company has complied with prescribed

norms for varying the terms of the schemes.

19.

Whether unlisted companies going for IPO, complies

with the provisions prescribed with regard to Pre-

IPO scheme.

20.

Whether the board of directors place auditor’s

certificate, certifying compliance under these
regulations, before the shareholders in annual
general meeting.

21.

Whether the trust deed specifies the minimum

provisions as specified in the SEBI circular dated

16.06.2015. [Regulation ( 3)]

22.

Whether the trust has made disclosures and

complied with the other requirements applicable to
insiders or promoters under the SEBI (Prohibition of

Insider

Trading)

Regulations,

1992
or
any
modification or re-enactment thereto. (Regulation 3)

23.

Whether the composition of the Compensation

Committee is as specified in the regulations.

(Regulation 5)

24.

Whether the terms and conditions of the scheme, as

formulated by the compensation committee in
context of the regulation 5(3) includes the provisions
as specified by SEBI. (Regulation 5)

25.

Whether the explanatory statement has the contents

as specified in the circular dated 16.06.2015.

(Regulation 6)

26

Whether the notice for passing special resolution for

variation of terms of the schemes discloses full
details of the variation, the rationale therefore, and
the details of the employees who are beneficiaries of
such variation. (Regulation 7)

27

Whether the company has undergone repricing of

the options, SAR or shares. (Regulation 7)

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

S No. Particulars

Compliance

Remarks

28.

In case of winding up of the schemes being

implemented by a company through trust, whether
the excess monies or shares remaining with the
trust after meeting all the obligations, if any, has
been utilised for repayment of loan or by way of
distribution to employees as recommended by the
compensation committee (Regulation 8)

29.

Option, SAR or any other benefit granted to an

employee under the regulations shall not be
transferable to any person. (Regulation 9)

30.

Whether any person other than the employee to

whom the option, SAR or other benefit is granted is
entitled to the benefit arising out of such option,

SAR, benefit etc. (Regulation 9)

( Note: In case of ESOS or SAR, under cashless
exercise, the company may itself fund or permit the
empaneled stock brokers to fund the payment of
exercise price which shall be adjusted against the
sale proceeds of some or all the shares, subject to
the provisions of the applicable law or regulations.)

31.

Whether the option, SAR, or any other benefit

granted to the employee has been pledged,
hypothecated, mortgaged or otherwise alienated in
any other manner. (Regulation 9)

32.

Whether any event of death of an employee has

occurred? (Regulation 9)(Note: In the event of death
of the employee while in employment, all the
options, SAR or any other benefit granted to him
under a scheme till such date shall vest in the legal
heirs or nominees of the deceased employee.

33.

Whether any employee suffers a permanent

incapacity while in employment? (Regulation 9)

(Note: In case the employee suffers a permanent
incapacity while in employment, all the options, SAR
or any other benefit granted to him under a scheme
as on the date of permanent incapacitation, shall
vest in him on that day.)

161

GUIDANCE NOTE ON SECRETARIAL AUDIT

S No. Particulars

Compliance

Remarks

34.

Whether any new issue of shares is made under any

scheme? (Regulation 10)

If yes, whether the shares so issued have be listed
immediately in any recognised stock exchange
where the existing shares are listed, subject to the
following conditions: (Regulation 10)

a. Scheme is in compliance with these regulations
b. A statement as specified by SEBI in this
regard, is filed and the company has obtained
an in-principle approval from the stock
exchanges

35.

Whether the information required in the statement to

be filed with Stock Exchange(s) is as per the circular

CIR/CFD/ POLICY CELL/2/2015 dated 16.06.2016.

(Regulation 10)

When an exercise is made, whether the company
has notified the concerned stock exchange as per
the statement as specified by SEBI in this regard.

(Regulation 10)

36.

Whether the shares arising after the initial public

offering (“IPO”) of an unlisted company, out of
options or SAR granted under any scheme prior to
its IPO to the employees has been listed
immediately upon exercise in all the recognised
stock exchanges where the shares of the company
are listed subject to compliance with the SEBI (Issue
of

Capital
and

Disclosure

Requirements)

Regulations, 2009 and where applicable, regulation

12(1). (Regulation 11)

37

Whether the company has appointed a registered

merchant banker for the implementation of schemes
in accordance with clause (b) of regulation 10.

(Regulation 12)

38.

In case the company has passed a resolution for the

schemes under these regulations, whether the
board of directors ,at each annual general meeting
have placed before the shareholders a certificate
from the auditors of the company that the scheme(s)

has been implemented in accordance with these

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

S No. Particulars

Compliance

Remarks
regulations and in accordance with the resolution of
the company in the general meeting. (Regulation 13)

39.

In addition to the information that a company is

required to disclose, in relation to employee benefits
under the Companies Act, 2013, whether the board
of directors of such a company have disclosed the
details of the scheme(s) being implemented, as
specified by SEBI in this regard. (Regulation 14)

Compliance with respect to specific schemes

Employee Stock Option Scheme

S No.

Particulars

Remarks

1.

Whether the minimum vesting period is one year from the date
of grant of options.

2.

Whether the disclosures specified have been made to
prospective option grantees.

3.

Whether employee does not receive dividend or vote till the
exercise of option.

4.

Whether the disclosure document is with reference to the
circular dated 16.06.2015. (Regulation 16)

5.

Whether the company has specified the lock-in period for the
shares issued pursuant to exercise of option. (Regulation 18)

Employee Stock Purchase Scheme

1.

Whether shares issued under ESPS is locked in for a minimum
period of one year from the date of allotment

2.

Whether ESPS forming part of public issue are issued at the
same price as in the public issue?

3.

Whether ESPS scheme contains the details of the manner in
which the scheme will be implemented and operated

Stock Appreciation Rights Scheme(SARS)

1.

Whether SARS contains the details of the manner of
implementation

2.

Whether specified disclosures has been made to the
prospective SAR grantees

3.

Whether the disclosure document is with reference to the
circular dated 16.06.2015. (Regulation 23)

163

GUIDANCE NOTE ON SECRETARIAL AUDIT

S No.

Particulars

Remarks

4.

Whether the minimum vesting period is of one year from the
date of grant of SAR. (Regulation 24)

5.

Whether the employee has the right to receive dividend or to
vote or in any manner enjoy the benefits of a shareholder in
respect of SAR granted to him. (Regulation 25)

General Employee Benefits Scheme(GEBS)

1.

Whether GEBS contains the details of the manner of
implementation

2.

Whether, the shares of the company or shares of its listed
holding company does not exceed ten per cent of the book
value or market value or fair value of the total assets of the
scheme, whichever is lower, as appearing in its latest balance
sheet for the purposes of GEBS, at any point of time.

RETIREMENT BENEFIT SCHEME (RBS)

Whether the retirement benefit scheme contains the details of the benefits under the scheme and
the manner in which the scheme shall be implemented and operated.

Sl. No.

Particulars

Compliance

Remarks

1.

Whether the shares of the company or a share of

its listed holding company does not exceed ten
per cent of the book value or market value or fair
value of the total assets of the scheme, whichever
is lower, as appearing in its latest balance sheet
for the purposes of RBS at any point of time?

2.

Form No. PAS. 3 as per Companies (Prospectus

and Allotment of Securities) Rules, 2014, Form

No. SH.7 as per Companies (Share Capital and

Debentures) Rules, 2014 and Form No. MGT.14
as
per

Companies

(Management
and

Administration) Rules, 2014, as applicable, has
been filed with ROC.

3.

Check if listing approval by stock exchange(s)

was granted for shares arising after IPO out of
options granted under a scheme prior to the IPO,
upon exercise subject to compliance with SEBI

(ICDR) Regulations,2009.

164

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance

Remarks

4.

Check the copy of the in principle approval

granted by the stock exchange under) Regulation

28 of the SEBI (LODR) Regulations/Clause 24(a)

of the listing agreement.

5.

Check compliance with Relevant clauses of listing

agreement / Listing Regulations.

Checked by:

Reviewed by:

Date:

Date:

SEBI (Issue and Listing of Debt Securities) Regulations, 2008

These regulations are applicable to:

(a) public issue of debt securities and

(b) listing of debt securities issued through public issue or on private placement basis on a
recognized stock exchange.

“Debt Securities” means non-convertible debt securities which create or acknowledge
indebtedness and includes debentures, bonds and such other securities of a body corporate or a

Trust registered with SEBI as a Real Estate Investment Trust or an Infrastructure Investment Trust,
or any statutory body constituted by virtue of a legislation, whether constituting a charge on the
assets of the body corporate or not, but excludes bonds issued by Government or such other
bodies as may be specified by SEBI, security receipts and securitized debt instruments;

IA. Checklist for compliances under SEBI (Issue and Listing of Debt Securities)

Regulations, 2008

For Non-Convertible Debt securities

Sl. No.

Particulars

Compliance

Remarks

1.

There is no restraining, prohibiting or debarring

order against the company or any of its
promoters by SEBI or any other regulatory
authority.

(Note: PCS may mention the details of the order,
if any, in the audit report as a qualification).

2.

The company has appointed one or more

merchant bankers in case of a public issue and a
debenture trustee registered with SEBI.

3.

The company has obtained credit rating from at

least one rating agency registered with SEBI and

165

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance

Remarks
disclosed in offer document.

(Note: The PCS may check the copy of the credit
rating certificate for verifying the same)

4.

The company has obtained in-principle approval

from the recognized stock exchange to list its
non-convertible debt securities.

5.

The company has entered into a tripartite

agreement with the RTA and both the
depositories.

(Note: The PCS may check the agreement for
verifying the same.)

6.

The Debenture Trust Deed has been executed in

Form No. SH.12 as per Companies (Share

Capital and Debentures) Rules, 2014, by the
company in favour of the debenture trustees
within three months of closure of the issue of
offer.

7.

Debenture Redemption Reserve has been

created as provided in sub-rule (7) of Rule 18 of

Companies (Share Capital and Debentures)

Rules, 2014.

8.

The final offer document has been filled with the

Registrar of Companies, SEBI and designated
stock exchange.

9.

Whether the issuer filing a shelf prospectus, has

filed a copy of an information memorandum with
the recognized stock exchanges and SEBI,
immediately on filing the same with the Registrar.

(Regulation 6A)

10.

The information memorandum has contained the

disclosures as specified in Companies Act, 1956
or Companies Act, 2013, whichever is applicable
and rules made thereunder and has also included
disclosures regarding summary term sheet,
material updations including revisions in ratings,
if any along with the rating rationale and financial
ratios specified in Schedule I of SEBI (Issue and

166

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance

Remarks

Listing of Debt Securities) indicating the pre and
post issue change.

11.

In case the 75% of minimum subscription of the

base issue size has not been received by the
company, the entire money has been refunded
within 12 days from the date of the closure of the
issue.

(Note: The PCS may check from the statement
of escrow account which is opened for the
purpose of debt issue)

12.

In case there has been a delay in the aforesaid

refund,
the
company
has
returned
the
subscription amount along with interest at the
rate of 15% per annum for the delayed period.

13.

The company has retained the over subscription

money up to the maximum of 100% of Base
issue size or any lower limit as specified in the
offer document.

14.

If the company has filed shelf prospectus, then it

has retained over subscription up to the rated size,
as specified in their shelf prospectus. (It is to be
noted that certain entities are required to file shelf
prospectus as specified in Regulation 6A)

15.

The company has created a charge or security, if

any, in respect of secured debt securities has
been disclosed in the offer document along with
its implication e-form CHG-9 has been filed with
the ROC regarding creation of charge on the debt
securities.

16.

In case of rollover of debt securities, it has been

approved by the holder of the debt securities by a
passing a special resolution and e- form MGT –

14 has been filed with ROC for such purpose.

Whether prior notice of 21 days was given
containing the disclosure regarding the credit
rating so obtained?

17.

In case the holders of the debt securities have

167

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance

Remarks
not given their positive consent to the roll over,
the company has redeemed the debt securities of
all the debt securities holders.

18.

The Company has obtained final listing and

trading approval from the stock exchanges where
it proposes to list its securities.

19.

The company has passed resolution by the

Board of Directors for allotment of securities
specifically making a mention of total number of
securities allotted / allocated by it.

20.

Allotment is completed within 12 days of the

closure of the issue and Form No. PAS 3
regarding allotment of debentures as per

Companies (Prospectus and Allotment of

Securities)

Rules, 2014 is filed with the ROC within 30 days
of allotment.

21.

Letter from Registrars and lead manager

confirming dispatch of share / debenture/ warrant
certificates, allotment advice, refund orders,
underwriting commission, uploading of electronic
credit of Securities, uploading of ECS/NEFT/

RTGS credits and brokerage warrants.

22.

Certificate from the Registrar reconciling the total

securities allotted with the total securities credited
with the depositories, and securities that have
failed to be credited.

[Note: The PCS may check the copy of the basis
of allotment.]

In case credit rating has been obtained from
more than one agencies, whether all the ratings,
including the unaccepted ratings have been
disclosed in the offer document. (Regulation 4)

23.

Whether debt securities have been issued for

providing loan to or acquisition of shares of any
person who is part of the same group or who is
under the same management. (Regulation 4)

24.

Whether any default has been made in payment

168

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance

Remarks
of interest on debt securities or redemption
thereof or in creation of security as per the terms
of the issue of debt securities. (Regulation 16)

25.

If dividend has been paid, whether prior approval

of debenture trustee has been obtained.

(Regulation 16)

26.

Whether the offer document contains all the

material disclosures which are necessary for the
subscribers of the debt securities to take an
informed investment decision. (Regulation 5)

27.

Whether the draft offer document has been filed

through the lead merchant banker. (Regulation 6)

28.

Whether the lead merchant banker, prior to filing

of the offer document with the Registrar of

Companies has, furnish to SEBI a due diligence
certificate as per Schedule II of the regulations.

(Regulation 6)

29

Whether the issuer has made an advertisement

in an national daily with wide circulation, on or
before the issue opening date? (Regulation 8)

30.

Whether the advertisement along with other

things contains the disclosures as per Schedule

IV and is in compliance with other requirements
of Regulation 8?

31.

Whether the debt securities have been redeemed

in terms of the offer document. (Regulation 18)

32.

Where any right to recall or redeem prior to

maturity is reserved or provided whether
provisions of Regulation 17A are complied.

33.

Where any security is created in respect of

secured debt securities, whether it is disclosed in
the offer document along with its implications.

(Regulation 17)

34

Whether issue proceeds were kept in an escrow

account until the documents for creation of

169

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance

Remarks
security as stated in the offer document, are
executed. (Regulation 17)

35

Where issuer debt securities to the public through

the on-line system of the designated stock
exchange have complied with the relevant
applicable requirements specified by SEBI.

(Regulation 10)

36

Whether every application form issued by the

issuer is accompanied by a copy of the abridged
prospectus. (Regulation 9)

Checked by:

Reviewed by:

Date:

Date:

Note:

When an issuer making public issue of debt securities may recall such securities prior to maturity
date at his option (call) or provide such right of redemption prior to maturity date (put)to all the
investors or only to retail investors, at their option, subject conditions specified in Regulation 17A.

When an issuer carries out consolidation and re-issuance of its debt securities, the conditions
specified in regulation 20A has been complied with.

An issuer making a private placement of debt securities and seeking listing thereof on a recognised
stock exchange may file a Shelf Disclosure Document containing disclosures as provided in

Schedule I. In such a case conditions specified in Regulation 21 A has been complied with.

IIA. Checklist for issuance of Non-Convertible Debentures on private placement basis under

SEBI (Issue and Listing of Debt Securities) Regulations, 2008

“Private placement”* means any offer or invitation to subscribe or issue of securities to a select
group of persons by a company ( other than by way of public offer) through private placement offer
cum application and which satisfies the conditions specified in section 42 of the Companies Act,

2013.

A company issuing NCDs on private placement basis has to comply with Section 42 and Rule 14 of
the companies (Prospectus and Allotment of securities) Rules, 2014 and RBI guidelines issued for

NBFCs, in addition to SEBI (Issue and Listing of Debt Securities) Regulations, 2008. The
companies Act, 2013 provisions are being covered elasewhere.

Sl. No.

Particulars

Compliance

Remarks

1.

The company has passed a resolution for

issuance of NCDs in its board meeting. (Note:

170

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance

Remarks

The PCS may check the copy of the resolution
passed.)

2.

The company has appointed a debenture

trustee and Registrar and share Transfer

Agents.

3.

The
company
has
executed
tripartite

agreement with the RTA and both the

Depositories for issuance of NCDs in the
demat form.

4.

The company has obtained One- time

registration for online complaint redressal
system-SCORES with SEBI.

5.

The company has obtained credit rating from

at least one credit rating agency registered
with SEBI.

6.

In case of revision in rating, during periodical

review by the credit rating agency, the same
has been intimated to the stock exchanges
where the debt securities are listed, the
investors and the perspective investors.

7.

The company has obtained final listing

approval from the Stock Exchange to list its

Debt securities.

8.

The company has made disclosures in a

disclosure
document
as
specified
as
scheduled I of these regulations and the same
has been disclosed on the website of the

Stock Exchange where such securities are
proposed to be listed.

9.

The relevant documents have been submitted

to the trustee for security creation.

10.

The company has complied with the

conditions relating to the issue of International

Securities Identification Number as may be
specified by SEBI (Regulation 20B)

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance

Remarks

11.

A press release has been issued for

disclosing the information to the investors and
the general public in case of any of the
following events by the Debenture Trustee:

a) default by issuers to pay interest on
debt securities or redemption amount;
b) failure to create a change on the
assets;
c) revision of rating assigned to the debt
securities; (Note : The PCS may check
the copy of the press release)

12.

The information as required under point 10

above has also been placed on the websites,
of the debenture trustee, the company and the
stock exchanges.

13.

The company, the debenture trustee and

stock exchange has disseminated all the
information and reports on debt securities
including compliance reports filed by the
issuers and the debenture trustee regarding
the debt securities to the investor and the
general public by placing them on their
websites.

14.

The company has filed the following e- forms

with the Registrar of Companies:

i. MGT-14 with respect to the Board
resolution passed for issuance of NCDs on
private placement basis.

ii. PAS -3 for allotment of debentures
iii. PAS – 4 with respect to private placement
offer letter
iv. PAS-5 with respect to complete record of
placement offer.

v. CHG-9 with respect to creation & charge
on security, if any.

15.

The company has complied with part B of the

debt listing agreement.

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance

Remarks

(Note: The PCS may check the copy of
information memorandum filed with the stock
exchange for complete verification of each
particular information and default, if any, made
by the company.

H. SEBI (Registrar to an Issue and Share Transfer Agents) Regulations, 1993

All the work related to share registry in terms of both physical and electronic is maintained at a
single point i.e. either in-house by the company or by a SEBI registered R & T Agent. The
registrars and share transfer agents (RSTA) are required to:

• maintain records of all the shares dematerialized, rematerialized and details of all securities
declared to be eligible for dematerialization in the depositories and ensure that
dematerialization of shares shall be confirmed/created only after an in-principle approval of
the stock exchange/s where the shares are listed and the admission of the said share with
the depositories have been granted.

Checklist for compliances under SEBI (Registrar to an Issue and Share Transfer Agents)

Regulations, 1993

Sl. No. Particulars

Compliance

Remarks

1.

The company has appointed an RTA in

accordance with SEBI regulations, or is handling
the share Transfer in-house. In case the number
of shareholders are more than 1,00,000 in
number the in house facility has registered itself
as a Share Transfer Agent with SEBI

Checked by:

Reviewed by:

Date:

Date

I. SEBI (Delisting of Equity Shares) Regulations, 2009

Delisting of securities means permanent removal of securities of a listed company from a stock
exchange. Delisting can be voluntary or compulsory. In voluntary delisting, a listed company
decides on its own to permanently remove its securities from a stock exchange by complying with

SEBI (Delisting of Equity Shares) Regulations, 2009. Compulsory delisting refers to permanent
removal of securities of a listed company from a stock exchange as a penalizing measure at the
behest of the stock exchange for not making submission / compliance with various requirements
set out in the listing agreement within the time frame prescribed.

Voluntary Delisting can be again of two types (a) with exit opportunity- In this case the equity
shares would not be listed on any recognized stock exchange having nationwide trading terminals
after the proposed delisting (b) where no exit opportunity is required- In this case the equity shares
would remain listed on any recognized stock exchange which has nationwide trading terminals

173

GUIDANCE NOTE ON SECRETARIAL AUDIT
after the proposed delisting. In this regard, a PCS has to first check whether the company has
used the exit opportunity method or no exit opportunity method under voluntary delisting. A
company desirous of delisting its securities has to comply with the SEBI (Delisting of Equity

Shares) Regulations, 2009.

The Regulations shall not apply to securities listed without making public issue on the institutional
trading platform of recognised stock exchanges.

Note: PCS may visit the website of stock exchanges, for example, NSE and BSE to check whether
a company has been delisted or not. The stock exchange maintains a separate section where the
name of the companies which are delisted from their stock exchange, is displayed.

Checklist for compliances under SEBI (Delisting of Equity Shares) Regulations, 2009

Sl. No.

Particulars

Compliance Remarks

I. Compulsory delisting

1.

Check the reasons for which action has been taken by

the recognized stock exchange for compulsory delisting.

In case there is compulsory delisting, the company/
whole time directors/ its promoters/ companies which are
promoted by any of them has not accessed the securities
market directly or indirectly or sought listing for any
equity shares for a period of 10 years from the date of
such delisting.

II. Voluntary delisting - where no exit opportunity is required

2.

Submission of the resolution approving the delisting

scheme as passed by the Board of Directors of the

Company, in compliance with Regulation 7(1) (a) to
stock exchange.

3.

The company has given public notice of proposed

delisting in at least one English national daily and one

Hindi national daily with wide circulation and one regional
newspaper of the region where the concerned
recognised stock exchange is located.

( Note: The PCSmay check the copies of newspaper
clippings)

4.

The public notice contains:

(i) the name of the recognized stock exchanges from
which the equity shares of the company are
intended to be delisted.

(ii) The reasons for such delisting.

(iii) The fact of continuation of listing of equity shares
on recognized stock exchanges having nationwide
trading terminals.

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance Remarks

5.

An application has been made to the concerned

recognized stock exchange for delisting of its equity
shares.

6.

The application has been disposed of within a period not

exceeding 30 days from the date of receipt of completed
application.

7.

The company has disclosed the fact of delisting in the

first annual report of the company prepared after such
delisting.

8.

Check the conditions for delisting.

III. Voluntary delisting - where exit opportunity is given

9.

The application for delisting of equity shares was made

to the concerned stock exchange.

Certified copy of the resolution passed by the Board of

Directors approving(Prior approval) the delisting scheme
is in compliance with Regulation 8 (1) (a), and has been
submitted to stock exchange. Before granting prior
approval the board of directors have complied with
conditions relating to disclosures, appointment of
merchant banker ’s etc. specified in regulation 8.

10

The company has intimated the Stock exchange

regarding the outcome of the Board Meeting.

11.

The company has appointed merchant bankers subject

to conditions as specified.

12.

Prior approval of members has been obtained by postal

ballot for the delisting process with at least two third
majorities.

13.

Prior approval of members has been obtained by postal

ballot for the delisting process only if the votes cast by
public shareholders in favour of the proposal amount to
at least two times the number of votes cast by public
shareholders against it.

14.

Submission of application to stock exchange for in-

principle approval for delisting of equity shares along
with the copy of the audit report as required under
regulation 55A of SEBI (Depositories and Participants)

Regulations, 2009.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance Remarks

15.

The in-principle approval for delisting has been received

from the stock exchange. (The application shall be
disposed off by the stock exchange within a period not
exceeding five working days from the date of receipt of
application)

16.

A public announcement has been made in one English

national daily with wide circulation, one Hindi national
daily with wide circulation and one regional language
newspaper of the region regarding the delisting proposal,
either by promoter company or acquirer, within one
working day from the date of receipt of principal
approval.

17.

The company has disclosed all the material information

in the public announcement including the information
specified in Schedule I of the Regulations. (Note: Refer

Schedule I)

18.

The public announcement is signed and dated by the

promoters who are making the delisting offer. Where the
promoter is a company, the public announcement has
been dated and signed on behalf of the Board of
directors of the company by its manager or secretary, if
any, and by not less than two directors of the company,
one of whom shall be a managing director where there is
one.

19.

The company has complied with the conditions relating

to letter of offer, bidding requirements etc. as specified in
regulation 12 and 13 respectively.

20.

Before making the public announcement the provisions

related to escrow account contained in regulation 11
have been complied with.

21

The public announcement was made within five working

days of the closure of the offer regarding:

(i) Success of the offer under regulation 17.

(ii) Failure of the offer under regulation 19.

(iii)

Rejection under regulation 16 of the final price
discovered under Schedule II by the promoters.

22.

Regulation 20 regarding payment of consideration on

success of the offer and return of equity shares have
been complied with.

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance Remarks

23.

The final application has been made to the concerned

stock exchange(s) for delisting of equity shares.

24.

Check the order of the recognized stock exchange

granted to the company for delisting.

25.

In case the number of the paid up capital is not

exceeding Rs.10 crores and the net worth is not
exceeding Rs.25 crores, whether the company has
followed the procedure for small companies.

26.

In the procedure for small companies is followed,

whether the company has written to the public
shareholders and 90% of them have agreed to delist the
company or remain shareholders of a delisted entity.

27.

Whether the promoter has provided an exit opportunity,

accepted the price and paid the consideration.

28.

Whether application has been made for final approval for

the delisting within 1 year of the resolution.

29.

The company has complied with the conditions relating

to offer price as specified in regulation 15 respectively

30.

The company has complied with the conditions relating

to Minimum number of equity shares to be acquired as
specified in regulation 17 respectively.

31.

Check whether the payment of consideration for shares

accepted under sub-regulation (1) of regulation 21 made
out of the balance amount lying in the escrow account.

32.

If a company delist its equity shares from all the

recognized stock exchanges where they are listed or
from the only recognized stock exchange where they are
listed check whether all public shareholders holding
equity shares of the class which are sought to be
delisted are given an exit opportunity in accordance with

Chapter IV

Checked by:

Reviewed by:

Date:

Date:

SEBI (Buyback of Securities) Regulations, 1998

Buy-back of shares means the purchase by the company of its own shares. Buyback of equity
shares is an important mode of capital restructuring. It is a corporate financial strategy which

177

GUIDANCE NOTE ON SECRETARIAL AUDIT
involves capital restructuring and prevalent globally with the underlying objectives of increasing
earnings per share, averting hostile takeovers, improving returns to the stakeholders and realigning
the capital structure. Buy Back of securities can be by listed companies and private and unlisted
public companies.

Buy-back of securities by a listed company

Buy-back of Securities by listed Companies is governed by SEBI (Buy-back of Securities)

Regulations, 1998, the Companies Act, 2013 and the rules made thereunder. A listed company
may buy-back its shares or other specified securities by any one of the following methods: –

(a) from the existing security-holders on a proportionate basis through the tender offer;

(b) from the open market through –

(i) book-building process,

(ii) stock exchange;

(c ) from odd-lot holders.

Provided that no offer of buy-back for fifteen per cent or more of the paid up capital and free
reserves of the company shall be made from the open market.

Buy-back of Securities by a private and unlisted public company

Buy- back of its own securities by a private and unlisted public company is governed by the

Companies Act, 2013 and the rules made thereunder. MCA has notified rules under the

Companies Act, 2013. For buy-back of securities, provisions of Chapter IV of Companies Act, 2013
consisting of Sections 68, 69 and 70 and Rule 17 of Companies (Share Capital and Debentures)

Rules, 2014 will be applicable.

Checklist for compliance requirement under SEBI (Buyback of Securities) Regulations, 1998
and the Companies Act, 2013

Buyback of Securities by a listed company

Sl. No.

Particulars

Compliance

Remarks

1.

The method used for buy-back of securities is in

compliance with regulation 4.

2.

The buy-back of securities is authorized by the

articles of association and if not, they were
amended and special resolution passed for the
amendment is filed with the stock exchange and

ROC.

3.

Company has filed Form No.MGT.14 as per

Companies (Management and Administration)

Rules, 2014 with the ROC in respect of the special
resolution or Board Resolution.

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance

Remarks

4.

In case of buy-back where the first proviso of

Section 68(2) (b) of Companies Act, 2013 is
applicable, board resolution has been passed
approving the buy-back and the resolution has
been filed with the stock exchange and SEBI.

5.

The company has filed a letter of offer in Form No.

SH.8 as per Companies (Share Capital and

Debentures) Rules, 2014 with fee with ROC before
the buy-back of securities. Further, such letter of
offer has been dated and signed on behalf of the

Board of Directors of the company, by not less
than two directors, one of whom shall be the
managing director, where there is one.

Whether Form SH 9 has been filed for the
declaration of Insolvency.

6.

The explanatory statement has been annexed to

the notice of the general meeting pursuant to
section 102 of the Companies Act, 2013 and
contains the disclosures as specified in Part A of

Schedule II of these regulations.

(Note: Refer Part A of Schedule II )

7.

The public announcement contains all the material

disclosures required under Schedule II of these
regulations. Further, the announcement has been
made in at least one English national daily, one

Hindi national daily and a regional language daily
all with wide circulation at the place where the
registered office of the company is situated within

2 Working days of passing of special resolution.

8.

In case of buy-back through stock exchanges, the

public announcement contains details of the
brokers and stock exchanges through which the
buy-back of shares or other specified securities
would be made. The acquirer or promoter has
facilitated tendering of shares by the shareholders
and settlement of the same through the stock
exchange mechanism specified by SEBI.

9.

In case of buy-back through book building process,

the public announcement contains the detailed

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance

Remarks
methodology of the book-building process, the
manner of acceptance, the format of acceptance to
be sent by the security-holders pursuant to the
public announcement and the details of bidding
centres.

10.

The soft copy of public announcement has been

filed with SEBI through the merchant banker.

(Note: The company shall within five working days
of the public announcement filed with SEBI a
draft-letter of offer along with soft copy, containing
disclosures as specified in Schedule III through a
merchant banker who is not associated with the
company.)

11.

Buy-back has been made on a stock exchange

having nation-wide trading terminals.

12.

In case of buy-back through book building process,

the book- building process has been made through
an electronically linked transparent facility.

13.

The company has filed with SEBI the declaration

of solvency under these regulations pursuant to

Section 68 (6) of the Companies Act, 2013 and
with ROC in Form No. SH.9 as per Companies

(Share Capital and Debentures) Rules, 2014.

14.

The declaration of solvency is signed and verified

by at least two directors, one of whom is the
managing director of the company, if any and
verified by an affidavit.

15.

The company maintains a record or register of

security certificates which have been cancelled
and destroyed in Form No. SH-10 as per

Companies (Share Capital and Debentures) Rules,

2014.

16.

The company has opened an escrow account and

special
account
as
required
under
these

Regulations.

17.

The certificate that the securities bought back have

been extinguished within seven days of the last

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Particulars

Compliance

Remarks
date of completion of buy–back is duly certified
and verified by–

(i) the registrar and where there is no registrar,
by the merchant banker;

(ii) two directors of the company one of whom
shall be a managing director where there is
one;

(iii) the statutory auditor of the company.

18.

The certificate of extinguishment has been filed

with SEBI and the stock exchange on a monthly
basis by the seventh day of the month succeeding
the month in which the securities certificates are
extinguished and destroyed.

19.

The company has filed with SEBI, a return

containing such particulars relating to buy-back of
securities within 30 days of completion of buy-back
and with the ROC in Form No. SH.11 as per

Companies (Share Capital and Debentures) Rules,

2014.

20.

Return filed with ROC in Form No. SH.11 include

certificate of compliance in Form No. SH.15 signed
by two directors of the company including the
managing director, if any, certifying that buy-back
of securities has been made in compliance with
the provisions of the Act and the rulesmade
thereunder.

21.

Whether any buy back offer has been made within

one year of the closure of previous buyback offer?

(Section 68)

22.

Whether shares were fully paid up at the time of

buy back? (Section 68)

23.

Whether the debt equity ratio was in excess of 2:1

after the completion of buyback? (section 68)

24.

Where a company completes a buy-back of its

shares or other specified securities under this
section, it shall not make a further issue of the

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance

Remarks
same kind of shares or other securities including
allotment of new shares under clause (a) of sub-
section (1) of section 62 or other specified
securities within a period of six months except by
way of a bonus issue or in the discharge of
subsisting obligations such as conversion of
warrants, stock option schemes, sweat equity or
conversion of preference shares or debentures
into equity shares.

25.

Where a company purchases its own shares out of

free reserves or securities premium account,
whether a sum equal to the nominal value of the
shares so purchased has been transferred to the
capital redemption reserve account and details of
such transfer shall be disclosed in the balance
sheet.

26.

A company, authorized by a resolution passed by

the Board of Directors at its meeting to buy back,
its shares or other specified securities under
section 68 of the Companies Act, 2013 shall file a
copy of the resolution, with SEBI and the stock
exchanges, where the shares or other specified
securities of the company are listed, within two
working days of the date of the passing of the
resolution.

27.

A copy of the resolution passed at the general

meeting under Section 68 of the Companies Act,

2013 shall be filed with SEBI and the stock
exchanges where the shares or other specified
securities of the company are listed, within seven
days from the date of passing of the resolution.

Checked by:

Reviewed by:

Date:

Date:

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015

K. GENERAL COMPLIANCES OF LISTED ENTITIES

Sl. No. Particulars

Compliance

Remarks

1.

Listed Entity has appointed a qualified Company

Secretary as Compliance Officer.

2.

Listed Entity has either

i. appointed a share transfer agent or
ii. manage the share transfer facility in-house
iii. Where facility is managed in-house and total
number of shareholders exceeds one lakh
then check that listed entity has recourse to
any of the following two options:

iv. Register itself with SEBI as Category II share
transfer agent
v. Appoint Registrar to the issue and share
transfer agent registered with SEBI.

3.

Check that compliance certificate has been

submitted to the exchange by the listed entity, duly
signed by the compliance officer and the
authorized representative of the share transfer
agent, within one month of the end of each half
financial year (half financial year implies 1st April
to 30th September and 1st October to 31st March)

certifying compliance with the regulations w.r.t.

share transfer.

4.

Check the information submitted to credit rating

agencies, share transfer agents, debenture
trustees etc. are correct and adequate and
promptly on request.

5.

Check in case of any change or appointment of

new share transfer agent, the listed entity has
enter into tripartite agreement between the
existing share transfer agent , the new transfer
agent and the listed entity.

6.

Check if the listed entity has informed about the

appointment of New Share Transfer Agent within

Seven (7) days of entering into Agreement.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Compliance

Remarks

The Agreement referred herein-above shall be
placed at the subsequent Board Meeting.

7.

Check that the entity has a proper policy for

preservation of documents with respect to their
preservation is at least in two categories,
permanent and not less than 8 years.

8.

Check the existence of proper infrastructure for

filing of various reports, statements to SEBI or
exchange(s) electronically by the listed entity.

9.

Check the payments w.r.to dividend, interest,

redemption or repayment is made by any of the
electronic mode approved by RBI such as ECS,

NECS, NEFT, RTGS etc. Where it is not possible
to use electronic mode of payment, ‘payable- at-
par’ warrants or cheques may be issued, also
check when the amount payable is more than Rs.

1500, such warrants or cheques shall be issued
only by speed post.

10.

Check that the listed entity is registered on

SCORES platform or such other electronic
platform as shall be mandated form time to time in
order to handle investor complaints electronically
in the manner specified by the SEBI.

11.

Check that the listed entity has filed a quarterly

statement with the recognized stock exchange
giving details w.r.to investor complaints received,
disposed of, pending etc. within that quarter. To
check if the status of the investor complaints are
place before each board meeting. To intimate to
the Stock Exchange within 21 days from end of
the quarter

12.

Check whether all the Fees and other charges to

be paid to the recognized stock exchanges are
duly paid.

13.

To formulate archival policy. The listed entity shall

disclose on its website all such events or
information which has been disclosed to stock
exchange(s) under this regulation, and such

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Compliance

Remarks
disclosures shall be hosted on the website of the
listed entity for a minimum period of five years and
thereafter as per the archival policy of the listed
entity, as disclosed on its website.

14.

To frame a policy for determination of materiality

of events, based on criteria specified in regulation

30(4)(i), duly approved by its board of directors,
which shall be disclosed on its website.

15.

To check whether all the items to be placed before

the Board were placed in appropriate time and
schedule

B. CORPORATE GOVERNANCE COMPLIANCES FOR ENTITIES WHICH HAS LISTED ITS

SPECIFIED SECURITIES

16.

Check if Regulation 17 to 27 is applicable to the

company. They shall not apply, in respect of the
listed entity having paid up equity share capital not
exceeding rupees ten crore and net worth not
exceeding rupees twenty five crore, as on the last
day of the previous financial year:

17.

Check the composition of board of directors shall

comprise of :

• At least one woman director

• At least 1/2 of the Board is independent in
the board, where the chairperson is not a
non-executive chairperson

• At least 1/3 of the Board is independent ,
where the chairperson is a non-executive
chairperson if the chairperson is non-
executive but is a promoter is related to
the promoter, the Board comprises of at
least 1/2 of independent directors

18.

Check that at least 4 board meetings held during

the financial year, with a maximum time gap of

120 days between any 2 meetings.

Check whether the Board of Directors is
reviewing compliance reports pertaining to all laws
applicable to the listed entity as well as the steps

185

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Compliance

Remarks
taken for rectification of instances of non-
compliance.

Check whether Board of Directors is satisfied that
the succession plans are in place for Appointment
of Board of Directors and Senior Management.

19.

Check that the boards of directors have laid down

a code of conduct for all members of board of
directors and senior management of listed entity
that
suitably
incorporates
the
duties
of
independent directors as laid down in the

Companies Act, 2013. The confirmation to the

Code of Conduct from all the directors is taken in
the first Board Meeting of the Year

20

Check that the information is placed before the

board of directors as specified in Part A of

Schedule II

21.

Check that the compensation paid to non-

executive
directors
including
independent
directors other than sitting fees is approved by
shareholders in the general meeting.

22.

Check that independent directors are not entitled

to any stock option.

23.

Check that in the performance evaluation of

independent directors, directors who are subject
to evaluation shall not participate.

24.

Check that the chief executive officer and the chief

financial officer has provided the compliance
certificate to the board of directors as specified in

Part B of Schedule II.

25.

Check that the role of the Audit Committee as

specified in Par C of Schedule C is duly complied
with.

26.

Check
the
constitution
of
qualified
and

Independent Audit Committee and following
requirements:

i. Chairperson of the audit committee is an

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CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Compliance

Remarks
independent director
ii. Chairperson was present at AGM to answer
shareholders queries
iii. Company secretary shall act as the secretary
to the audit committee
iv. Audit committee meets at least 4 times in a
year with a maximum time gap of 120 days
between 2 meetings.

v. Check if Quorum is present at the Audit

Committee meetings

27.

Check
the
constitution
of

Nomination

&

Remuneration committee and following points:

i. Chairperson
of
the
committee
is
an
independent director
ii. Chairperson was present at AGM to answer
shareholders queries
iii. Role of the committee complies with Part D of
the Schedule II

28.

Check the constitution of Stakeholder Relationship

committee and following points:

i. Committee
specifically
looks
into
the
mechanism of redressal of grievances of
shareholders, debenture holders and other
security holders
ii. Chairperson of this committee is a non-
executive director
iii. Role of the committee complies with Part D of
the Schedule II

29.

Check the constitution of Risk Management

committee by the top 100 listed entities.

Note: Top 100 listed entities are determined on
the basis of market capitalization, as at the end of
the previous financial year.

30.

Check the listed entity has formulated a vigil

mechanism to provide adequate safeguard
against victimization of director(s) or employee(s)

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Compliance

Remarks
or any other person who avail the mechanism and
also provide for direct access to the chairperson of
the audit committee in appropriate or exceptional
cases.

31.

Check that the listed entity has formulated a policy

on materiality of related party transactions and
dealing with related party transactions (RPTs).

32.

All RPTs have taken prior approval of audit

committee, committee may grant omnibus
approval on certain conditions.

33.

Check that the omnibus approval is specifying

certain important points to satisfy that it is in the
interest of the entity as mentioned under the
regulation.

34.

All material RPTs have taken prior approval of

shareholders through resolution, and all the
related parties irrespective of whether they are a
party to the transaction have abstained from
voting on such resolutions

35.

All existing related party contracts entered into

prior to the date of notification of these regulations
and which continue beyond such date were
placed for approval of the shareholders in the first

AGM subsequent to notification of these
regulations.

36.

Corporate

Governance
requirements
w.r.t.

subsidiary of listed entity:

i. at least one independent director on the BOD
of listed entity is the director on the BOD of
any unlisted material subsidiary, incorporated
in India
ii. minutes of the meeting of BOD of unlisted
subsidiary placed at the meeting of the BOD of
the listed entity
iii. management
of
unlisted
subsidiary
periodically give a statement of significant
transactions to the BOD of listed entity

188

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Compliance

Remarks
iv. the listed entity has not made any divestment
in the material subsidiary without passing a
special resolution in its General Meeting
except under a case where it is made under a
scheme of arrangement duly approved by a

Court/Tribunal
v. selling , disposing and leasing of assets
amounting to more than 20 % of the assets of
material subsidiary on an aggregate basis
during a financial year if done, is after taking
prior approval of shareholders by way of
special resolution unless where it is made
under a scheme of arrangement duly
approved by a Court/Tribunal

37.

Obligation w.r.t. Independent Directors - Check

the following:

• Independent Director is not serving in this
capacity in more than 7 listed entities

• A person who is a whole time director in any
listed entity is not is not serving as
independent director in more than 3 listed
entities

• At least one meeting of independent directors
is held in a year without the presence of non-
independent directors and members of
management

• Independent director who resigns or is
removed from board of the listed entity is
replaced by a new independent director not
later than the immediate next meeting of the
board of directors or 3 months from the date of
such vacancy whichever is earlier.

38.

To formulate familiarization programmes for

independent directors which shall include nature
of the industry in which the listed entity operates,
business model of the listed entity, roles, rights,
responsibilities of independent directors and any
other relevant information.

39.

Obligation w.r.t. employees including senior

189

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Compliance

Remarks
management, KMPs, directors and promoters –

Check the following :

Every director shall inform the listed entity about
the committee positions he or she occupies in
other listed entities and notify changes as and
when they take place.

40.

Check whether the employee including key

managerial personnel or director or promoter of a
listed entity has entered into any agreement for
himself or on behalf of any other person, with any
shareholder or any other third party with regard to
compensation or profit sharing in connection with
dealings in the securities of such listed entity.

41.

Check whether such employees have obtained

any prior approval for the same from the Board of

Directors as well as public shareholders by way of
an ordinary resolution.

42.

Check that Listed entity has submitted a quarterly

compliance report on corporate governance to the
recognized stock exchange within 15 days from
close of quarter, a yearly compliance within 15
days of the end of the financial year and a half
yearly report within 15 days of the end of the half
year.

To lay down procedures to inform members of
board of directors about risk assessment and
minimization procedures.

To formulate a vigil mechanism for directors and
employees to report genuine concerns. The vigil
mechanism shall provide for adequate safeguards
against victimization of director(s) or employee(s)

or any other person who avail the mechanism.

The audit committee shall lay down the criteria for
granting the omnibus approval in line with the
policy on related party transactions of the listed
entity and such approval shall be applicable in
respect of transactions which are repetitive in
nature.

C. OTHER COMPLIANCES FOR ENTITIES WHICH HAS LISTED ITS SPECIFIED SECURITIES

190

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Compliance

Remarks

43.

Check that listed entity has before issuing

securities, obtained ‘in-principle’ approval from
recognized stock exchange(s) in the manner
provided in the Regulations.

44.

Check that listed entity has given prior intimation (

at least 2 working days prior excluding the date of
intimation and the date of the meeting) to the
stock exchanges where the specified securities
are listed about the meeting of the board of
directors in which any of the following proposals
are considered:

i. Financial results
ii. Buy back of shares
iii. Voluntary delisting from the stock exchange
iv. Fund raising and for determination of issue
price
v. Declaration/recommendation of dividend
vi. Passing over of dividend
vii. Issue of convertible securities
viii. Issue of debentures carrying a right to
subscribe to equity shares
ix. Declaration of bonus securities, where it is a
part of agenda of the BOD meeting

45.

Check that the listed entity makes a disclosure of

following events and information :

i. All events which are deemed to be material as
specified in Part A of schedule III of these

Regulations
ii. All other events or information which, in the
opinion of the board of directors are material

46.

Check that the listed entity has submitted to stock

exchange(s) a statement showing holding of

Specified Securities and shareholding pattern for
each class of securities. Following timelines are
required to be followed for submission of the
statement by the listed entity:

191

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Compliance

Remarks
i. 1 day prior to listing of its securities on the
stock exchange(s)

ii. Within 21 days from end of each quarter or
half year in case of entity listed on SME
exchange
iii. Within 10 days of any capital restructuring of
the listed entity resulting in a change
exceeding 2 % of total paid-up share capital

47.

Check that 100% shareholding of promoter(s) and

promoter group is in dematerialized form. To
check if 50% of the public shareholding is in
demat form. If not whether necessary efforts are
being made to dematerialise the securities.

48.

Check that listed entity comply with circulars or

directions issued by SEBI from time to time w.r.to
maintenance of shareholding in dematerialized
form.

49.

In the shareholding pattern appearing on the

website of the stock exchange where specifies
securities of the entity are listed, all entities falling
under promoter and promoter group are disclosed
separately as per the formats specified by SEBI.

(all folios shall be clubbed as one) In case of
transmission/ succession/inheritance, the inheritor
shall be classified as promoter.

50.

Where an entity becomes professionally managed

and does not have any identifiable promoter, the
existing promoters may be re-classified as public
shareholders subject to approval of shareholders
in a general meeting.

Note: Criteria for considering an entity as
professionally managed is given in point (6) of

Clause 31A of the guidelines.

51.

Re-classification
of
promoter
as
public

shareholder is disclosed as a material event to the
stock exchange. Such classification is subject to
the conditions as mentioned in point (7) of Clause

31A of the guidelines.

52.

Re-classification of a public shareholder as

192

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Compliance

Remarks
promoter, requires an open offer to be made in
accordance
with
the
provisions
of

SEBI

(Substantial Acquisition of Shares and Takeovers)

Regulations, 2011.

53.

Listed entity is required to submit to the stock

exchange the following statements on quarterly for
public issue, right issue, preferential issue etc.

Statement indicating deviations, if any in the use
of proceeds from the objects stated in the offer
document or explanatory statement to the notice
of general meeting

Statement indicating category wise variation

(capital expenditure, sales and marketing, working
capital etc.) between projected utilization of funds
made by it in offer document and the actual
utilization of funds.

These statements shall be continued to be given
till the time the issue proceeds are fully utilized or
the purpose for which these proceeds were raised
has been achieved.

These statements shall be placed before the audit
committee for review and after that submitted to
the stock exchange(s)

Note: In case of entity is listed on SME exchange,
quarterly submission is replaced by half yearly
submission.

54.

Listed entity is required to furnish explanation for

the variation specified in above point, in the
director’s report in the annual report.

55.

Listed entity is required to prepare an annual

statement of funds utilized for purposes other than
those
stated
in
the
offer
document/prospectus/notice, certified by the
statutory auditor of the listed entity, and place it
before the audit committee till such time the full
money raised through the issue has been fully
utilized.

56.

Where the listed entity has appointed a monitoring

agency to monitor the utilization of proceeds of a

193

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Compliance

Remarks
public or right issue, the monitoring report of such
agency shall be placed before the audit committee
on an annual basis, promptly on its receipt. Entity
shall also submit the report to the stock
exchange(s).

57.

Financial results of the listed entity to be prepared

on the basis of accrual accounting policy and in
accordance with uniform accounting practices and

GAAP.

58.

Limited review or audit reports submitted to the

stock exchange(s) on quarterly or annual basis
are to be given only by an auditor who has
subjected himself to the peer review process of

ICAI and holds a valid certificate issued by the

Peer Review Board of the ICAI.

59.

Check submission of Annual Report to the stock

exchange within 21 working days of its approval
and adoption in AGM.

60.

Submission of Annual Information Memorandum

to the stock exchange.

61.

Annual Report is sent to the holders of the

securities not less than 21 days before the AGM.

62.

Certificate from PCS is w.r.t. share transfer

certificates: to certify that all certificates have been
issued within thirty days of lodging for the transfer.

Check that the certificate from PCS is obtained
within 30 days of end of each half year and same
is filed to the stock exchange(s) within 30 days of
the end of the half year.

63.

Check that listed entity has provided the facility of

remote e-voting facility to its shareholders, in
respect of shareholders resolutions.

64.

Check that entity has submitted to the stock

exchange, details of voting results within 48 hours
of its general meeting

65.

Check the website of the entity to ensure that it

194

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Compliance

Remarks
disseminates important information and policies
on its website.

To also check if the website contains all the
disclosures mentioned under the regulation and
that it is updated within 2 working days from the
date of such change in content

66.

Check that Financial Results of the entity are

published in newspaper (in English national daily
newspaper
and
in
vernacular
language
newspaper) within 48 hours of conclusion of the
board meeting at which it was approved

67.

Check whether minimum public shareholding

requirements are complied with

68.

To check record date for purposes of payment of

interest, dividend and payment of redemption or
repayment amount or for such other purposes as
specified by the stock exchange

D. COMPLIANCES FOR ENTITIES WHICH HAS LISTED ITS NON CONVERTIBLE DEBT

SECURITIES OR NON-CONVERTIBLE REDEEMABLE PREFERENCE SHARES

69.

Listed entity has to make following intimations to

the stock exchange(s):

i. About the date on or from which the interest
on debentures and bonds, and redemption
amount of redeemable shares, debentures
and bonds shall be payable, at least 11
working days before such date.

ii. About its intention to raise funds through new
non- convertible debt securities/ preference
shares
iii. About
the

BOD
meeting
in
which
recommendation of issue of non-convertible
debt securities/preference shares or any
matter affecting rights of such security holders
are proposed to be considered, at least 2
working days in advance

70.

Check whether entity has promptly informed the

stock
exchange(s)

of
all
price
sensitive
information before providing the same to any third

195

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No. Particulars

Compliance

Remarks
party.

71.

un-audited or audited financial results on a half

yearly basis in the format as specified by the

Board within forty five days from the end of the
half year with stock exchange(s).

72.

Check the half yearly certificate regarding

maintenance of 100% asset cover for listed non-
convertible debt securities, issued by PCS.

73.

Check that proxy forms are sent to holders of non-

convertible debt securities /preference shares and
such forms are worded in such a manner that
holders of these securities may vote either for or
against each resolution.

74.

Whether the entity has transferred any unclaimed

interest/ dividend to the ‘Investor Education and

Protection Fund’ set up as per section 125 of the

Companies Act,2013

75.

Maintenance of a functional website by the listed

entity

76.

To check whether the intimation to the debenture

trustee is prompt or not. The listed entity to
forward to the debenture trustee any such
information sought and provides access to
relevant books of accounts as required by the
debenture trustee.

77.

To check that the listed Company within two

calendar days of the conclusion of the meeting of
the board of directors, publish the financial results
in at least one English national daily newspaper
circulating in the whole or substantially the whole
of India

78.

Check that the listed entity has given notice in

advance of atleast seven working days (excluding
the date of intimation and the record date) to stock
exchange(s) of record date specifying the purpose
of the record date.

To ensure the time gap of at least thirty days
between two record dates

E. COMPLIANCES FOR ENTITIES WHICH HAS LISTED ITS SECURITISED DEBT

INSTRUMENTS

196

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No. Particulars

Compliance

Remarks

79.

Check the Credit Rating Certificates obtained by

listed entity with respect to securitized debt
instruments and same has been periodically
reviewed by the credit rating agency.

80.

Whether email address of grievance redressal

division is prominently displayed on entity’s
website.

81.

Whether entity provide loan level information and

credit rating information to the Investors
periodically

82.

Whether the payment w.r.t. interest and

redemption are made in time.

83.

Whether any unclaimed interest and principal,

remaining as such for a period of 7 years are
transferred to Investor Protection and Education

Fund

E. COMPLIANCES FOR ENTITIES WHICH HAS LISTED ITS MUTUAL FUND UNITS

84.

Check the following information maintained by

the entity:

i. Daily Net Asset Value (NAV)

ii. Monthly Portfolio
iii. Half yearly Portfolio
iv. Same is intimated to the recognized stock
exchange(s).

85

Check the ratings of the scheme whose units are

listed on stock exchange(s).

86.

Check if there is any prohibition order restraining

the listed entity from transferring units registered
in the name of unit holders and whether it is
intimated to the stock exchange(s).

Checked by:

Reviewed by:

Date:

Date:

197

GUIDANCE NOTE ON SECRETARIAL AUDIT

Compliance calendar under SEBI (LODR) Regulations, 2015

Half Yearly Compliances

Sl. No.

Compliance requirement

Notes

1.

Relevant reports, statements, documents and any other
documents that were to be filed on the Electronic Platform
specified by stock exchange(s) at which the company’s securities
were listed.

2.

Payments towards dividend /interest/ redemption/ repayment are
made in the manner specified in SEBI (LODR).

3.

Steps taken to address investors’ complaints and filing of
statements on the same with stock exchange in time.

4.

If the provisions relating to Corporate Governance as per SEBI

(LODR) 2015 are not applicable, a statement to be issued by the
management of the company specifying the non-applicability.

5.

The Board has periodically reviewed compliance reports
pertaining to all laws applicable to the listed entity as well as the
steps taken for rectification of instances of non-compliance.

6.

CEO and CFO have provided the compliance certificate to the
board of directors as specified in Part B of Schedule II LODR.

7.

Documents/ declarations/ Board notes and resolutions/ NRC

Committee notes and resolutions examined, Independent

Directors appointed by the company have been complying with
prescribed obligations

8.

Documents/ declarations/ Board notes and resolutions/ NRC

Committee notes and resolutions, Directors and senior
management personnel appointed by the company have been
complying with prescribed obligations.

9.

In-principle approval of recognized stock exchange(s).

10.

Prior intimation given to the exchange about the Board meetings,

Annual General Meetings, Extra-ordinary General Meetings or

Postal Ballots, wherever necessary.

11.

Approvals granted for changes in paid up share capital of the
company, if any.

Utilisation of funds raised by the company through IPO/ Right/

FPO/ further issue and deviations, if any.

198

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Compliance requirement

Notes

12.

The company had duly sent the documents and information to
shareholders.

13.

Minimum Public Shareholding. - The listed entity shall comply with
the minimum public shareholding requirements specified in Rule

19(2) and Rule 19A of the Securities Contracts (Regulation)

Rules,

1957 in the manner as specified by the Board from time to time

14.

Compliance with requirement of record date

15.

The facility of remote e-voting has been provided to its
shareholders. Also, the entity has submitted to the stock
exchange details of voting results within 48 hours of its general
meeting.

16.

The company has obtained prior approval of stock exchange for
name change.

17.

Listed entity has maintained functional website complying with
requirements.

18.

Stock Exchanges were duly intimated in time w.r.t. NCD’s &

NCRPS as per SEBI (LODR)

19.

100% asset cover was maintained to discharge the principle
amount and disclosure was made to stock exchange for the same
in time and certificate was submitted to the Stock exchange on
timely payments of interest and redemption proceeds.

20.

Credit Rating obtained was duly reviewed and disclosed to stock
exchange

21.

Required documents/ intimation are submitted/ made to

Debenture Trustees in time

22.

Prior approval of Stock Exchanges was taken for material
modification, if any, in the structure of security.

23.

Record Date was fixed and notice was given to stock exchanges
in time.

199

GUIDANCE NOTE ON SECRETARIAL AUDIT

Compliance calendar under SEBI (LODR) Regulations, 2015

Event based Compliances

Sl. No.

Compliance requirement

Remarks

1.

Appointment of compliance officer who is a qualified company
secretary.

2.

Appointment of SEBI registered Share Transfer Agent and
submission of Compliance Certificate to the Exchange.

3.

Board approved policy for preservation of documents is in place.

4.

Payment of applicable listing fees/charges to stock exchanges.

5.

The Board has approved a code of conduct applicable to all
members of the board and senior management of the company.

The board approved code of conduct incorporating the duties of
independent directors as laid down in the Companies Act, 2013.

6.

Examined the ESOP policy of the company to satisfy that

Independent director is not entitled to any stock option.

7.

Constitution of the following committees is in compliance with the

SEBI (LODR), 2015:

i. Audit Committee
ii. Nomination and Remuneration Committee
iii. Stakeholders Relationship Committee
iv. Risk Management Committee, if applicable. If the provisions
relating to risk management committee are not applicable, a
statement issued by the management of the company to that
effect is collected.

8.

Listed entity has formulated a Vigil Mechanism.

9.

Board approved policy on Related Party Transactions and
compliance.

10.

Adherence to Corporate Governance requirements with respect to
subsidiary of listed entity.

11.

Board approved policy for determination of materiality of event/
information

Disclosures made by the company in compliance with its policy on
disclosures as stated above.

200

CAPITAL MARKET RELATED LAWS/RULES/REGULATIONS

Sl. No.

Compliance requirement

Remarks

Correspondence between the company and stock exchange(s)/

SEBI on disclosures made by the company to satisfy that there is
no adverse observations from either stock exchange or SEBI.

12.

100% promoter shareholding is held in dematerialized form.

13.

Approval granted by Exchange(s) for Reclassification of
promoters, if any.

14.

The company has obtained Observation letter or No-objection
letter from stock exchange for Draft Scheme of Arrangement &

Scheme of Arrangement.

201

4

FOREIGN DIRECT INVESTMENT

Keeping in view the objective of promoting ease of doing business, a need was felt to consolidate
the regulations and rationalise them in the light of evolving business environment and changing
practices in cross-border transactions relating to external trade and payments.

The Reserve Bank of India, in consultation with the Government of India, has revised the

Regulations on foreign investment in India and has repealed and replaced the Foreign Exchange

Management (Transfer or issue of security by a person resident outside India) Regulations, 2000

(Notification No. FEMA 20) and Foreign Exchange Management (Investment in a Firm or

Proprietary Concern in India) Regulations, 2000 (Notification No. FEMA 24) both dated May 3,

2000 with the Foreign Exchange Management (Transfer or Issueof Securityby a Person Resident

Outside India) Regulations, 2017 dated November 7, 2017 (Notification No. FEMA 20(R)).

Foreign Investment in India is regulated in terms of clause (b) sub-section (3) of section 6 and
section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange

Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations,

2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017.(Amended upto

April 06,2018)

Foreign Direct Investment’ (FDI) means investment through capital instruments by a person
resident outside India in an unlisted Indian company; or in 10 percent or more of the post issue
paid-up equity capital on a fully diluted basis of a listed Indian company;

Note: In case an existing investment by a person resident outside India in capital instruments of a
listed Indian company falls to a level below 10 percent of the post issue paid-up equity capital on a
fully diluted basis, the investment shall continue to be treated as FDI.

Explanation: Fully diluted basis means the total number of shares that would be outstanding if all
possible sources of conversion are exercised

Foreign Direct Investment (FDI) in India is undertaken in accordance with the FDI Policy which is
formulated and announced by the Government of India. The Department of Industrial Policy and

Promotion, Ministry of Commerce and Industry, Government of India issues a “Consolidated FDI

Policy Circular” each year elaborating the policy and the process in respect of FDI in India, that in
corporates the amendments made to the regulations. Reserve Bank of India also compiles all the
circulars issued, through a master circular and master direction on foreign investment. The latest
notification- Master Direction RBI/FED/2017-18/60 FED Master Direction No. 11/2017-18 issued
and updated upto April 06,2018 is available at www.rbi.org.in.

Under the Foreign Direct Investments (FDI) Scheme, investments can be made in shares,
mandatorily and fully convertible debentures and mandatorily and fully convertible preference
shares of an Indian company by non-residents through two routes.

Automatic Route: Under the Automatic Route, the foreign investor or the Indian company does not
require any prior approval from the Reserve Bank or Government of India for the investment.

FOREIGN DIRECT INVESTMENT

Government Route: Government Route is the entry route through which investment by a person
resident outside India requires prior Government approval. Foreign investment received under this
route shall be in accordance with the conditions stipulated by the Government in its approval.

Government approval is approval from the erstwhile Secretariat for Industrial Assistance (SIA),

Department of Industrial Policy and Promotion, Government of India and/ or the erstwhile Foreign

Investment Promotion Board (FIPB) and/ or any of the ministry/ department of the Government of

India.

Checklist:

S. No. Particulars

Remarks

I

Ensure that the company is not engaged in the any of the
following business activities:

1. Lottery Business including Government/ private lottery,
online lotteries.

2. Gambling and betting including casinos.

3. Chit funds (except for investment made by NRIs and OCIs
on a non-repatriation basis).

4. Nidhi Company.

5. Trading in Transferable Development Rights (TDRs).

6. Real

Estate Business or Construction of Farm

Houses.(“real
estate
business”

shall
not
include
development of townships, construction of residential

/commercial premises, roads or bridges and Real Estate

Investment Trusts (REITs) registered and regulated under
the SEBI (REITs) Regulations 2014)

7. Manufacturing
of Cigars, cheroots, cigarillos and
cigarettes, of tobacco or of tobacco substitutes. The
prohibition is on manufacturing of the products mentioned
and foreign investment in other activities relating to these
products including wholesale cash and carry, retail trading
etc. will be governed by the sectoral restrictions laid down
in Regulation 16 of FEMA 20(R).

8. Activities/ sectors not open to private sector investment
viz., (i) Atomic energy and (ii) Railway operations

9. Foreign technology collaboration in any form including
licensing
for
franchise,
trademark,
brand
name,
management contract is also prohibited for Lottery

Business and Gambling and Betting activities

II

Check
whether
the
company
is
operational
in
sectors/activities where in the Foreign investment is

203

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks
allowedunder Government Route:

i. An Indian company is being established with foreign
investment and is not owned by a resident entity ornot
controlled by a resident entity
ii. Whether the control of company, is transferred/passed on
to a non-resident entity as a consequence of transfer of
shares and/or fresh issue of shares to nonresident entities
through amalgamation, merger/demerger, acquisition etc.

or
iii. The ownership of the company is transferred/passed on to
a non-resident entity as a consequence of transfer of
shares and/or fresh issue of shares to nonresident entities
through amalgamation, merger/demerger, acquisition etc.

iv. The ownership of the company is transferred/passed on to
a non-resident entity as a consequence of transfer of
shares and/or fresh issue of shares to nonresident entities
through amalgamation, merger/demerger, acquisition etc.

III

Check whether the company has received the foreign
investment by issuing capital instruments to the investor.

‘Capital Instruments’ means equity shares, debentures,
preference shares and share warrants issued by the Indian
company.

Equity shares: Equity shares are those issued in accordance
with the provisions of the Companies Act, 2013 and will
include partly paid equity shares issued on or after July 8,

2014.

Share warrants: Share warrants issued on or after July 8,

2014 will be considered as capital instruments.

Debentures: ‘Debentures’ means fully, compulsorily and
mandatorily convertible debentures.

Preference
shares: ‘Preference’

shares
mean
fully,
compulsorily and mandatorily convertible preference shares.

Non-convertible/ optionally convertible/ partially convertible
preference shares issued as on and up to April 30, 2007 and
optionally convertible/ partially convertible debentures issued
up to June 7, 2007 till their original maturity are reckoned to be

FDI compliant capital instruments. Non-convertible/ optionally
convertible/ partially convertible preference shares issued after

April 30, 2007 and optionally convertible/ partially convertible
debentures issued after June 7, 2007 shall be treated as debt

204

FOREIGN DIRECT INVESTMENT

S. No. Particulars

Remarks
and shall require conforming to External Commercial

Borrowings guidelines regulated under Foreign Exchange

Management (Borrowing and Lending in Foreign Exchange

Regulations), 2000, as amended from time to time.

If So, Whether the company has complied with the
requirement of the Foreign Exchange Management (Transfer
or Issue of Security by a Person Resident Outside India)

Regulations, 2017 as amended from time to time as applicable
to the company.

REPORTING OF FDI INFLOW AND REPORTING OF ISSUE OF ELIGIBLE INSTRUMENTS

ONLINE THROUGH DIGITALLY SIGNING

With a view to promoting the ease of reporting of transactions under foreign direct investment, the

Reserve Bank of India, under the aegis of the e-Biz project (Secure one-stop-shop for all
investment and business related information and services 24X7 on a single portal) of the

Government of India has enabled the filing of the following returns with the Reserve Bank of India
viz. Advance Remittance Form (ARF)-used by the companies to report the foreign direct
investment (FDI) inflow to RBI; FCGPR Form-which a company submits to RBI for reporting the
issue of eligible instruments to the overseas investor against the abovementioned FDI inflow and
the FCTRS Form which is submitted to RBI for transfer of securities between resident and person
outside India.

The design of the reporting platform enables the customer to login in to the e-Bizportal, download
the reporting forms (ARF, FCGPR and FCTRS), complete and then upload the same onto the
portal using their digitally signed certificates.TheAuthorised Dealer Banks(ADs) will be required to
download the completed forms, verify the contents from the available documents, if necessary by
calling for additional information from the customer and then upload the same for RBI to process
and allot the Unique Identification Number (UIN).

The following documents should be submitted along with the ARF:

(a) copy/ies of the FIRC/s (Foreign Inward Remittance Certificate evidencing the receipt of the
remittance

(b) Know Your Customer (KYC) report on the non-resident investor from the overseas bank
remitting the amount in the mentioned form

ARF would be acknowledged by the Regional Office concerned, which will allot a Unique

Identification Number (UIN) for the amount reported.

Steps involved

Step 1: Visit eBiz site

Step 2: Register as a New Member

Step 3: Register Organization

205

GUIDANCE NOTE ON SECRETARIAL AUDIT

Step 4: Download Form

Step 5: Fill the e-form

Step 6: Upload and Submit Form

Step 7: Make payment

Step 8: Check status (with e-biz with application number generated).

VideCircularNo.40dt.February01,2016issuedbyR.B.I.thephysicalfilingofformsARF,FC- GPR and

FC-TRS stands discontinued beginning February 08, 2016 and forms submitted in
onlinemodeonlythroughe-Bizportalwillbeaccepted.

Permitted Investments by Persons Resident Outside India

Unless otherwise specifically stated in Foreign Exchange Management (Transfer or Issue of

Security by a Person Resident Outside India) Regulations, 2017& relevant schedules (Amended
up to April 06, 2018), any investment made by a person resident outside India shall be subject to
the entry routes, sectoral caps or the investment limits, as the case may be, and the attendant
conditionality for making such investment as laid down in these Regulations. A person resident
outside India may make investment as stated hereinafter

1. Subscribe/ purchase/ sale of capital instruments of an Indian company (Schedule 1)

2. Purchase/ sale of capital instruments of a listed Indian company on a recognised stock
exchange in India by Foreign Portfolio Investors (Schedule 2)

3. Purchase/ sale of capital instruments of a listed Indian company on a recognised stock
exchange in India by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on
repatriation basis (Schedule 3)

4. Purchase/ sale of Capital Instruments of an Indian company or Purchase / Sale o Units or
contribution to capital of a LLP or a firm or a proprietary concern by Non-Resident Indian

(NRI) or Overseas Citizen of India (OCI) on a Non-Repatriation basis (Schedule 4)

5. Purchase/ sale of securities other than capital instruments by a person resident outside

India (Schedule 5)

6. Investment in a Limited Liability Partnership (LLP) (Schedule 6)

7. Investment by a Foreign Venture Capital Investor (FVCI) (Schedule 7)

8. Investment in an Investment Vehicle (Schedule 8)

9. Issue/ transfer of eligible instruments to a foreign depository for the purpose of issuance of

Depository Receipts (DRs) by eligible person(s) (Schedule 9)

10. Purchase/ sale of Indian Depository Receipts (IDRs) issued by companies resident outside

India and issued in Indian Capita Market (Schedule 10)

11. Acquisition through rights issue or bonus issue

12. Issue of Employees’ Stock Options Scheme (ESOP) and Sweat Equity Shares to persons
resident outside India

13. Issue of Convertible Notes by an Indian startup company

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FOREIGN DIRECT INVESTMENT

14. Merger or demerger or amalgamation of Indian companies

Transfer of capital instruments of an Indian company by or to a person resident outside

India

• Transfer from a person resident outside India not being a non resident Indian or an overseas
citizen o India by way of sale or gift to any person resident outside India

• Transfer by an overseas corporate body (OCB) ['Overseas Corporate Body (OCB)’ means an
entity derecognized through Foreign Exchange Management [Withdrawal of General

Permission to Overseas Corporate Bodies (OCBs)] Regulations, 2003]

• Transfer by an NRI/ OCI by way of gift or sale to any person resident outside India

• Transfer by a NRI/ OCI holding capital instruments on a non-repatriable basis or a person
resident in India by way of sale to any person resident outside India

• Transfer by an NRI/ OCI holding capital instruments on a non-repatriable basis by way of gift
to another NRI/ OCI who will hold such capital instruments on a non-repatriable basis

• Sale by a person resident outside India on a recognised stock exchange in India

• Transfer by way of gift by an NRI/ OCI holding securities on a non-repatriable basis or a
resident to a person resident outside India

• Transfer by a person resident outside India of capital instruments containing an optionality
clause

• Deferred payment consideration

• Opening of Escrow account

• Transfer by way of pledge

• Transfer from a resident to a person resident outside India where the investee company is in
the financial sector

Investment through a rights issue or a bonus issue

A person resident outside India having investment in an Indian company is permitted to invest in
the capital instruments (other than share warrants) issued by such company as a rights issue or a
bonus issue subject to the following conditions:

1. The offer made by the Indian company is in compliance with the provisions of the

Companies Act, 2013;

2. The issue does not result in a breach of the sectoral cap applicable to the company;

3. The shareholding on the basis of which the rights issue or the bonus issue has been made
must have been acquired and held as per the provisions of Foreign Exchange

Management (Transfer or Issue of Security by a Person Resident Outside India)

Regulations, 2017Notification No. FEMA 20(R)/2017-RB (Amended up to April 06, 2018)

4. In case of a listed Indian company, the rights issued to persons resident outside India shall
be at a price determined by the company;

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GUIDANCE NOTE ON SECRETARIAL AUDIT

4. In case of an unlisted Indian company, the rights issued to persons resident outside India
should not be at a price less than the price offered to persons resident in India;

5. Such investment made through rights issue or bonus issue is subject to the conditions as
are applicable at the time of such issue;

6. The amount of consideration may be paid as inward remittance from abroad through
banking channels or out of funds held in NRE/ FCNR(B) account maintained in accordance
with the Foreign Exchange Management (Deposit) Regulations, 2016;

Where the original investment has been made on a non-repatriation basis, the amount of
consideration may also be paid by debit to the NRO account maintained in accordance with the

Foreign Exchange Management (Deposit) Regulations, 2016.

Issue of Employees’ Stock Options Scheme (ESOP) and Sweat Equity Shares

An Indian company is permitted to issue “employees’ stock option” and/ or “sweat equity shares” to
its employees/ directors or employees/ directors of its holding company or joint venture or wholly
owned overseas subsidiary/ subsidiaries who are resident outside India, subject to the following
conditions:

1. The ESOP is drawn either in terms of regulations issued under the Securities and

Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures)

Rules, 2014 notified by the Central Government under the Companies Act 2013;

2. The “employee’s stock option”/ “sweat equity shares” are in compliance with the sectoral
cap applicable to the said company;

3. Issue of “employee’s stock option”/ “sweat equity shares” in a company where investment
by a person resident outside India is under the approval route requires prior Government
approval;

4. Issue of “employee’s stock option”/ “sweat equity shares” to a citizen of Bangladesh/

Pakistan requires prior Government approval.

5. Issue of “sweat equity shares” to a person resident outside India was permitted with effect
from June 11, 2015

Issue of Convertible Notes by an Indian startup company

A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh
or an entity which is registered/ incorporated in Pakistan or Bangladesh), is permitted to purchase
convertible notes issued by an Indian startup company for an amount of twenty five lakh rupees or
more in a single tranche.

A startup company, engaged in a sector where investment by a person resident outside India
requires Government approval, may issue convertible notes to a person resident outside India only
with such approval. Further, issue of equity shares against such convertible notes should be in
compliance with the entry route, sectoral caps, pricing guidelines and other attendant conditions for
foreign investment.

The payment consideration can be received by inward remittance through banking channels or by
debit to the NRE/ FCNR (B)/ Escrow account maintained in accordance with the Foreign Exchange

Management (Deposit) Regulations, 2016. The Escrow account shall remain operational for a

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FOREIGN DIRECT INVESTMENT

maximum period of six months only and the account shall be closed immediately after completing
the requirements or on completion of six months from the date of opening of such account,
whichever is earlier. In case the Escrow account is required to be maintained beyond six months,
specific permission from the Reserve Bank has to be sought.

An NRI or an OCI may acquire convertible notes on a non-repatriation basis in accordance
withSchedule 4 of Foreign Exchange Management (Transfer or Issue of Security by a Person

Resident Outside India) Regulations, 2017Notification No. FEMA 20(R)/2017-RB (Amended up to

April 06, 2018)

A person resident outside India may acquire or transfer by way of sale, convertible notes, from or
to, a person resident in or outside India, provided the transfer takes place in accordance with the
entry routes and pricing guidelinesas prescribed for capital instruments..

Convertible notes as an investment option was permitted for startup companies with effect from

January 10, 2017.

Merger or demerger or amalgamation of Indian companies

In case a Scheme of merger or amalgamation of two or more Indian companies or a reconstruction
by way of demerger or otherwise of an Indian company has been approved by the National

Company Law Tribunal (NCLT)/ Competent Authority, the transferee company or the new
company, as the case may be, may issue capital instruments to the existing holders of the
transferor company who are resident outside India, subject to the following conditions:

1. The transfer or issue should comply with entry routes, sectoral caps or investment limits,
as the case may be, and the attendant conditionalities of foreign investment.

2. In case the foreign investment is likely to breach the Sectoral caps or the attendant
conditionality, the transferor company or the transferee or the new company should obtain
necessary Central Government approval.

3. The transferor company or the transferee company or the new company should not be in a
sector prohibited for foreign investment.

In case a Scheme of Arrangement for an Indian company has been approved by National

Company Law Tribunal (NCLT)/ Competent Authority, the Indian company may, with effect from

December 31, 2013, issue non-convertible redeemable preference shares or non-convertible
redeemable debentures to shareholders who are resident outside India, including depositories that
act as trustees for the ADR/ GDR holders, out of its general reserves by way of distribution as
bonus, subject to the following conditions:

1. The original investment made in the Indian company by a person resident outside India is
in accordance with FEMA 20(R) and the conditions specified therein;

2. The said issue is in accordance with the provisions of the Companies Act, 2013 and the
terms and conditions, if any, stipulated in the scheme approved by National Company Law

Tribunal (NCLT)/ Competent Authority;

3. The Indian company is not engaged in any activity/ sector in which foreign investment is
prohibited.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Checklist on Foreign Direct Investment under Automatic Route:

S. No. Particulars

Remarks

1.

Check the eligibility of the person investing in FDI.

2.

Check whether the total FDI is within the sectoral cap and not
under prohibited sectors.

3.

Check whether the company has complied with pricing guidelines
for FDI while issuing fresh shares to persons resident outside

India.

4.

Check whether consideration received for FDI is as per the
permitted modes of payment.

5.

Ensure that any rights/bonus issue has not resulted in FDI
exceeding sectoral cap.

6.

Check whether the Company has issued shares under ESOP
scheme to persons resident outside India.

Check whether the shares are allotted to citizens of Bangladesh
with prior approval.

Ensure that no shares are allotted to Citizens of Pakistan.

7.

Check whether the Company has converted ECBs into equity
shares?

If so whether the conditions stipulated are fulfilled. (Whether
partial conversion or full conversion)

8.

Check whether the Company issued equity shares against import
of capital goods/machinery, equipment etc. If so
whether conditions stipulated in this regard is complied

9.

Check whether the company has complied with issue of shares if
any against pre-operative/pre-incorporation expenses.

10.

Check whether the company has issued shares under ADR/ GDR.

If so whether conditions stipulated are fulfilled.

11.

Check whether the FDI does not exceed sectoral cap as a result
of issue of shares under the scheme of merger.

12.

Check whether the guidelines are followed while calculating total
foreign investment.

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FOREIGN DIRECT INVESTMENT

S. No. Particulars

Remarks

13.

Check whether there is any change in FDI due to transfer of
shares from Resident to non resident or non resident to resident.

14.

Check whether the company has informed about the inflow of
fundswithin30daysfromthe date of receipt.

15.

Check whether the equity instruments are issued within 180 days
of receipt of funds.

16.

Check whether the company issuing shares under automatic
route has reported the issue of shares (including shares issued
under ESOP) in form FC-GPR within 30 days from the date of
issue of shares. Also check whether a certificate from PCS is
attached for compliance

17.

Check whether the reporting for FDI for transfer of shares is made
in Form FC-TRS. Check if other guidelines regarding transfer of
shares, namely, valuation guidelines, sectoral caps are being
complied with. Check if Form FCTRS has been filed within 60
days of remittance

18.

Check whether the reporting of conversion of ECB into
equityinformECB-2 along with FC-GPR.

19.

Check whether the company has reported the issue of ADR/ GDR
in prescribed form.

20.

Check whether the issue/ transfer of sponsored/ unsponsored
depository receipts as per DR Scheme 2014 in Form DRR within

30 days of close of the issue/ program has been made.

21.

Check if the Company has received Unique Identification Number
for each inward remittance received.

22.

Check if the Company has received Foreign Direct Investment

(FDI) Registration Number against form FCGPR filed.

23.

Check, that shares issued to FII’s under FDI scheme and portfolio
investment scheme and the amount received from them are
reported separately (Post-issue pattern of shareholding) so that
the details could be suitably reconciled for statistical / monitoring
purposes.

24.

Check whether the approval of the Government is conveyed for
investment by swap of shares which is a prerequisite. (it may be

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No. Particulars

Remarks
noted that in cases of investment by way of swap of shares,
irrespective of the amount, valuation of the shares will have to be
made by a Merchant Banker registered with SEBI or an

Investment Banker outside India registered with the appropriate
regulatory authority in the host country.)

25.

Check if Annual Return on Foreign Liabilities &Assets is filed
every year on or before15th July. The return is to be filed even if
in a particular year, there is no fresh inflow or out flow of funds.

Checklist for Foreign Direct Investment under Approval Route

Sl.No.

Particulars

Remarks

1

Check whether prior approval of Foreign Investment Promotion

Board is obtained for FDI which are in excess of sectoral cap.

2

Check whether the shares issued to person who is a citizen of

Bangladesh or an entity incorporated in Bangladesh/ Pakistan
under the FDI Scheme is with the prior approval of the

Government and is subject to the prohibitions applicable,with
respect to citizens of Pakistan or entity incorporated in Pakistan.

3

Check whether the conversion of import payables/ pre in
corporation expenses/ share swap is treated as consideration for
issue of shares with the approval of Government. (Please note
that earlier in place of government it was FIPB, which has been
abolished F.No. 01/01/FC12017 –FIPB Dated the 5th

June,2017Subsequent to the abolition of the FIPB, the work of
granting government approval for foreign investment under the
extant FDI Policy and FEMA Regulations, shall be entrusted to
the concerned Administrative Ministries/Departments. There are
eleven notified sectors/activities requiring government approval
with the concerned Administrative Ministry/ Department)

4

Check whether the FDI in an on SME has exceeded 24% of paid
up capital or sectoral cap whichever is lower, if such non SME
has industrial licence for products reserved for SMEs? If so
whether prior approval of Government was obtained?

5

Check whether there is any transfer of shares from resident to
non resident which requires Government approval.

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FOREIGN DIRECT INVESTMENT

Sl.No.

Particulars

Remarks

6

Check whether the Issue of shares to a non-resident against
shares swap i.e. ,in lieu for the consideration which has been
paid for shares acquired in the overseas company, can be done
with the approval of Government.

7

Check whether the company has complied with reporting
requirements for issue of shares under approval route. (Reporting
requirements same as automatic route.) Also check other points
from Automatic Route checklist which may be applicable, i.e.,

Filing of Annual Return on Foreign Liabilities & Assets, etc.

Checked By

Reviewed By

Dated…………….

Dated…………….

Issue of equity shares under Approval Route

An Indian company may issue capital instruments to a person resident outside India under
automatic route if the Indian investee company is engaged in a sector under automatic route or
with prior Government approval if the Indian investee company is engaged in a sector under

Government route against:

(a) Swap of capital instruments;

(b) Import of capital goods/ machinery/ equipment (excluding second-hand machinery)

subject to the following conditions:

(i) The import of capital goods, machineries, etc., made by a person resident in India, is in
accordance with the Foreign Trade Policy notified by the Directorate General of Foreign

Trade (DGFT) and the regulations on imports issued under the Act;

(ii) There is an independent valuation of the capital goods/ machineries/ equipment by a third
party entity, preferably an independent valuer from the country of import along with
production of copies of documents/ certificates issued by the customs authorities towards
assessment of the fair-value of such imports;

(iii) In case of applications submitted for Government approval:

Applications (complete in all respects) for capitalization should be submitted within 180 days from
the date of shipment of goods.

(c) Pre-operative/ pre-incorporation expenses (including payments of rent etc.), subject to
the following conditions:

(i) Verification and certification of the pre-incorporation/ pre-operative expenses by the
statutory auditor;

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GUIDANCE NOTE ON SECRETARIAL AUDIT

(ii) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure
incurred;

(iii) Payments should be made by the foreign investor to the company directly or through the
bank account opened by the foreign investor as provided under the Act or the rules or the
regulations framed thereunder; and

(iv) In case of applications submitted for Government approval, The application (complete in all
respects) for capitalization being made within a period of 180 days from the date of
incorporation of the company.

Cases which do not require Fresh Approval ofFIPB (Please note FIPB has been abolished

F.No. 01/01/FC12017 –FIPB Dated the 5th June,2017Subsequent to the abolition of the FIPB,
the work of granting government approval for foreign investment under the extant FDI

Policy and FEMA Regulations, shall be entrusted to the concerned Administrative

Ministries/Departments. There areeleven notified sectors/activities requiring government
approval with the concerned Administrative Ministry/ Department)

Companies may not require fresh prior approval of the Government for bringing in additional
foreign investment into the same entity, in the following cases:

(i) Entities the activities of which had earlier required prior approval of Government and which
had, accordingly, earlier obtained prior approval of Government for their initial foreign
investment but subsequently such activities/sectors have been placed under automatic
route;

(ii) Entities, the activities of which had sectoral caps earlier and which had, accordingly, earlier
obtained prior approval of Government for their initial foreign investment but subsequently
such caps were removed/increased and the activities placed under the automatic route;
provided that such additional investment along with the initial/original investment does not
exceed the sectoral caps;

(iii) Additional foreign investment into the same entity where prior approval of Government had
been obtained earlier for the initial/original foreign investment due to requirements of Press

Note 18/1998 or Press Note 1 of 2005 and prior approval of the Government under the FDI
policy is not required for any other reason/purpose; and

(iv) Additional foreign investment up to cumulative amount of Rs 5000 crore into the same
entity within an approved foreign equity percentage/or into a wholly owned subsidiary.

Establishment of Branch Office (BO)/Liaison Office (LO)/Project Office (PO) in India by
foreign entities - procedural guidelines

The provisions relating to establishment of Branch Office/ Liaison Office/ Project Office in India by
foreign entities is contained in the Foreign Exchange Management (Establishment in India of a
branch office or a liaison office or a project office or any other place of business) Regulations, 2016
dated March 31,2016.

Members are also advised to refer to the salient features contained in A.P. (DIR Series) Circular

No.69 [(1)/22(R)] May 12, 2016.

214

FOREIGN DIRECT INVESTMENT

Checklist for establishment of branch/liaison/project office in India

S.No.

Particulars

Remark

1.

Check whether the establishment of branch/liaison/project office results
in Automatic route or Government Route? (it may be noted that where
principal business of the foreign entity falls under sectors where100%

FDI is permissible under automatic route, then it is through RBI route,
otherwise it is through approval route.)

2.

Incase the Non Resident entity is having place of business in India

(Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO). Check if
the Company has filed application in Form FNC (along with Letter of

Comfort, where applicable) and Obtained the approval of the
designated AD Category I Bank.

3.

Check if the Office is established within a period of six months from
date of approval or such other period (not exceeding 6 months) as may
be approved by the designated AD Category I Bank and intimation of
such establishment is given to designated AD Category I Bank

4.

Check if Report has been filed with DGP within 7 days of establishment
of the office.

5.

Check if Annual Activity Certificate (AAC) as at end of March 31 each
year has been filed along with audited financial statements before

September 30 with DGIT & designated AD Category-I bank. Also
check if report to DGP is part of such Annual Activity Certificate. (Note:

PO to submit to AAC only to designated AD Category -I bank; LO/BO
to both)

6.

In case of closure of LO/BO/PO and for remittance of winding up
proceeds, whether request for closure has been filed with designated

AD Category -I bank.

7.

Whether the BO/LO has obtained Pan on setting up their office and
reported the same in the AAC?

8.

Check if Company is carrying any activity which would be deemed to
be having a Place of Business in India as per provisions of Companies

Act, 2013 and if compliance under both CA, 2013 & FEMA has been
done.

Checked by:

Reviewed By:

Dated:

Dated:

215

GUIDANCE NOTE ON SECRETARIAL AUDIT

Relevant RBI Notification, Circulars to be referred:

• The Companies Act, 2013 and rules made thereunder

• Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside

India) Regulations, 2017 as amended from time to time.

• Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) in India by
foreign entities - procedural guidelines

• Consolidated FDI Policy Circular of 2017

• It is advised to visit www.rbi.org for latest update on FEMA.

216

5

DIRECT INVESTMENT BY RESIDENTS IN JOINT VENTURE/

WHOLLY OWNED SUBSIDIARY ABROAD

Overseas investments in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been
recognized as important avenues for promoting global business by Indian entrepreneurs. Joint

Ventures are perceived as a medium of economic and business co-operation between India and
other countries. Transfer of technology and skill, sharing of results of R&D, access to wider global
market, promotion of brand image, generation of employment and utilisation of raw materials
available in India and in the host country are other significant benefits arising out of such overseas
investments. They are also important drivers of foreign trade through increased exports of plant
and machinery and goods and services from India and also a source of foreign exchange earnings
by way of dividend earnings, royalty, technical know-how fee and other entitlements on such
investments.

Section 6 of the Foreign Exchange Management Act, 1999 provides powers to the Reserve Bank
to specify, in consultation with the Government of India the classes of permissible capital account
transactions and limits up to which foreign exchange is admissible for such transactions. Section

6(3) of the aforesaid Act provides powers to the Reserve Bank to prohibit, restrict or regulate
various transactions referred to in the sub-clauses of that sub-section, by making Regulations.

In exercise of the above powers conferred under the Act, the Reserve Bank has issued Foreign

Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 vide

Notification No. FEMA.120/RB-2004 dated July 7, 2004. The Notification seeks to regulate
acquisition and transfer of a foreign security by a person resident in India i.e. investment (or
financial commitment) by Indian entities in overseas joint ventures and wholly owned subsidiaries
as also investment by a person resident in India in shares and securities issued outside India.

Overseas Investment (or financial commitment) can be made under two routes viz. (i) Automatic

Route and (ii) Approval Route

For all purposes "Direct investment outside India" means investment by way of contribution to the
capital or subscription to the Memorandum of Association of a foreign entity or by way of purchase
of existing shares of a foreign entity either by market purchase or private placement or through
stock exchange, but does not include portfolio investment.

"Financial Commitment" means the amount of direct investment by way of contribution to equity,
loan and 100 per cent of the amount of guarantees and 50 per cent of the performance guarantees
issued by an Indian Party to or on behalf of its overseas Joint Venture Company or Wholly Owned

Subsidiary;

Method of Funding

1. Investment in an overseas JV/WOS may be funded out of one or more of the following
sources:

(i) drawal of foreign exchange from an AD bank in India;

GUIDANCE NOTE ON SECRETARIAL AUDIT

(ii) capitalisation of exports;

(iii) swap of shares;

(iv) proceeds of External Commercial Borrowings (ECBs) / Foreign Currency Convertible

Bonds(FCCBs);

(v) in exchange of ADRs/GDRs issued in accordance with the Scheme for issue of Foreign

Currency Convertible Bonds and Ordinary Shares (through Depository Receipt

Mechanism) Scheme, 1993, and the guidelines issued thereunder from time to time by
the Government of India;

(vi) balances held in EEFC account of the Indian partyand

(vii) proceeds of foreign currency funds raised through ADR/GDR issues.

In respect of (vi) and (vii) above, the limit of financial commitment vis-à-vis the networth will not
apply. However, all investments made in the financial sector will be subject to compliance with

Regulation 7 of the Notification, irrespective of the method of funding.

Prohibitions

(a) Indian Parties are prohibited from making investment (or financial commitment) in foreign entity
engaged in real estate (meaning buying and selling of real estate or trading in Transferable

Development Rights (TDRs) but does not include development of townships, construction of
residential/commercial premises, roads or bridges) or banking business, without the prior approval
of the Reserve Bank.

(b) An overseas entity, having direct or indirect equity participation by an Indian Party, shall not
offer financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign
currency, rupee exchange rates, stock indices linked to Indian market, etc.) without the specific
approval of the Reserve Bank. Any incidence of such product facilitation would be treated as a
contravention of the extant FEMA regulations and would consequently attract action under the
relevant provisions of FEMA, 1999.

General Permission

General permission has been granted to persons resident in India for purchase/acquisition of
securities in the following manner:

(i) Out of funds held in RFC account;

(ii) As bonus shares on existing holding of foreign currency shares; and

(iii) When not permanently resident in India, out of their foreign currency resources outside

India

General permission is also available to sell the shares so purchased/acquired.

Overseas Investment can be made under two routes viz. Automatic Route and Approval

Route

DIRECT INVESTMENT BY RESIDENTS IN JOINT VENTURE/WHOLLY OWNED SUBSIDIARY

A Master Direction on Overseas Direct Investment was issued by RBI on January 01, 2016. The

Master Direction:- RBI/FED/2015-16/10 FED Master Direction No. 15/2015-16 including all updates
as on January 04, 2018 is available at www.rbi.org.

218

DIRECT INVESTMENT BY RESIDENTS IN JOINT VENTURE/

WHOLLY OWNED SUBSIDIARYABROAD

It is advised to refer latest Master Director Circular as issued by Reserve Bank of India from time to
time.

Check list – Direct Investment outside India– Automatic Route

Sl. No. Particulars

Remarks

1.

Check whether the investment (total financial commitment (FC)) in
overseas Joint Ventures/Wholly Owned Subsidiaries (WOS) does
not exceed 400% of the net worth as on the date of last audited

Balance Sheet of Indian Party. It is also to be ensured that prior
approval of the Reserve Bank is obtained for any financial
commitment exceeding USD1 (one) billion (or its equivalent) in a
financial year, even when the total FC of the Indian Party is within
the eligible limit under the automatic route (i.e., within 400% of the
net worth as per the last audited balance sheet). It may be noted
that the total financial commitment of the Indian party in all the Joint

Ventures/Wholly Owned Subsidiaries shall comprise of the
following:

a. 100% of the amount of equity shares;
b. 100% of the amount of compulsorily convertible preference
shares (CCPS);
c. 100% of the amount of other preference shares;
d. 100% of the amount of loan;
e. 100% of the amount of guarantee (other than performance
guarantee) issued by the Indian party;
f. 100% of the amount of bank guarantee issued by a resident
bank on behalf of JV or WOS of the Indian party provided the
bank guarantee is backed by a counter guarantee / collateral
by the Indian party;
g. 50% of the amount of performance guarantee issued by the

Indian party provided that if the outflow onaccount of
invocation of performance guarantee results in the breach of
the limit of the financial commitment in force, prior permission
of the Reserve Bank is to be obtained before executing
remittance beyond the limit prescribed for the financial
commitment.

2.

Check whether the Indian entity has extended loan or guarantee if
any only to overseas JV/WOS in which it has equity participation? If
not, whether the proposal for the same has been considered by the

R.B.I. on approval basis?

219

GUIDANCE NOTE ON SECRETARIAL AUDIT

3.

In case the Indian entities has offered any form of guarantee

(corporate or personal (including the personal guarantee by the
indirect resident individual promoters of the Indian Party)/ primary
or collateral / guarantee by the promoter company / guarantee by
group company, sister concern or associate company in India)

check that
i) All the financial commitments, including all forms of guarantees
and creation of charge are within the overall ceiling prescribed
for the Indian Party.

ii) No guarantee is 'open ended' i.e. the amount and period of the
guarantee should be specified upfront. In the case of
performance guarantee, time specified for the completion of the
contract shall be the validity period of the related performance
guarantee.

4.

Ensure that the Indian party is not in RBI’s Exporters caution list/list
of defaulters Circulated by R.B.I/Credit Information Bureau (India)

Ltd. CIBIL/anyother credit information company as approved by the

Reserve Bank or under investigation by any investigation /
enforcement agency or regulatory body.

5.

Ensure that all transactions relating to JV/WOS are routed through
one branch of an authorised dealer bank, designated by Indian

Party.

6.

In case of partial/full acquisition of an existing foreign company,
where investment is more than USD 5 million, the valuation of
shares was made by SEBI registered Category I Merchant

Banker/Investment

Banker/Merchant

Banker
outside

India
registered with the appropriate regulatory authority in a host
country; and in other cases by a Chartered accountant/Certified

Public Accountant

7.

In cases of investment by way of swap of shares ensure that the
approval of the Government was taken. It is a prerequisite for
investment by swap of shares

8.

Ensure that shares acquired by Indian entity, in any in exchange of

ADRs/ GDRs, issued to the Indian entity satisfy following conditions

(i) ADRs/GDRs are listed on any stock exchange outside

India;

(ii) The ADR and/or GDR issued for the purpose of acquisition
is backed by underlying fresh equity shares issued by the

Indian Party;

(iii) The total holding in the Indian entity by persons resident
outside India in the expanded capital base, after the new

220

DIRECT INVESTMENT BY RESIDENTS IN JOINT VENTURE/

WHOLLY OWNED SUBSIDIARYABROAD

ADR and/or GDR issue, does not exceed the sectoral cap
prescribed under the relevant regulations for such
investment under FDI;

(iv) Valuation of the shares of the foreign company shall be
a. as per the recommendations of the Investment

Banker if the shares are not listed on any
recognized stock exchange; or
b. based on the current market capitalisation of the
foreign company arrived at on the basis of monthly
average price on any stock exchange abroad for the
three months preceding the month in which the
acquisition is committed and over and above, the
premium, if any, as recommended by the Investment

Banker in its due diligence report in other cases.

9.

Where Indian Party has issued corporate guarantees on behalf of
its first level step down operating JV /WOS set up by its JV / WOS
operating as either an operating unit or as a Special Purpose

Vehicle (SPV) under the Automatic Route, ensure that the financial
commitment of the Indian Party is within the extant limit.

(Check form ODI for the purpose)

10.

Check, in case where the investment/FC is in unincorporated/
incorporated entities overseas in oil sector under the Automatic

Route/Construction and maintenance of submarine cable systems
under the Automatic Route/Financial Services Sector, that all the
conditions are satisfied.

11.

Check in cases where listed Indian companies has made Portfolio
investments in (i) shares and (ii) bonds / fixed income securities
issued by listed overseas companies ensure that:

a. Investment is upto 50 per cent of the net worth of listed

Indian company as on the date of the last audited balance
sheet
b. They are rated not below investment grade by accredited /
registered credit rating agencies

12.

Check in cases where Indian Mutual funds registered with SEBI
has invested in equity of companies registered overseas / rated
debt instruments, the investment is within the overall cap of USD 7
billion.

Ensure the investment satisfies the following conditions:

i. ADRs/GDRs of the Indian and foreign companies;

221

GUIDANCE NOTE ON SECRETARIAL AUDIT
ii. Equity of overseas companies listed on recognized stock
exchanges overseas;
iii. initial and follow on public offerings for listing at recognized
stock exchanges overseas;
iv. foreign debt securities in the countries with fully convertible
currencies, short-term as well as long-term debt instruments
with rating not below investment grade by accredited/registered
credit agencies;
v. money market instruments rated not below investment grade;
vi. Repos in the form of investment, where the counter party is
rated not below investment grade. There repos should not,
however, involve any borrowing of funds by mutual funds;
vii. Government securities where the countries are rated not below
investment grade;
viii. derivatives trade don recognized stock exchanges overseas
only for hedging and portfolio balancing with underlying as
securities;
ix. short-term deposits with banks overseas where the issuer is
rated not below investment grade; and
x. units/securities issued by overseas Mutual Funds or Unit Trusts
registered with overseas regulators and investing in (a)

aforesaid securities, (b) Real Estate Investment Trusts (REITS)

listed on recognized stock Exchanges overseas, or(c)unlisted
overseas securities (not exceeding 10 percent of their net
assets

13.

Check in cases where Domestic Venture Capital Funds/Alternative

Investment Funds, registered with SEBI, has invested in equity and
equity
linked
instruments
of
off-shore

Venture

Capital

Undertakings, the investment is within the overall limit of USD 500
million.

14.

In case of restructuring of the balance sheet of the overseas entity
involving write off of capital and receivables, the Indian promoters
who have set up WOS abroad or have at least 51 per cent stake in
an overseas JV, may write off capital (equity / preference shares)

or other receivables, such as, loans, royalty, technical knowhow
fees and management fees in respect of the JV /WOS, even while
such JV /WOS continues to function, ensure that the listed Indian
companies has written off capital and other receivables up to 25
per cent of the equity investment in the JV /WOS through automatic

Route; and

222

DIRECT INVESTMENT BY RESIDENTS IN JOINT VENTURE/

WHOLLY OWNED SUBSIDIARYABROAD

15.

Check in cases of Post investment changes / additional investment

(or financial commitment) in existing JV / WOS ensure the reporting
to Reserve Bank, the details of such decisions within 30 days of
the approval of those decisions by the competent authority of the

JV / WOS concerned in terms of local laws of the host country and
include the same in the Annual Performance Report

16.

Check whether the obligation of Indian party is fulfilled such as
reporting of remittances, Annual Performance Report.

Checked By

Reviewed By

Dated…………….

Dated…………….

Check list-Direct Investment outside India – Approval Route

Sl. No. Particulars

Remarks

1

Check whether prior approval of Reserve Bank of India is obtained
in all cases which are not covered under the automatic route.

(Check form ODI submitted through Authorised Dealer Category–I
banks.)

2.

Ensure that in case the issuance of corporate guarantee on behalf
of second generation or subsequent level step down operating
subsidiaries where the Indian Party indirectly holds 51 per cent or
more stake in the overseas subsidiary for which such guarantee is
intended to be issued, the approval is obtained from Reserve Bank.

3.

In case of Pledge of shares of Joint Venture (JV), Wholly Owned

Subsidiary (WOS) and Step Down Subsidiary (SDS) ensure the
compliance prescribed.

4.

Check whether the reporting compliances are made with respect to
purchase/re-purchase of shares under ESOP.

5.

Indian Party is permitted to capitalise the payments due from the
foreign entity towards exports, fees, royalties or any other dues
from the foreign entity for supply of technical know-how,
consultancy, managerial and other services within the ceilings
applicable.

Check and ensure that the Capitalisation of export proceeds
remaining unrealised beyond the prescribed period of realization
will require prior approval of the Reserve Bank.

6.

Check in cases of Post investment changes / additional investment

(or financial commitment) in existing JV / WOS ensure the reporting
to Reserve Bank, the details of such decisions within 30 days of

223

GUIDANCE NOTE ON SECRETARIAL AUDIT
the approval of those decisions by the competent authority of the

JV / WOS concerned in terms of local laws of the host country and
include the same in the Annual Performance Report

7.

Check whether the obligation of Indian party is fulfilled such as
reporting of remittances, Annual Performance Report.

Checked By

Reviewed By

Dated…………….

Dated…………….

General Obligations of Indian Party:

1. To remit funds from one branch of the AD for the particular Overseas Direct Investment;

2. To file Form ODI within 30 days of remittance;

3. The Unique Identification Number allotted to each JV or WOS abroad, is required to be
quoted in all correspondence with the Reserve Bank.;

4. Receive share certificates or any other document as an evidence of investment within 6
months from the date of remittance or such further date as the RBI may permit;

5. Each inward remittance to be supported by Foreign Inward Remittance Certificate to be
issued by AD-Bank;

6. To furnish the aforesaid Share Certificate to AD-Bank;

7. Repatriate to India, all dues receivable from the foreign entity, like dividend, royalty,
technical fees etc. within 60 days of its falling due, or such further date as the RBI may
permit;

8. Submit the APR on or before 30th June based on the latest audited financials of JV/ WOS;

9. Annual Return on Foreign Liabilities and Assets (FLA) needs to be filed on or before 15th

July every year

Checked By

Reviewed By

Dated…………….

Dated…………….

Note: ODI compliances by unincorporated entities have not been covered above.

Note: Relevant Act, Notification, Circulars-

1. The Companies Act, 2013 & Rules made thereunder

2. Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations,

2004

3. Master Direction – Direct Investment by Residents in Joint Venture (JV) / Wholly Owned

Subsidiary (WOS) Abroad. (RBI/FED/2015-16/10 FED Master Direction No. 15/2015-16

January 1, 2016 (Updated as on January 04, 2018).

4. It is advised to refer latest Master Director Circular as issued by Reserve Bank of India
from time to time.

224

6

EXTERNAL COMMERCIAL BORROWING

External Commercial Borrowings (ECB)

ECBs are commercial loans raised by eligible resident entities from recognized non-resident
entities and should conform to parameters such as minimum maturity, permitted and non-permitted
end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a
standalone basis. The framework for raising loans through ECB comprises the following three
tracks.

Track I:

Medium term foreign currency denominated ECB with Minimum average maturity of 3/5 years.

Track 2:

Long term foreign currency denominated ECB with minimum average maturity of 10 years

Track 3:

Indian Rupees denominated ECB with minimum average maturity of 3/5 years.

Form of ECBs: The ECB Framework enables permitted resident entities to borrow from recognised
non-resident entities in the following forms.

1. Loans including bank loans

2. Securitised instruments(floating rate notes and fixed rate bonds, non-convertible, optionally
convertible or partially convertible preference shares/debentures)

3. Buyers’ credit

4. Suppliers’ credit

5. Foreign Currency Convertible Bonds (FCCBs)

6. Financial Lease and

7. Foreign Currency Exchangeable Bonds (FCEBs)

However, ECB framework is not applicable in respect to the investment in non-convertible
debentures in India by Registered Foreign Portfolio Investors.

ECB can be accessed under two routes, viz.,

(i) Automatic Route and

(ii) Approval Route.

Points for Verification:

1. Eligibility of the company and the Quantum of Loan

EXTERNAL COMMERCIAL BORROWING

2. Applicable route- Automatic/ Approval

3. Details of the recognized lender

4. Maximum Permissible Amount

5. Mature and Tenure of ECB

6. All in cost Celling

7. End use of ECB

8. Security for ECB

9. Loan Registration Number

10. Conversion of ECB in to Equity.

Checklist on External Commercial Borrowing

Automatic Route:

S. No.

Particulars

Remarks

1.

Check the elgibility of the borrower in terms of the three tracks is set
out in the Regulations( Annexure I)

2.

Check whether that the eligible borrower obtained Loan Registration

Number from R.B.I. by submitting form 83 (certified by CS/CA) in
duplicate to RBI through AD Category 1Bank.

3.

Check the individual limits of ECB that can be raised by eligible
entities under the automatic route per financial year for all the three
tracks as given below are complied with for automatic route
a. Up to USD 750 million or equivalent for the companies in
infrastructure and manufacturing sectors, 19Non-Banking

Financial Companies -Infrastructure Finance Companies

(NBFC-IFCs), NBFCs-Asset Finance Companies (NBFCAFCs),

Holding Companies and Core Investment Companies;
b. Up to USD 200 million or equivalent for companies in software
development sector;
c. Up to USD 100 million or equivalent for entities engaged in
micro finance activities; and
d. Up to USD 500 million or equivalent for remaining entities.

4.

Check whether Designated AD Category I bank’s approval was
obtained in cases where there are any changes/modifications in the
drawdown/repayment Schedule whether associated with change in
the average maturity period or not and/ or with changes (increase/
decrease) in the all-in-cost.

5

Check the Debt Equity Ratio of the borrowing entities as per the
guidelines on debt equity ratio issued, if any, by the sectoral or

226

SECRETARIAL AUDIT
prudential regulator concerned.

6

Check whether the borrower has undertaken changes in the
currency of borrowing of the ECB to any other freely convertible
currency or to INR, if so, ensure that the entity complied with
prescribed parameters and obtained Designated AD Category I
bank’s approval. Change of currency of INR denominated ECB is
not permitted.

7

Check whether the borrower companyhas undertaken changes in
the name, if so ensure that the approval of Designated AD Category

I banks was obtained in this regard.

8

Check whether the borrower company has prepaid ECB, if so check
whether the approval of designated AD Category I bank was
obtained and other compliances relating to stipulated minimum
average maturity were satisfied

9

A. Ensure that the ECB proceeds are not utilized for the following
purposes:

i. Real estate activities other than development of integrated
township / affordable housing projects;
ii. Investing in capital market and using the proceeds for equity
investment domestically;
iii. Activities prohibited as per the foreign direct investment
guidelines;
iv. On-lending to other entities for any of the above purposes;
and
v. Purchase of Land

B. Also ensure that the

10.

Where there is change in end-use in respect of ECBs availed of
under the automatic route ensure that the proposed end-use is
permissible under the automatic route as per the extant ECB
guidelines and the approval of designated AD Category I banks was
obtained.

11.

Check whether in case of refinancing of existing ECB, approval of :

the designated AD Category I bank was obtained and other
conditions were also satisfied with regard to the outstanding
maturity of the original borrowing and all-in-cost of fresh ECB

12.

Check whether in case of extension of matured but unpaid ECB, the
approval of designated AD Category I bank was obtained and other
conditions were also satisfied with regard to the consent of lender,
no involvement of additional cost and fulfilment of reporting
requirements

227

EXTERNAL COMMERCIAL BORROWING

13.

Check if the ECB is raised under the erstwhile USD 5 million

Scheme, if so ensure approval of designated AD Category I banks
was obtained for elongation of repayment period for loans .

14.

Check where in cases ECB proceeds are parked abroad, the
unutilized funds are invested only in the following liquid assets
a. deposits or Certificate of Deposit or other products offered by
banks rated not less than AA (-) by Standard and Poor/ Fitch

IBCA or Aa3 by Moody’s;
b. Treasury bills and other monetary instruments of one year
maturity having minimum rating as indicated above and
c. deposits with overseas branches/ subsidiaries of Indian banks
abroad

15.

Ensure in cases where the ECB proceeds are parked domestically
in term deposits with AD Category I banks in India for a maximum
period of 12 months., these are kept in unencumbered position.

16.

Check whether the conversion of ECB including those which are
matured but unpaid, into equity, is as per the guidelines.

Ensure the timely reporting on account of conversion of ECB into
equity- In case of partial or full conversion of ECB into equity, the
reporting to the RBI will be as under:

i. For partial conversion, the converted portion is to be
reported to the concerned Regional Office of the Foreign

Exchange Department of RBI in Form FC-GPR prescribed
for reporting of FDI flows, while monthly reporting to DSIM in

ECB 2 Return will be with suitable remarks "ECB partially
converted to equity".

ii. For full conversion, the entire portion is to be reported in

Form FC-GPR, while reporting to DSIM in ECB 2 Return
should be done with remarks “ECB fully converted to equity”.

Subsequent filing of ECB 2 Return is not required. iii. For
conversion of ECB into equity in phases, reporting through

ECB 2 Return will also be in phases

17.

Check in cases where there is a change in ECB parameters, the
same was reported to the Department of Statistics and Information

Management (DSIM), Reserve Bank of India in revised Form 83 not
later than 7 days from the changes effected.

18.

Check whether the borrower timely reported the actual ECB
transactions through ECB 2 Return through the AD Category I bank
on monthly basis.

19.

Check whether ECB exposure has been hedged 100% at all times
and approval of risk management policy at board level has been

228

SECRETARIAL AUDIT
obtained. Immovable property cannot be acquired by overseas
lender/security trustee.

20.

Check whether the company has complied with requirements
relating to charge/pledging of shares etc.

Checked By

Reviewed By

Dated…………….

Dated…………….

Application for Approval Route

For approval route cases, the borrowers may approach the RBI with an application in prescribed
format Form ECB for examination through their AD Category I bank. Such cases shall be
considered keeping in view the overall guidelines, macro economic situation and merits of the
specific proposals by an Empowered Committee set up by RBI. The Empowered Committee will
have external as well as internal members. Entities desirous to raise ECB under the automatic
route may approach an AD Category I bank with their proposal along with duly filled in Form83.

ECBs for the following purposes will be considered only under the approval route:

(a) Import of second hand goods as per the Director General of Foreign Trade (DGFT)

guidelines;

(b) On-lending by Exim Bank.

(c) Proposals which are beyond the individual limits permitted under the Automatic route.

The framework of raising loans under the three different tracks is to be checked, to ensure whether
the ECB is under Automatic Route or Approval Route.

Relevant Act, Regulations:

The Companies Act, 2013 and rules made thereunder

Master Direction - External Commercial Borrowings, Trade Credit, Borrowing and Lending in

Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers

(RBI/FED/2015-16/15 FED Master Direction No.5/2015-16 January 1, 2016 (Updated as on May

09, 2018))

It is advised to visit www.rbi..org fro latest updates.

229

7

SECRETARIAL STANDARDS

Introduction

The Institute of Company Secretaries of India (ICSI), recognising the need for integration,
harmonisation and standardisation of diverse secretarial practices, has constituted the Secretarial

Standards Board (SSB) with the objective of formulating Secretarial Standards.

The SSB formulates Secretarial Standards taking into consideration the applicable laws, business
environment and the prevalent best secretarial practices. Secretarial Standards are developed:

– in a transparent manner;

– after extensive deliberations, analysis, research; and

– after taking views of corporates, regulators and the public at large.

Besides eminent members of the ICSI, SSB comprises representatives of major Industry

Associations viz., FICCI, CII, ASSOCHAM and PHD Chamber of Commerce & Industry,
representatives of regulatory authorities, such as the Ministry of Corporate Affairs, Securities &

Exchange Board of India, Insolvency and Bankruptcy Board of India, Reserve Bank of India,

Bombay Stock Exchange, National Stock Exchange of India Ltd. and representatives of other
professional bodies viz. the Institute of Chartered Accountants of India and the Institute of Cost

Accountants of India.

Applicability and Scope of Secretarial Standards

Section 118(10) of the Companies Act, 2013 requires every company to observe the Secretarial

Standards with respect to Board and General Meetings specified by the Institute of Company

Secretaries of India (ICSI) and approved as such by the Central Government.

Secretarial Standard on Meetings of the Board of Directors (SS-1) and Secretarial Standard on

General Meetings (SS-2) issued by the Institute of Company Secretaries of India (ICSI) are
applicable to all companies w.e.f. 1st July, 2015 (except One Person Company where there is one
director and class or classes of companies which are exempted through any notification of the

Central Government).

Since then the SS-1 and SS-2 have been revised by the ICSI and approved by the Central

Government under Section 118(10) of the Companies Act, 2013, which are applicable w.e.f. 1st

October, 2017.

The revised version of SS-1 and SS-2 applies to Board and General Meetings respectively, in
respect of which Notices are issued on or after 1st October, 2017.

Secretarial Standards are in conformity with the provisions of the applicable laws. However, if, due

SECRETARIAL STANDARDS
to subsequent changes in the law, a particular Standard or any part thereof becomes inconsistent
with such law, the provisions of the said law shall prevail.

The Secretarial Standards do not seek to substitute or supplant any existing laws or the rules and
regulations framed thereunder but, in fact, seek to supplement such laws, rules and regulations.

Need and benefits of Secretarial Standards

Companies follow diverse secretarial practices evolved over a period of time through varied
usages and as a response to differing business cultures. Therefore, a need was felt to integrate,
consolidate, harmonise and standardise all the prevalent diverse secretarial practices, so as to
ensure that uniform practices are followed by the companies throughout the country.

By following the Secretarial Standards in true letter and spirit, companies will be able to ensure
adoption of uniform, consistent and best secretarial practices. Such uniformity of best practices,
consistently applied, will result in furthering the shareholders democracy by laying down principles
for better corporate disclosures thus adding value to the general endeavor to strive for good
corporate governance.

The Secretarial Standards have been introduced under the legal umbrella of Companies Act, 2013
which is first of its kind in the world. It is a great recognition to the profession of Company

Secretaries and the ICSI, as the Company Secretaries in employment as well as in practice are
entrusted to ensure the compliance of the applicable Secretarial Standards.

While the basic principles for Board and General Meetings are articulated under the Companies

Act, 2013, the Secretarial Standards act as extended tone of those principles by giving clarity and
standardising the diverse practices. Secretarial Standards plays indispensable role in enhancing
the corporate culture and governance across the organisations.

In the Secretarial Standards, standard practices are articulated and comprehensively available at
one place, adherence to same by the corporates is greatly eased, the stakeholders are clear of
what they should expect and what their rights are. The Secretarial Standards facilitates ease of
doing business, improved governance, confidence building in minds of investors, improved
compliance level, ultimately leading to flow of capital in India and achieving the government’s
objective of make in India.

Incidentally, many a litigations are on account of non-following of proper procedures and non-
availability of proper records, improper maintenance/ manipulation and tampering of Minutes,
agenda papers, etc. The Standards addresses all these issues.

Compliance Checklist

Since, the Secretarial Standard on Meetings of the Board of Directors (SS-1) and Secretarial

Standards on General Meetings (SS-2) are mandatory as prescribed under Section 118(10) of the

Companies Act, 2013, it is necessary to ensure the effective compliance of Secretarial Standards
by the members of the profession and accordingly, the respective checklist on SS-1 and SS-2 has
been placed here for the reference.

231

GUIDANCE NOTE ON SECRETARIAL AUDIT

Checklist

Secretarial Standard on Meetings of the Board of Directors (SS-1)

Sl. No.

Particulars

Compliance Remarks

Convening a Meeting

1.

The Meeting has been convened by the authorised

person in accordance with the Standards.

2.

Notice of the Meeting (original/adjourned) was

given in writing to all directors at least 7 days
before the Meeting through one of the stipulated
modes in accordance with the Standards or within
such longer period as provided in the Articles of the

Company.

3.

The notice specified the serial number, day, date,

time and full address of the venue of the Meeting.

4.

The notice contains all necessary information to

enable the Directors to avail the facility of
participation through Electronic Mode.

5.

Agenda and Notes on Agenda for the Meeting was

given to all directors at least 7 days before the

Meeting through one of the stipulated modes in
accordance with the Standards or within such
longer period as provided in the Articles of the

Company.

6.

In case of a Meeting called at shorter

notice/sending agenda in respect of Unpublished

Price Sensitive information at shorter notice,
whether due procedure as per the Standards was
followed.

7.

The proof of sending Notices, Agenda and Notes

thereon and their delivery have been retained in
accordance with the Standards.

8.

Any other item not included in the Agenda was

taken up for consideration and approved in
accordance with the Standards.

232

SECRETARIAL STANDARDS

Sl. No.

Particulars

Compliance Remarks

Frequency of the Meeting

9

In case of a newly incorporated company, the 1st

Meeting of the Board was held within 30 days of
incorporation.

10.

The specified numbers of Meetings were held in a

year (calendar year) and the gaps between two
consecutive Meetings did not exceed the specified
period.

11.

Meetings of the Committees were held as

prescribed by any law or authority or as stipulated
by the Board.

12.

Meeting of the Independent Directors was held in

accordance with the Standards.

Quorum

13.

The requisite quorum of dis-interested directors

was present throughout the Meeting of the

Board/Committees
and
no
business
was
transacted
when
the
required
quorum
in
accordance with the Standards was not present.

14.

The directors participated through electronic mode

in a Meeting were counted for the quorum except
in case of restricted items of business as specified
under the law.

15.

The Board was properly constituted at the time of

Meeting and no business was transacted if the
number of directors reduced below the quorum
fixed by the Articles /Act, except those permissible
under the Act.

Attendance at the Meetings

16.

The Attendance Register for the Board and

Committee Meetings were duly maintained in
accordance with the Standards and kept in the
custody of the Company Secretary or any other
person authorised by the Board.

233

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance Remarks

17.

The attendance registers are preserved for a

period of at least eight financial years from the date
of last entry made therein and destruction thereof,
if any, during the year was made with the approval
of the Board.

18.

Leave of absence was granted to a director in

accordance with the Standards, if requested for.

Chairman

19.

The Chairman of the Company or any other

director duly elected as Chairman of the Board,
conducted the Meetings of the Board in
accordance with the Standards.

20.

In case of committees, the Chairman of the

committee as appointed by the Board or duly
elected by the committee members, conducted the

Meetings of the Committee in accordance with the

Standards.

Passing of Resolutions by Circulation

Authority

21.

The decision/approval of competent authority is

obtained before a particular business by means of
a resolution by circulation had been circulated in
accordance with the Standards.

22.

The items required to be transacted only at a

Meeting of the Board had not been passed by way
of resolution by circulation.

23.

Where requisite number of directors requested the

matter to be taken up at a Board Meeting, the
matter was placed for consideration at a Meeting of
the Board.

Procedure

24.

The draft of the resolution proposed to be passed

by circulation alongwith necessary papers including

234

SECRETARIAL STANDARDS

Sl. No.

Particulars

Compliance Remarks
explanatory note had been circulated to all the
directors of the company through the specified
modes of delivery.

25.

The explanatory note indicated the last date by

which the directors had to respond with their
assent/dissent and manner thereof.

Approval

26.

The resolution, if approved by the requisite majority

had been taken on record in accordance with the

Standards.

Recording

27.

The resolutions passed by circulation had been

noted at the next Board Meeting and the text
thereof with dissent or abstention, if any, were
recorded in the minutes of such Meeting including
the fact that the Interested Director, if any did not
vote on the resolution.

Minutes

28.

The Minutes of the Board/Committee Meetings

were signed by the Chairperson of that Meeting or
the next Meeting.

Maintenance

29.

Check whether:

i. Minutes are recorded in the books maintained
for that purpose.

ii. Distinct Minutes book are maintained in respect
of Board and Committee Meeting.

iii. Minutes maintained in electronic form, if any,
with Timestamp.

iv. The pages of the Minutes book are
consecutively numbered.

30.

Minutes are not pasted or attached to Minutes

235

GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance Remarks

Book, altered or tempered with in any manner.

31.

Minutes if maintained in loose-leaf form are bound

periodically in accordance with the Standards.

32.

The Minutes Books are kept at the Registered

Office of the company or at a place approved by
the Board.

Contents

33.

Check whether:

i. Minutes stated the number and type of the

Meeting, name of the company, day, date,
venue and time of commencement and
conclusion of the Meeting.

ii. Minutes record the names of the directors
present physically or through electronic mode,
the Company Secretary in attendance at the

Meeting and invitees, if any.

iii. Minutes contain a record of all appointments
made at the Meeting
iv. Minutes includes other specific contents in
accordance with the Standards.

34.

Minutes mention the brief background of all

proposals and summarise the deliberations thereof.

In case of major decisions, the rationale thereof
was also mentioned.

35.

Minutes recorded the fact that a resolution was

passed pursuant to the casting vote (if any) of

Chairman of the Meeting.

Recording

36.

Unsigned documents tabled or presented at the

Meeting, which were not part of the Notes on

Agenda and referred to in the minutes were
suitably identified by initialing in accordance with
the Standards.

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37.

Where a decision is superseded or modified

subsequently by the Board, the Minutes contains a
specific
reference
to
such
earlier
resolution/decision or state that the Resolution is in
supersession of all earlier Resolutions passed in
that regard.

38.

Minutes of the preceding Meeting were noted at

the next Meeting of the Board held immediately
following the date of entry of such minutes in the

Minutes Book.

Finalisation and Entry in Minutes Books

39.

The draft minutes were circulated to all directors/

Committee members within 15 days from the date
of conclusion of the Meeting in accordance with the

Standards.

40.

The Minutes were finalised and entered in the

Minutes Books within 30 days from the date of
conclusion of the original/adjourned Meeting.

41.

Alteration in the Minutes, if any, was made with the

express approval of the Board at its subsequent

Meeting at which the minutes are noted by the

Board and the fact of such alteration was recorded
in the Minutes of such subsequent Meeting.

Signing and dating

42.

Minutes are initialled, dated and signed by the

Chairman in accordance with the Standards.

43.

Within fifteen days of signing of the Minutes, a

certified copy thereof was circulated to the
directors in accordance with the Standards

Inspection & Extracts

44.

The inspection of Minutes was allowed and

Extracts thereof were provided in accordance with
the Standards.

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Preservation of Minutes

45.

Minutes of all Meetings are preserved permanently

in physical/electronic form and kept in the custody
of

Company

Secretary/
any
director
duly
authorised for the purpose by the Board.

46.

Office copies of Notices, Agenda, Notes on

Agenda and other related papers are preserved in
good order in physical or electronic form in
accordance with the Standards.

47.

Minutes of all Meetings of the transferor company

as handed over to the transferee company, if any,
are duly preserved permanently.

48.

Office copies of Notices, Agenda, Notes on

Agenda and other related papers of the transferor
company, as handed over to the transferee
company, if any, are duly preserved in accordance
with the Standards.

49..

The requisite approval of the Board/Central

Government is obtained, wherever necessary to
destroy any document in accordance with the

Standards.

50.

The Report of the Board of Directors included a

statement on compliances of applicable Secretarial

Standards.

Checklist

Secretarial Standard on General Meetings (SS-2)

Sl. No.

Particulars

Compliance Remarks

1.

The General Meetings during the year has been

convened by or under the authority of the Board in
accordance with the Standards.

2.

Annual General Meeting and the requisitioned

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Particulars

Compliance Remarks

Meeting, if any, called by the Board of

Directors/requisitionists convened between 9 am to

6 pm on a day other than National Holiday in
accordance with the Standards.

3.

The Notice alongwith accompanying documents

were given in writing to all Members, Directors,

Auditors, Secretarial Auditors, Debenture Trustees
and to other persons entitled to receive notice
through one of the specified modes at least 21
clear days in advance of the Meeting.

4.

Proof of sending of the notice and accompanying

document is retained by the company in
accordance with the Standards.

5.

The notice clearly specified the day, date, time and

full address of the venue of the Meeting including
the route map and prominent land mark wherever
required besides clearly specifying the nature of
the Meeting and the business to be transacted
thereat. In case of AGM, the serial number of the

Meeting was stated in Notice.

6.

The Notice was also hosted on the website of the

company, if any.

7.

The Notice was accompanied by attendance slip

and a Proxy form with clear instructions for filling,
stamping, signing and/or depositing the Proxy
form.

8.

The notice provided all necessary information to

enable the Members to access facility of e-voting in
accordance with the Standards.

9.

In all cases relating to the appointment or re-

appointment and/or fixation of remuneration of
directors the details in accordance with the

Standards has been provided in the explanatory
statement.

10.

The nature of the concern or interest (financial or

otherwise), if any, of the prescribed persons, in any

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Sl. No.

Particulars

Compliance Remarks
item of business or in a proposed Resolution, was
disclosed in the explanatory statement.

11.

In case of Meetings held at shorter notice due

procedure as per the Standard was followed.

12.

No items of business other than those specified in

the Notice and those specifically permitted under
law were taken up for consideration at the Meeting.

13.

A Meeting convened upon due Notice had not

been postponed or cancelled, except for reasons
beyond the control of the Board. In such case,
check whether it had been duly reconvened.

14.

No business was transacted at a Meeting, if the

Notice was not given in accordance with the

Standards.

Frequency of the Meeting

15.

The Annual General Meeting was held during the

year in accordance with the requirement of the Act
and the Standards.

16.

Extra-Ordinary General Meeting or a postal ballot,

if any, transacted the items of business other than
ordinary business and those of an urgent nature.

Quorum

17.

The requisite quorum was present throughout the

Meeting in accordance with the Standards.

Presence of Directors and Auditors

18.

All the directors of the company had attended the

General Meetings of the company. If any director
was unable to attend the Meeting, the reasons
thereof were explained by the Chairman at the

Meeting.

19.

The Auditors, unless exempted by the company,

attended the General Meetings of the company
either by themselves or through their authorised

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SECRETARIAL STANDARDS

Sl. No.

Particulars

Compliance Remarks
representative.

20.

The Secretarial Auditor, unless exempted by the

company, attended the Annual General Meeting,
either by himself or through his authorised
representative.

Chairman

21.

Meetings was conducted either by Chairman of the

Board or any other director so designated or any
other elected Chairman in accordance with the

Articles of Company or the Standards, as the case
may be.

22.

The objective and implications of the Resolutions

were explained by the Chairman before the same
were put to vote at the Meeting.

23.

In case of a public company, the Chairman

entrusted the conduct of the proceedings in respect
of an item in which he was concerned or interested
to any Non-Interested Director/Member and
resumed the Chair after that item of business has
been transacted at the Meeting.

Proxies

24.

Requirements of the Standards relating to Notice of

Right to Appoint Proxies, Form of Proxy, Stamping
of Proxies, Execution of Proxies, Proxies in Blank
and Incomplete Proxies, Deposit, Revocation,

Inspection and Record of Proxies have been duly
complied with.

Voting

25.

Every Resolution, except a Resolution which has

been put to vote through Remote e-Voting or on
which a poll has been demanded, was duly
proposed by a member and seconded by another
member.

26.

In case of a company having its equity shares

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Sl. No.

Particulars

Compliance Remarks
listed (other than the exempted companies) the e-
voting facility was provided to its members to
exercise their voting rights and also every

Resolution was put to vote through a ballot process
at the Meeting.

27.

Every Resolution except those placed for voting

through remote e-voting, in the first instance was
put to vote on a show of hands, unless a poll was
validly demanded.

28.

Voting at the Meeting was in accordance with the

law and the Standards.

Conduct of Voting by Electronic Means

29.

Company provided e-voting facility to its Members

in compliance with applicable provisions.

30.

The Board appointed an agency to provide

electronic platform for e-voting.

31.

The Board appointed scrutinizer(s), who was not

an officer or employee of the company for the e-
voting/ballot process.

32.

The Report of the Scrutinizer was submitted to the

Chairman or any other person authorised by the

Chairman for this purpose.

33.

The requirements of Standards w.r.t. conduct of e-

voting, declaration /publishing of results, custody of

Scrutinizer’s Report & related papers had been
duly complied with.

Conduct of Poll

34.

The demand/conduct of poll, if any, at the Meeting

was in accordance with the law and the Standards.

35.

In case of a poll not taken forthwith, the

Chairperson had announced the date, venue and
time of taking the poll to enable Members to have
adequate and convenient opportunity to exercise
their vote.

36.

Each Resolution put to vote by poll was put to vote

separately.

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SECRETARIAL STANDARDS

Sl. No.

Particulars

Compliance Remarks

37.

The Chairperson appointed such number of

scrutinizers, as necessary in accordance with the

Standard to ensure scrutiny of votes cast on a poll
in a fair and transparent manner.

38.

The requirements of Standards w.r.t. declaration /

publishing of results had been duly complied with.

Withdrawal of Resolutions

39.

No Resolution was withdrawn w.r.t. items of

business likely to affect market price of the
securities of the company or proposed for
consideration through e-voting.

Rescinding of Resolutions

40.

No Resolution passed at a Meeting has been

rescinded otherwise than by a Resolution passed
at a subsequent Meeting.

Modification to Resolutions

41.

No material modification to text of the Resolution,

as set out in the notice, was made at the Meeting
which alters the substance of the Resolution.

42.

No modification was made to any Resolution which

has already been put to vote by Remote e-voting
before the Meeting.

Reading of Reports

43.

The qualifications, observations or comments on

the financial statements or matters which have any
adverse/material adverse effect on the functioning
of the company, if any, mentioned in the Auditor’s

Report / Secretarial Audit Report were read at the

Annual General Meeting alongwith explanations /
comments given by the Board of Directors in their
report to such qualifications/observation and
comments of the Auditors/Secretarial Auditors.

44.

No gifts, gift coupons or cash in lieu of gifts was

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Particulars

Compliance Remarks
distributed to any member at or in connection with
the Meeting.

Adjournment of Meeting

45.

The adjournment of Meeting was in accordance

with the Standards.

46.

Notice of the adjourned Meeting was given in

accordance with the Standards.

47.

Quorum requirements were fulfilled in adjourned

Meeting.

48.

Only the unfinished business of the original

Meeting was taken up at an adjourned Meeting.

Passing of Resolution by Postal Ballot

49.

Passing of Resolution by Postal Ballot, if any, was

in accordance with the Standard.

50.

The Board appointed scrutinizer and appointed an

agency for the remote e-voting in case of postal
ballot.

51.

The Report of the Scrutinizer was submitted to the

Chairman/any other person authorised by the

Chairman for this purpose.

52.

The requirements of Standards w.r.t. Notice of

Postal Ballot, Declaration/publishing of results,
custody of Scrutinizer’s Report & related papers,
rescinding/modification of resolutions had been
duly complied with.

Minutes

53.

Minutes of the General Meetings were entered in

the minutes book and signed within 30 days of
conclusion of the Meeting. The date of entry of
minutes in the books was recorded by the

Company Secretary/any other person authorised
for this purpose in accordance with the Standards.

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SECRETARIAL STANDARDS

Sl. No.

Particulars

Compliance Remarks

54.

Check whether:

• Minutes are recorded in books maintained
for that purpose.

• Distinct Minutes book are maintained in
respect of Meeting of Members, Creditors
etc.

• Minutes maintained in electronic form, if
any, with Timestamp.

• The pages of the Minutes book are
consecutively numbered.

55.

Minutes are not pasted or attached to Minutes

Book, altered or tempered with in any manner.

56.

Minutes if maintained in loose-leaf form are bound

periodically in accordance with the Standards.

57.

The Minutes Books are kept at the Registered

Office of the company.

Contents and recording of Minutes

58.

Check whether:

• Minutes stated the name of Meeting, name
of the company, day, date, venue and time
of commencement and conclusion of the

Meeting. Minutes of Annual General

Meeting, also stated the serial number of
the Meeting.

• Minutes
recorded the names of the

Directors and Company Secretary present
at the Meeting in alphabetical order or in
any other logical manner, starting with the
name of the person in the Chair.

• Minutes
included
the
other
specific
contents,
wherever
applicable,
in
accordance with the Standards.

59.

The summary/brief report on e-voting or postal

ballot including the summary of scrutinizers report
in respect of resolutions passed through e-

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GUIDANCE NOTE ON SECRETARIAL AUDIT

Sl. No.

Particulars

Compliance Remarks
voting/postal ballot has been recorded in the
minutes book.

60.

Each item of business taken up at the Meeting was

numbered to enable ease of reference or cross
reference.

Signing and dating

61.

Minutes are initialled, dated and signed in

accordance with the Standards.

Inspection & Extracts of Minutes

62.

The requirements of the Standards in respect of

inspection of Minutes and providing extracts
thereof were duly complied with.

Preservation of Minutes and other Records

63.

Minutes of all Meetings are preserved permanently

in physical or in electronic form with Timestamp in
the custody of Company Secretary or any Director
duly authorised by the Board.

64.

Minutes of all Meetings of the transferor company

as handed over to the transferee company, if any,
are preserved permanently.

65.

Office copies of Notices, scrutiniser’s report and

other related papers are preserved in good order in
physical or electronic form in accordance with the

Standards.

66.

Office copies of Notices, scrutiniser’s report and

related papers of the transferor company, as
handed over to the transferee company, are
preserved in accordance with the Standards.

67.

The requisite approval of the Board/Central

Government is obtained, wherever necessary to
destroy any document in accordance with the

Standards.

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Particulars

Compliance Remarks

Report of the Annual General Meeting

68.

In case of listed public company, a report on the

Annual General Meeting (AGM), including a
confirmation that the Meeting was convened, held
and conducted as per the provisions of the Act was
prepared in the prescribed form and filed with the

Registrar of Companies within 30 days of the
conclusion of the AGM.

Disclosure

69.

The Annual Return of the Company disclosed the

date of Annual General Meeting held during the
financial year.

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8

GENERAL LAWS & SPECIFIC EVENTS

General Laws in Secretarial Audit

The Form MR-3 as notified by the MCA under section 204 of the Companies Act, 2013 has
provided that the Secretarial Auditor shall report on the status of the compliance of Other laws as
may be applicable specifically to the company as specified in point no. (vi) of MR-3.

Further the MR-3 also provides for further reporting on the status of the compliance along with the
comments on the adequacy of the systems and procedures in the company to manage the
compliance of the laws, rules, regulations and guidelines applicable to the company under the
following paragraph of the report.

“I/we further report that there are adequate systems and processes in the company commensurate
with the size and operations of the company to monitor and ensure compliance with applicable
laws, rules, regulations and guidelines."

This part of the Secretarial Audit report specifically refers to the compliance of the other applicable
laws apart from the Laws covered in the MR- 3 and Laws specifically applicable to the company.

Identification of Applicable Laws

The Secretarial Auditor may take note of various laws applicable to the Company as identified by
the Management of the company; also the auditor shall carry his own efforts to identify various
other laws as may be applicable to the company.

Specific Laws and General Laws

Segregation of laws applicable on the Company into the Industry specific and general is essential
for Secretarial Audit. After considering the following factors the auditor should make the
segregation of the same based on the laws being applicable on the Company:

Key financial parameters such as Turnover, Paid-up share capital, Net worth, Borrowings, etc.

–

Geographic location of registered office, units/divisions/plants/branches, etc.

–

Status of company such as listed/unlisted

–

Type/Class of company such as Private, Public, Holding, Subsidiary, Foreign, Nidhi, Producer,

–

Section 8, etc.

Registration with various authorities such as SEZ, Sectoral Regulators, etc.

–

Segment such as Manufacturing/Trading/Service/e-commerce and Industry classification

–
thereof

Agreements governing rights, obligations of shareholders such as Joint venture, shareholders’

–

GENERAL LAWS & SPECIFIC EVENTS

agreements.

Number, class and category of employees/workers such as women, contractual employees,

–
etc.

The auditor should comprehensively verify all laws, rules, regulations made for regulation of
specific Industry and should assess the adequacy of systems and process for other General laws
applicable to the Company other than Industry Specific Laws and laws specifically covered under

Form MR-3.

Further, the Secretarial Auditor should also report on whether –

─ the Board of Directors of the Company is duly constituted with proportion of Executive

Directors, Non-Executive Directors, Independent Directors, and Women Director.

─ the changes in the composition of the Board of Directors that took place during the period
under review were carried out in compliance with the provisions of the Act.

─ adequate notice is given to all directors to schedule the Board Meetings, agenda and
detailed notes on agenda were sent at least seven days in advance, and a system exists
for seeking and obtaining further information and clarifications on the agenda items before
the meeting and for meaningful participation at the meeting.

─ majority decision is carried through while the dissenting members’ views are captured and
recorded as part of the minutes.

Secretarial Auditor is required to report and provide details of specific events and actions that
occurred during the reporting period having major bearing on the affairs of the company in
pursuance of above referred laws/rules & regulations

Scope of Secretarial Audit as decided by the Council of ICSI (specific reference to other
laws as may be applicable specifically to the company)

The Council of the ICSI at its 226th meeting held on November 21, 2014 decided on the Scope of

Secretarial Audit relating to reporting of Specific and General laws, which is as under:

•

“Reporting on compliance of ‘Other laws as may be applicable specifically to the company’

shall mean all the laws which are applicable to specific Company for example for Banks- all
laws applicable to Banking Industry; for insurance company-all laws applicable to insurance
industry; likewise for a company in petroleum sector- all laws applicable to petroleum
industry; similarly for companies in pharmaceutical sector, cement industry, etc.

Examining and reporting whether the adequate systems and processes are in place to monitor and
ensure compliance with general laws like labour laws, competition law, environmental laws.”

Reporting of General Laws

As stated above, the Secretarial Auditor should verify and report that adequate system and
processes are in place to monitor and ensure compliance with general laws like labour laws,
competition law, and environmental laws

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GUIDANCE NOTE ON SECRETARIAL AUDIT

The General Laws relating to Labour laws includes:

1. Factories Act, 1948

2. Industrial Disputes Act, 1947

3. The Payment of Wages Act, 1936

4. The Minimum Wages Act, 1948

5. Employees’ State Insurance Act, 1948

6. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

7. The Payment of Bonus Act, 1965

8. The Payment of Gratuity Act, 1972

9. The Contract Labour (Regulation & Abolition) Act, 1970

10. The Maternity Benefit Act,1961

11. The Child Labour (Prohibition & Regulation) Act, 1986

12. The Industrial Employment (Standing Order) Act, 1946

13. The Employees’ Compensation Act, 1923

14. The Apprentices Act, 1961

15. Equal Remuneration Act,1976

16. The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959

To ensure existence of adequate systems and processes in the company, the Compliance status
of the above indicative list of Central / State Labour laws and Local laws should be verified by the

Secretarial Auditor. Further the Auditor should also verify the procedure followed by the company,

Responsibility/ onus of doing compliance, timelines for doing compliance, Compliance chart, etc.

2. Competition Law Compliances

The Competition Act, 2002 provides a general legal framework prohibiting anti-competitive
agreements, abuse of dominant position and regulating certain combinations.

(i) Periodical Self Assessment

It is important to note that the Act operates on a “self-assessment” basis, meaning that businesses
must determine for themselves whether its agreement, conduct, M & A transaction will be lawful or
could breach the provisions of the Act particularly in view of the fact that there are no block
exemptions, market share based test to evaluate anti-competitive conduct as prevalent in other
matured jurisdictions such as European Union. In this context, it is for businesses to carryout self
assessment of their business practices and take steps to ensure that their practices, business
contracts and dealings, etc. comply with the provisions of the Act.

(ii) Abuse of Dominant Position

Competition Act, 2002 does not prohibit the mere possession of dominant position, but only its

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GENERAL LAWS & SPECIFIC EVENTS

abuse, thus recognizing that a dominant position may have been achieved through superior
economic performance. Once it is determined that an enterprise is in dominant position, then the
next question that arises is whether there has been an abuse of dominant position.

In particular Section 4(2) states that there shall be an abuse of dominant position if an enterprise
indulges in any of the activities listed in the sub-section, these being unfair or discriminatory
condition or price including predatory pricing, limiting or restricting production or technical or
scientific development, denying market access, imposing supplementary obligations having no
connection with the subject of the contract, or using dominance in one market to enter into or
protect another relevant market.

(iii) Regulation of Combinations

According to the provisions of the Competition Act, 2002, combinations are discouraged, if they
reduce or harm competition. Act does not provide for monitoring all kinds of combinations by the

CCI, for the reason that very few Indian companies are of international size and that in the light of
continuing economic reforms, opening up of trade and foreign investment, a great deal of corporate
restructuring is taking place in the country and that there is a need for mergers, amalgamations
etc. as part of the growing economic process before India can be on an equal footing to compete
with global giants, as long as the mergers are not prejudicial to consumer interest.

It is in this context, the provisions relating to combinations in the Act are fairly liberal, in the sense
that the thresholds are relatively high, and if the Commission fails to complete the investigation and
pass an order regarding the combination within the prescribed time period, the combination is
deemed to have been approved.

The Competition Act, 2002 regulates those combinations which, in certain circumstances, causes
or is likely to cause an appreciable adverse effect on competition within relevant market in India
and renders such a combination as void.

3. Environmental Laws

India’s economic development propelled by rapid industrial growth and urbanization is causing
severe environmental problems that have local, regional and global significance. Recognising the
need for regulating the factors which are affecting environment, Government of India has
established an environmental legal and institutional system to meet these challenges within the
overall framework of India’s development agenda and international principles and norms.

(i) Legal Framework

India has an elaborate legal framework with number of laws relating to environmental protection.

key national laws include the following:

•

Water (Prevention and Control of Pollution) Act, 1974;

•

Water (Prevention and Control of Pollution) Cess Act, 1977;

•

Air (Prevention and Control of Pollution) Act, 1981;

•

Environment (Protection) Act, 1986;

•

The Public Liability Insurance Act, 1991;

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GUIDANCE NOTE ON SECRETARIAL AUDIT

•

The Biodiversity Act,2002;

•

The National Green Tribunal Act,2010;

•

Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008;

•

Plastic Waste Management Rules, 2016;

•

Bio-Medical Waste Management Rules, 2016;

•

Construction and Demolition Waste Management Rules, 2016;

•

E-waste Management Rules, 2016;

•

The Batteries (Management and Handling) Rules, 2001 made under the Act.

(ii) List of Projects Requiring Environmental Clearance from the Central Government

• Nuclear Power and related projects such as Heavy Water Plants, Nuclear Fuel Compley,

Rare Earths.

• River valley projects including hydel power, major irrigation and their combination including
flood control.

• Ports, harbours, airports (except minor ports and harbours).

• Petroleum refineries including crude and product pipelines.

• Chemical fertilizers (nitrogenous and phosphatic other than single super phosphate).

• Pesticides (Technical).

• Petrochemical complexes (Both Olefinic and aromatic) and Petrochemical intermediates
such as DMT, Caprolactam LAB etc. and production of basic plastics such as LLDPE, HDPE,

PP, PVC.

• Bulk drugs and pharmaceuticals.

• Exploration for oil and gas and their production, transportation and storage.

• Synthetic rubber.

• Asbestos and asbestos products.

• Hydrocyanic acid and its derivatives: (a) Primary metallurgical industries (such as production
of Iron and Steel, Aluminium, Copper, Zinc, Lead and Ferro Alloys), (b) Electric arc furnaces

(mini steel plants).

• Chloralkali industry.

• Integrated paint complex including manufacture of resins and basic raw materials required in
the manufacture of paints.

• Viscose staple fibre and filament yam.

• Storage batteries integrated with manufacture of oxides of lead and lead antimony alloys.

• All tourism projects between 200-500 meters of High Water Line and at locations with an

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GENERAL LAWS & SPECIFIC EVENTS

elevation of more than 1,000 metres with investment of more than Rs. 5 crores.

• Thermal Power Plants.

• Mining Projects (major minerals) with leases more than 5 hectares.

• Highway Projects.

• Tarred roads in Himalayan and or Forest areas.

• Distilleries.

• Raw Skins and Hides.

• Pulp, Paper and Newsprint

• Dyes.

• Cement.

• Foundries (individual).

• Electroplating.

• Meta amino phenol

(iii) Industries which require Industrial Licensing

• Coal and Lignite

• Petroleum (other than crude) and its distillation products.

• Distillation and brewing of alcoholic drinks.

• Sugar

• Animal fats and oils and their preparations

• Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

• Asbestos and asbestos-based products.

• Plywood, decorative veneers and other wood based products such as particle board,
medium density fibre board, and block board.

• Leather

• Tanned or dressed fur skins.

• Paper and Newsprint except bagasse based unit. (i.e. except units based on minimum 75%
pulp from agricultural residues, bagasse and other non-conventional raw materials).

• Electronic aerospace and defence equipment all types.

• Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and
matches, explosives; pyrotechnic products; matches; pyrophoric alloys; certain combustible
preparations.

• Drugs and Pharmaceuticals (according to Drug Policy)

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GUIDANCE NOTE ON SECRETARIAL AUDIT

• Entertainment electronics (VCRS, colour TVs, CD players, tape recorders).

(iv) List of Polluting Industries:

• Primary metallurgical producing industries viz.. zinc, lead, copper, aluminium and steel.

• Paper, pulp and newsprint.

• Pesticides / insecticides.

• Refineries.

• Fertilizers.

• Paints.

• Dyes.

• Leather tanning.

• Rayon.

• Sodium / potassium cyanide.

• Basic drugs.

• Foundry.

• Storage Batteries (lead acid type).

• Acids / alkalies.

• Plastics.

• Rubber - synthetic.

• Cement.

• Asbestos.

• Fermentation industry.

• Electroplating industry.

4. Reporting of Specific Event under Secretarial Audit Report

The Secretarial Auditor shall identify and report all events/actions having major bearing on the

Company‘s affairs/ Governance in pursuance of the applicable laws, rules, regulations, guidelines,
standards, etc. An event/action may be considered as having major bearing on Company‘s affairs
includes the following situations:

• Events/actions altering the charter documents of the Company

• Changes in the Capital structure of the company

• Change in the affairs/management of the company

• Change in the licensing or permission for the business operation of the company

254

GENERAL LAWS & SPECIFIC EVENTS

• Capacity expansion and utilization of the company

• Sale/ Disposing of the substantial assets of the company

• Entering in to Joint ventures agreements etc.

Expression of Audit Limitation

In case either due to restrictions or circumstantial limitations, necessary information cannot be
accessed by the secretarial auditor which may /may not have the impact on the report of the

Auditor, in such cases, the auditors should mention such limitation in the Secretarial Audit Report.

255

9

BOARD PROCESSES

Introduction

Directors, collectively called Board of Directors, in fulfilling the fiduciary objectives need to ensure
that the company adheres to transparent, ethical and responsible governance of the company. It is,
therefore, important that the Board processes of the company are robust.

The board process refers to the processes followed for decision making by the Board and its
committees. They can be broadly divided into two parts namely:-

1. Part A – Board Structure

2. Part B – Board Systems and Procedures

PART A – BOARD STRUCTURE

The expression covers various attributes and dimensions of boards ranging from size and diversity
to balancing of various interests and independence. The Board structure can further be divided as
under:

A.1 Size and Composition of Board

S. No.

Particulars

Remarks

1.

Check that the minimum number of directors in a private
company is 2 and public company is 3.

2.

Check that the maximum number of directors does not
exceed fifteen, In case the company has exceeded the
maximum limit has it passed special resolution for the
same.

(In case of a government company provisions relating to
maximum number of directors does not apply).

3.

In case of a listed public company

Check whether there is optimum combination of executive
and non-executive directors, whether the Board of

Directors comprise of not less than fifty percent non-
executive directors (NEDs) and atleast one woman
director

4.

In case the company falls under following category, check
that the company has appointed atleast one woman
director–

BOARD PROCESSES

S. No.

Particulars

Remarks

(I) every listed company;

(II) every other public company having–

• paid-up share capital of one hundred crore rupees
or more; or

• turnover of three hundred crore rupees or more

5.

In case the company is a listed public company check:

• if the Chairperson of the Board is a Non-Executive

Director, atleast one-third of the Board comprises of
independent directors.

• if the company does not have a regular Non-Executive

Chairman, atleast half of the Board comprises of
independent directors.

• if the regular Non-Executive Chairman is a promoter
of the company or is related to any promoter or person
occupying management positions is at the Board level
or at one level below the Board, atleast one-half of the

Board of the company consists of independent
directors

6.

In case the company falls under following category check
if company has appointed at least two directors as
independent directors:

i. the Public Companies having paid up share capital of
ten crore rupees or more; or
ii. the Public Companies having turnover of one hundred
crore rupees or more; or
iii. the Public Companies which have, in aggregate,
outstanding
loans,
debentures
and
deposits,
exceeding fifty crore rupees:

in case a company covered under the relevant law/rule is
required to appoint a higher number of independent
directors due to composition of its audit committee, such
higher number of independent directors shall be applicable
to it.

7.

Check whether the company has entered in to the

Shareholders Agreement, Joint venture Agreement, Loan

Agreement and such agreement provides for the

Appointment of Director, if so, whether such terms are also
complied or not.

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GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks

8.

Ensure that all the independent directors meet the
qualifying criteria, for the purpose check the declaration
given by every independent director to the board in terms
of the Companies Act, 2013 and the SEBI(LODR)

Regulations, 2015.

9.

Check whether the independent directors has given
declaration of independence individually on an annual
basis, declaring that he satisfies the criteria of
independence as provided under the Companies Act,

2013.

10.

Check the formal letter of appointment given to
independent directors and the terms and conditions of
appointment are available on company’s website as per
the Companies Act, 2013.

Check whether the independent directors has provided
remuneration by way of fee, reimbursement of expenses
for participation in the Board and other meetings and profit
related commission as approved by the members.

Check whether the independent directors hve availed any
stock options.

Check whether all fees or compensation, paid to non-
executive directors, including independent directors are
recommended by the Board of Directors and has been
approved by the shareholders in general meeting.

Check whether the remuneration/ stock options were paid
within the approved limits by the shareholders.

In case the sitting fees payable to the non-executive
directors exceeds the limit prescribed under the

Companies Act, 2013 check whether the prior approval of
shareholders in general meeting has been obtained.

11.

In case of a listed company, Whether the company has
appointed the small shareholder Director.

Check whether the Small Shareholders have demanded
that their representative should be elected to the Board
upon notice of not less than one thousand small
shareholders or one-tenth of the total number of such
shareholders, whichever is lower, at least 14 days before
the meeting.

Check
whether
the
requisite
compliance
w.r.t.

258

BOARD PROCESSES

S. No.

Particulars

Remarks

Advertisement, notice to the members has been made.

12.

Check that director representing small shareholders

i. is not subjected to retirement by rotation and
ii. is not holding such position in more than two
companies.

13.

Check whether the small shareholder director has been
appointed in any other company, which is having conflict
or competition with the business of first company.

Check that the person is not appointed for a period
exceeding three consecutive years.

14.

Check that at least one director of the company has
stayed in India for a total period of not less than 182 days
in previous calendar year.

15.

Check whether the Company has filled the vacancies due
to resignation, casual vacancies, and vacation of office
within the respective time limits according to the provisons
of the Companies Act, 2013.

16.

Check whether the board has appointed the separate
individuals as Key Managerial Personnel i.e. Managing

Director, Company Secretary and Chief Financial Officer in
the company.

PART B - BOARD SYSTEMS AND PROCEDURE

1

Check that the company held its first meeting in 30 days of
incorporation and a minimum number of four meetings of
its Board of Directors during the year in such a manner
that there was gap of not more than one hundred and
twenty days between two consecutive meetings of the

Board.

2

Check that the notice in writing was sent to every director
at his address registered with the company either by hand
delivery or by post or by electronic means at least seven
days prior to the meeting. In case meeting of the Board
was called by giving not less than seven days’ notice
ensure that at least one independent director, if any, was
present at the meeting. In case of absence of independent
directors from such a meeting of the Board, check that

259

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks
decisions taken at such a meeting were circulated to all
the directors and are ratified by at least one independent
director, if any.

Check whether the notice to be supported by agenda
giving writeup on each item.

3

If the company provides audio-visual facility, check that
the notice of the meeting informs that the directors
regarding the option available to them to participate
through video conferencing mode or other audio visual
means, and also provide necessary information enable the
directors to participate through video conferencing mode
or other audio visual means.

Check whether the video conferencing is recorded and
kept under safe custody

4

Check that following matters were not dealt through video
conferencing or other audio visual means in board
meeting:

i.

the approval of the annual financial statements;
ii.

the approval of the Board’s report;
iii.

the approval of the prospectus;
iv.

the Audit Committee Meetings for consideration
of financial statement including consolidated
financial statement if any, to be approved by
the board under sub-section (1) of section

134 of the Act; and
v.

the approval of the matter relating to
amalgamation, merger, demerger, acquisition
and takeover.

Provided that where there is quorum presence in a
meeting through physical of directors, any other director
may participate conferencing through video or other audio
visual rneans.

5

Check that the quorum for a meeting of the Board of

Directors of a company was present i.e. one third of its
total strength or two directors, whichever is higher, and the
participation of the directors by video conferencing or by
other audio visual means was also counted for the
purpose of quorum.

260

BOARD PROCESSES

S. No.

Particulars

Remarks

6

Check that the independent directors of the company had
at least one meeting in a financial year, without the
attendance of non-independent directors and members of
management.

7

Check that in separate meeting of independent directors
they reviewed the performance of non-independent
directors and the Board as a whole and reviewed the
performance of the Chairperson of the company, taking
into account the views of executive directors and non-
executive directors and to assess, the quality, quantity and
timeliness of flow of information between the company
management and the Board which is necessary for the

Board to effectively and reasonably perform its duties.

8

Check that every listed company and every other public
company having a paid up share capital of twenty five
crore rupees or more calculated at the end of the
preceding financial year has in its Board’s report made a
statement indicating the manner in which formal annual
evaluation [of the performance of the board, its committee
and of individual director has been made by the Board of
its own performance and that of its committees and
individual directors.

9

Check that every director discloses his concern or interest
in any company or companies or bodies corporate

(including shareholding interest), firms or other association
of individuals, by giving a notice in writing in Form MBP-1,
at the first meeting of the Board in which he participates as
a director and thereafter at the first meeting of the Board in
every financial year or whenever there is any change in
the disclosures already made.

10

Check whether the interested director has participated
when such contract or arrangement was taken up for
discussion and was not counted for the quorum for the
same.

11

In case of listed company, Check that all material
transactions with related parties have been placed before
the Audit committee and disclosed quarterly along with the

Corporate Governance report filed with the Stock

Exchanges.

261

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks

12

Check that the company has formulated a policy on
materiality of Related Party Transaction and also on
dealing with Related Party Transactions and the same is
disclosed on its website and also in the Annual Report.

13

In case of listed company check that the all Related

Party Transactions had prior approval of the Audit

Committee.

14

In case the Audit committee has provided, omnibus
approval for certain Related Party Transaction, ensure that
the such transaction are within the criteria of the approval
and such approval shall not be provided for a period
exceeding one year.

15

Check whether the audit committee reviewed, at least on
a quarterly basis, the details of related party transactions
entered into by the company pursuant to each of the
omnibus approvals given by the Committee.

16

All Related Party Transactions have been approved by the
shareholders. In case of a listed company ensure that the
related parties have not voted on material related party
transaction whether the entity is a related party to the
particular transaction or not.

(This shall not apply to transactions between wholly owned
subsidiary and holding company and between two
government companies.)

17

Check the Board periodically review the systems and
processes followed by the company

Whether such systems and processes are adequately
commensurate with its size and operations of the company

Whether the company has compliance management frame
work to monitor and ensure compliance with applicable
laws, rules, regulations and guidelines and that such
systems and processes are operating effectively.

18

Check that the board of directors has laid a code of
conduct for all members of board of directors and senior
management of the listed entity.

Whether the company has received the confirmation of
compliance of the code of conduct form the Directors and

262

BOARD PROCESSES

S. No.

Particulars

Remarks
officers of the company.

19

Check that the Board periodically reviews compliance
reports of all laws applicable to the company, prepared by
the company as well as steps taken by the company to
rectify instances of non-compliances.

Check whether the board has identified and keep a track
on the high risk area and critical compliance of the
company.

20

Check that the Company has succession plan for his Key

Managerial Personnel and senior officials.

If so, Check whether the Board of the company satisfies
with the existing succession plans in place.

21

Check that the minutes of board/ committee meetings are
properly maintained in accordance with the Act.

22

Check whether the company has complied with the

Secretarial Standards (SS-1 &SS-2) issued by ICSI.

BOARD COMMITTEE

1

Check whether the anydirector is a member in more than
ten committees or acting as Chairman of more than five
committees across all companies excluding private
companies, foreign companies and section 8 companies,
in which he is a director.

2

Check where the company falls under any of the following
categories:

i. a listed company;
ii. all public companies with a paid up capital of ten crore
rupees or more on the date of last audited Financial

Statements;
iii. all public companies having turnover of one hundred
crore rupees or more on the date of last audited

Financial Statements;
iv. all public companies, having in aggregate, outstanding
loans or borrowings or debentures or deposits
exceeding fifty crore rupees or more on the date of last
audited Financial Statements

263

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks

If yes, check that the Board of directors have constituted
an Audit Committee and a Nomination and Remuneration

Committee of the Board.

3

Check that the audit committee consists of a minimum of
three directors with a majority of independent directors.

In case of listed company Two-third of the total number of
members of audit committee shall be independent
directors.

Ensure that the board’s report discloses the composition of
an audit committee.

4

Check that the majority of members of Audit Committee
including its Chairperson are persons with ability to read
and understand the financial statement.

In case of listed company all members of audit committee
shall be financially literate and at least one member shall
have accounting or related financial management
expertise.

In case of listed company, check whether the Chairman of
the Audit Committee is an independent director and that
the Chairman of the Audit Committee was present at

Annual General Meeting to answer the queries of
shareholder/s.

5

Check that the Audit Committee of the company if any, in
consultation with the Internal Auditor, has formulated the
scope, functioning, periodicity and methodology for
conducting the internal audit.

6

Check whether the company falls under any one of the
following categories :

i. a listed company;
ii. a company which accepts deposits from the public;
iii. a company which has borrowed money from banks
and public financial institutions in excess of fifty crore
rupees.

If yes, check that the company has constituted vigil
mechanism for their directors and employees to report
their genuine concerns or grievances.

264

BOARD PROCESSES

S. No.

Particulars

Remarks

7

Check that the terms of reference (in addition to other
items) of audit committee ensures overseeing the vigil
mechanism of the company.

8

In case of listed companies, check whether the details
relating to Related party transactions entered into by the
company pursuant to each omnibus approval has been
placed before the audit committee at least on quarterly
basis.

9

In case of listed company check that the Audit Committee
has met at least four times in a year and not more than
one hundred days have elapsed between two meetings.

10

In case of listed company check that the quorum of audit
committee was maintained in all meetings i.e. either two
members or one third of the members of the audit
committee whichever is greater, but there should be a
minimum of two independent members present.

11

Check that any recommendation of the audit committee
which is not accepted by the Board is disclosed in the

Board’s report.

12

Check that the Nomination and Remuneration Committee
consists of atleast three or more non-executive directors
out of which not less than one-half are independent
directors.

13

Check whether the Chairman or a member of the
nomination and remuneration committee was present at
the Annual General Meeting, to answer the shareholders’

queries.

14

Check whether the board’s report provides the salient
features of the remuneration policy relating to the
remuneration of the directors, key managerial personnel
and other employees and the evaluation criteria of
independent directors.

Whether such policy has been be placed on the website of the
company.

15

Check whether the remuneration to KMPs is as per the
remuneration policy framed by the company

265

GUIDANCE NOTE ON SECRETARIAL AUDIT

S. No.

Particulars

Remarks

16

Check that where a company consists of more than one
thousand
shareholders,
debenture-holders,
deposit-
holders and any other security holders at any time during
a financial year has constituted a Stakeholders

Relationship Committee consisting of a chairperson who
shall be a non-executive director and such other members
as may be decided bythe Board.

17

Check whether the Chairman or a member of the

Stakeholders Relationship Committee was present at the

Annual General Meeting, to answer the shareholders’

queries.

18

Check that every company having net worth of rupees five
hundred crore or more, or turnover of rupees one
thousand crore or more or a net profit of rupees five crore
or more during the immediately preceding financial year
has constituted a Corporate Social Responsibility

Committee of the Board consisting of three or more
directors, out of which at least one director is an
independent director.

19

Check that the board’s report discloses the details about
the policy developed and implemented by the company on
corporate social responsibility initiatives taken during the
year.

20

Check that the Corporate Social Responsibility Policy for
the Company was approved by the board of directors and
the contents of such Policy are disclosed in its report and
also place it on the company’s website.

21

Check that the composition of the all committees are also
disclosed in the Board’s Report.

266

10

SPECIMEN OF QUALIFIED SECRETARIAL AUDIT REPORT

FOR THE FINANCIAL YEAR ENDED ON 31ST March, 20_

[Pursuant to section 204(1) of the Companies Act, 2013 and Rule No. 9 of the Companies

(Appointment and Remuneration Personnel) Rules, 2014]

To,

The Members, XYZ Limited

I/We have conducted the secretarial audit of the compliance of applicable statutory provisions and
the adherence to good corporate practices by XYZ Limited (hereinafter called the Company).

Secretarial Audit was conducted in a manner that provided me/us a reasonable basis for
evaluating the corporate conducts/statutory compliances and expressing our opinion thereon.

Based on my/our verification of the Company ’s books, papers, minute books, forms and returns
filed and other records maintained by the Company and also the information provided by the

Company, its officers, agents and authorized representatives during the conduct of secretarial
audit, I/We hereby report that in my/our opinion, the company has, during the audit period covering
the financial year ended on 31st March, 20…. complied with the statutory provisions listed
hereunder and also that the Company has proper Board-processes and compliance mechanism in
place to the extent, in the manner and subject to the reporting made hereinafter:

I/We have examined the books, papers, minute books, forms and returns filed and other records
maintained by XYZ Limited for the financial year ended on 31st March, 20… according to the
provisions of:

(i) The Companies Act, 2013 (the Act) and the rules made thereunder;

(ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;

(iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;

(iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder
to the extent of Foreign Direct Investment, Overseas Direct Investment and External

Commercial Borrowings;

(v) The Regulations and Guidelines prescribed under the Securities and Exchange Board of

India Act, 1992 (‘SEBI Act’) viz.:-

(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011;

(b) The Securities and Exchange Board of India (Prohibition of Insider Trading)

Regulations, 1992/ SEBI (Prohibition of Insider Trading) Regulations, 2015;

GUIDANCE NOTE ON SECRETARIAL AUDIT

(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure

Requirements) Regulations, 2009;

(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and

Employee Stock Purchase Scheme) Guidelines, 1999/ SEBI (Share Based Employee

Benefits) Regulations, 2014;

(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities)

Regulations, 2008;

(f) The Securities and Exchange Board of India (Registrars to an Issue and Share

Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with
client;

(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations,

2009; and

(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations,

1998;

(i) SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

(vi) and other applicable laws like in case of a pharmaceutical Company, the Pharmacy Act,

1948; Drugs and Cosmetics Act, 1940; Homeopathy Central Council Act, 1973, etc.

I/We have also examined compliance with the applicable clauses of the following:

(i) Secretarial Standards issued by The Institute of Company Secretaries of India.

(ii) The Listing Agreements entered into by the Company with Stock Exchange.

During the period under review the Company has complied with the provisions of the Act, Rules,

Regulations, Guidelines, Standards, etc. mentioned above except to the extent as mentioned
below:

1. In respect of issue of further shares, company did not pass a special resolution before
allotting shares to persons other than existing members. This is a non-compliance of
section 62 of the Companies Act, 2013.

2. Where as in terms of the provisions of Section 149(4) & 149(5) of the Companies Act,

2013 read with rule 4 of the Companies (Appointment And Qualification Of Directors)

Rules, 2014 and listing agreement, the Company was required to appoint Independent

Directors on the Board of the Company the Company could not comply with the same.

3. Where as in terms of the provisions of Section 149(1) of the Companies Act, 2013 read
with rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the

Company was required to appoint at least one Women Director on the Board of the

Company latest by 31st March, 2015, the Company could not comply with the same.

4. Whereas in terms of the provisions of Section 177(1) of the Companies Act, 2013 read with
rule 6 of the Companies (Meetings of Board and Its Powers) Rules, 2014, the Company
was required to constitute an Audit Committee of the Board, the Company could not

268

SPECIMEN OF QUALIFIED SECRETARIAL AUDIT REPORT

comply with the same.

5. Whereas in terms of the provisions of Section 178(1) of the Companies Act, 2013 read with
rule 6 of the Companies (Meetings of Board and Its Powers) Rules, 2014 and Regulation

19 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the

Company was required to constitute a Nomination & Remuneration Committee of the

Board, the Company could not comply with the same.

6. Whereas in terms of the provisions of Section 203 of the Companies Act, 2013, the

Company was required to have certain Key Managerial Personnel (KMP). The Company
has not appointed a Company Secretary in terms of the provisions of Section 204 of the

Companies Act, 2013.

7. Whereas in terms of the provisions of Section 203 of the Companies Act, 2013, the

Company was required to have certain Key Managerial Personnel (KMP). The Company
has not appointed a Chief Financial Officer (CFO) in terms of the provisions of Section 204
of the Companies Act, 2013.

8. The Company has not filed/filed with delay following forms/returns required to be submitted
with the Registrar of Companies.

9. Whereas in terms of the provisions of section 138 of the Companies Act, 2013 the

Company has not appointed Internal Auditor during the year.

10. Whereas in terms of the Regulation- 33 of the SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015 regarding delayed submission of financial result for the
year ended 31st March, the quarter ended and the quarter ended. Company has also
received notices of penalty in this regard from the Stock Exchanges .

11. Whereas in terms of the Regulation 24 (1) of the SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015, to the extent of appointment of Independent Director on
the Board of Material non-listed Indian Subsidiary is not complied with.

12. The reporting Compliances with respect to the Foreign Exchange Management Act, 1999

(“FEMA Act”) and the Rules and Regulations made thereunder to the extent of issue of

GDR and compliances pursuant to Paragraph 4(3) of Schedule 1 of Notification No. FEMA

20/2000-RB dated 03rd May 2000 is not complied in regular quarters and all the quarter
reports submitted to the RBI at the last quarter of the Financial Year.

13. The Overseas Direct Investment Compliances in terms of section 6 of the Foreign

Exchange Management Act, 1999, (42 of 1999) read with Notification No. FEMA.120/RB-

2004 dated July 7, 2004, (GSR 757 (E) dated November 19, 2004), viz. Foreign Exchange

Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004,
as amended from time to time, however the same is not complied and it’s a continued non-
compliance since FY 2010-11.

14. The compliances (Overseas Direct Investment Compliances) in terms of provisions of the

Foreign Exchange Management Act, 1999, (42 of 1999) read with Notification No.

FEMA.120/RB-2004 dated July 7, 2004, (GSR 757 (E) dated November 19, 2004), viz.

Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment)

Regulations, 2004, as amended from time to time is not complied.

269

GUIDANCE NOTE ON SECRETARIAL AUDIT

15. In respect of a acceptance of deposits, company is in the process of taking Insurance
policy.

16. The Company has not filed charge created on its property for obtaining guarantees from its
bankers. The Bankers themselves can also file charge and 300 days time is given for filing
with late payment fees. If it falls under this category, then it is deemed compliance. Even
after 300 days if a condonation of delay application is made, it would be deemed
compliance of process until conditions is denied. Only when denied it will be reported as
non- compliance.

17 The Company has got two factory premises where registration under the Factories Act is
yet to be done. If in the system, application of registration surfaces, then there is adequate
system in place.

18. ………….

19. …………

20. …………

I/we further report that

The Board of Directors of the Company is duly constituted with proper balance of Executive

Directors, Non-Executive Directors and Independent Directors. The changes in the composition of
the Board of Directors that took place during the period under review were carried out in
compliance with the provisions of the Act except that Form DIR 12 was filed after 30 days from the
date of resignation of Mr. X as Director..

Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed
notes on agenda were sent at least seven days in advance except in one case where notice was
not given to Mr. Y in respect of a meeting held on …, and a system exists for seeking and
obtaining further information and clarifications on the agenda items before the meeting and for
meaningful participation at the meeting.

Majority decision is carried through while the dissenting members’ views are captured and
recorded as part of the minutes.

I/we further report that there are adequate systems and processes in the company commensurate
with the size and operations of the company to monitor and ensure compliance with applicable
laws, rules, regulations and guidelines however the compliance reports were not submitted to the

Board in time and a delay of about six month was observed in informing the non compliance in
respect of Compliances under Payment of Bonus Act, Employees Provident Fund Act.

We further report that during the audit period the company has signed the technical collaboration
agreement with UVW Limited but the precise impact of such collaboration can not be reasonably
estimated for the time being. Company has received show cause notice from the collector for non
payment of stamp duty in respect of transfer of immovable property. Company has filed its reply
however there is a contingency that company may have to pay a sum of Rupees 50 lacs by way of
penalty.

Place: Signature:

270

SPECIMEN OF QUALIFIED SECRETARIAL AUDIT REPORT

Date :

Name of Company Secretary in practice / Firm :

ACS/FCS No.

C P No.:

This report is to be read with our letter of even date which is annexed as Annexure 1 and forms an
integral part of this report.

‘Annexure -1’

To,

The Members

XYZ Limited

--------------

Our report of even date is to be read along with this letter.

1. Maintenance of secretarial record is the responsibility of the management of the company. Our
responsibility is to express an opinion on these secretarial records based on our audit.

2. We have followed the audit practices and processes as were appropriate to obtain reasonable
assurance about the correctness of the contents of the Secretarial records. The verification was
done on test basis to ensure that correct facts are reflected in secretarial records. We believe that
the processes and practices, we followed provide a reasonable basis for our opinion.

3. We have not verified the correctness and appropriateness of financial records and Books of

Accounts of the company.

4. Where ever required, we have obtained the Management representation about the compliance
of laws, rules and regulations and happening of events etc.

5. The compliance of the provisions of Corporate and other applicable laws, rules, regulations,
standards is the responsibility of management. Our examination was limited to the verification of
procedures on test basis.

6. The Secretarial Audit report is neither an assurance as to the future viability of the company nor
of the efficacy or effectiveness with which the management has conducted the affairs of the
company.

Date:

Signature:

Place:

(Name)

Practising Company Secretary

Membership No. ....................

Certificate of Practice No.

271

Table of Contents

- Chapter
- Book
- Chapter IV