Secretarial Audit and Secretarial Standards under the Companies Act, 2013

Which companies need a secretarial audit, what MR-3 covers, and why Secretarial Standards SS-1 and SS-2 matter for everyone.

At a Glance

•      Governed by Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

•      Secretarial audit is mandatory for every listed company, and other prescribed classes of public companies based on paid-up capital or turnover.

•      It is conducted by a Company Secretary in practice, who issues a report in Form MR-3.

•      Secretarial Standards SS-1 (Board Meetings) and SS-2 (General Meetings), issued by ICSI, are mandatory for all companies, not just those needing a secretarial audit.

 

While a statutory audit examines a company's financial statements, a secretarial audit examines its compliance with company law and other applicable corporate laws. Introduced by the Companies Act, 2013, it gives boards, regulators and investors an independent check that the company's governance processes — not just its numbers — are in order.

Companies Required to Conduct Secretarial Audit

•      Every listed company.

•      Every public company having paid-up share capital of ₹50 crore or more.

•      Every public company having turnover of ₹250 crore or more.

•      Every company having outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more.

Scope of Secretarial Audit

The secretarial auditor examines compliance with the Companies Act, 2013 and rules made thereunder, the Securities Contracts (Regulation) Act, the Depositories Act, SEBI regulations (for listed/regulated companies), Foreign Exchange Management Act provisions relating to overseas direct investment and external commercial borrowings, and other laws specifically applicable to the company, along with adherence to Secretarial Standards.

Form MR-3

The secretarial auditor's report is issued in Form MR-3 and must be annexed to the company's Board's Report. If there are any qualifications or observations in the report, the Board must explain them in its own report.

Secretarial Standards — SS-1 and SS-2

Issued by the Institute of Company Secretaries of India (ICSI) and approved under Section 118(10) of the Act, Secretarial Standard-1 (SS-1) covers the conduct of Board meetings (notice, agenda, quorum, minutes), while Secretarial Standard-2 (SS-2) covers the conduct of General Meetings. Unlike secretarial audit, which applies only to specified classes of companies, compliance with SS-1 and SS-2 is mandatory for every company (other than a One Person Company having only one director, and Section 8 companies to a limited extent).

Illustration

Example

A public company with paid-up capital of ₹60 crore crosses the ₹50 crore threshold, triggering the requirement to conduct a secretarial audit for that financial year. It appoints a practising Company Secretary, who reviews the company's compliance with the Companies Act, SEBI regulations (if listed), and applicable Secretarial Standards, and issues Form MR-3, which is then annexed to the Board's Report presented at the AGM.

 

Penalty for Non-Compliance

•      If a company or any officer or the practising Company Secretary contravenes Section 204, the company and every officer in default, and the practising Company Secretary, are each liable to a penalty of ₹2 lakh.

 

Practical Compliance Checklist

•      Confirm whether your company crosses the paid-up capital, turnover or borrowing thresholds triggering mandatory secretarial audit.

•      Engage a practising Company Secretary well before the financial year-end to allow adequate audit time.

•      Ensure SS-1 and SS-2 compliance is followed consistently throughout the year, not just reviewed at audit time.

•      Address any qualifications in the MR-3 report proactively in the Board's Report explanation.

•      Maintain organised records of meeting notices, minutes, and resolutions to facilitate a smoother secretarial audit.

•      Use secretarial audit findings as an internal governance improvement tool, not just a compliance formality.

 

Common Mistakes Companies Make

•      Waiting until year-end to think about SS-1/SS-2 compliance, when it needs to be followed meeting-by-meeting.

•      Engaging the secretarial auditor too late, compressing the audit timeline unreasonably.

•      Failing to explain audit qualifications adequately in the Board's Report, inviting regulatory scrutiny.

•      Assuming secretarial audit is a mere formality rather than treating its findings seriously for governance improvement.

Frequently Asked Questions (FAQs)

Q1. Is secretarial audit mandatory for private companies?

Only if the private company crosses the prescribed outstanding loan/borrowing threshold (₹100 crore or more); private companies not meeting any of the prescribed criteria are not required to undergo secretarial audit.

Q2. Who can conduct a secretarial audit?

Only a Company Secretary holding a valid certificate of practice, issued by the Institute of Company Secretaries of India (ICSI), can conduct a secretarial audit and sign Form MR-3.

Q3. Is compliance with Secretarial Standards mandatory even for very small companies?

Yes, SS-1 and SS-2 apply to virtually all companies (with narrow exceptions like OPCs with a single director for board meeting provisions), regardless of size, since they govern basic meeting procedures rather than being tied to capital or turnover thresholds.

Q4. Can the statutory auditor also act as the secretarial auditor?

No, since secretarial audit specifically requires a Company Secretary in practice, a Chartered Accountant acting as statutory auditor cannot simultaneously serve as the secretarial auditor of the same company.

Q5. Is secretarial audit an annual requirement, or can it be done less frequently?

Once a company meets the applicability criteria, secretarial audit is an annual requirement for that financial year and each subsequent year the criteria continues to be met.

Q6. Can the secretarial auditor also serve as the company's regular retained Company Secretary consultant?

Good governance practice generally favours engaging an independent practising Company Secretary distinct from any ongoing day-to-day consulting relationship, to preserve the audit's objectivity, though the Act does not impose an absolute statutory bar in every scenario.

Q7. What happens if the secretarial auditor identifies a serious violation during the audit?

Significant violations should be reported clearly in Form MR-3, and depending on severity, may also trigger the secretarial auditor's own reporting obligations regarding fraud under applicable professional standards, similar in spirit to the statutory auditor's fraud-reporting duty.

Conclusion

Secretarial audit and Secretarial Standards together form the governance-compliance backbone of a company, complementing the purely financial focus of statutory audit. Even companies not mandatorily required to undergo secretarial audit should treat SS-1 and SS-2 compliance as non-negotiable, since they apply universally and are frequently checked during regulatory scrutiny.

Disclaimer: This article is for general informational purposes only and is based on the Companies Act, 2013 and related rules as amended up to date. It does not constitute legal or professional advice. Companies should verify current provisions on the MCA portal (www.mca.gov.in) or consult a qualified Company Secretary/Chartered Accountant before acting on this information.