A Secretarial audit report reflects the compliance position of the company with respect to all the laws applicable upon the company. While the Companies Act, 2013 specifically provides for such secretarial audit, now, the Securities Exchange Board of India has also come up with similar provisions.
SEBI vide its circular dated February 8, 2019 has brought in the concept of “annual secretarial compliance report”. The Circular deals with two aspects-
i. Annual secretarial audit report
ii. Annual secretarial compliance report
This write-up deliberates upon the above mentioned reports and the motive behind bringing in the same.
Annual secretarial audit report
The SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) Amendment Regulations, 2018 based on the recommendation of the Kotak Committee brought many changes to strengthen the corporate governance of an organization. The Committee recommended for Secretarial Audit to be mandatory for all listed entities and its material unlisted subsidiaries. These changes included the requirement of annexing a secretarial audit report for both the listed entity and its material unlisted subsidiary in a specified format.
Although the provisions spoke about the requirement of an annual secretarial audit report, it is only in the Circular that SEBI stated the prescribed format to be MR-3 in conformity with section 204 of the Companies Act, 2013. It states that every listed entity’s and their material unlisted subsidiaries can continue to follow the format given under section 204 of the Companies Act, 2013 read with its rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
Annual secretarial compliance report
A new form has been prescribed which requires every listed company whose equity shares are listed to submit an “annual secretarial compliance report to the stock exchanges within 60 days of closure of financial year. The said report must be signed by a practicing company secretary. The Circular also prescribes the format in which such report is to be submitted to the stock exchange.
While, the secretarial audit report goes into an in depth study of all the applicable laws of the company, the annual secretarial compliance report requires an elaborative study of the compliances met under the SEBI laws by the listed entity.