MCA: 2013 October 21, 2013

Shri Naved Masood, IAS

Secretary to Government of India

Ministry of Corporate Affairs

Shastri Bhawan

New Delhi

Dear Sir,

Sub: Draft rules with respect to Secretarial Audit under the Companies Act, 2013

Section 204 (1) of the Companies Act, 2013 provides that 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 form as may be prescribed. The draft Rule 13.7.(1), however provides that the other class of companies shall be as under:

(a) Every public company having a paid-up sharecapital of one hundred crore rupees or more.”

2. We submit the following in this regard:

a. Section 204 focuses on governance as also compliance with applicable laws, as evident from draft format issued alongwith draft rules. This can’t be overlooked for companies which have a paid up capital of less than Rs.100 crore.

b.The requirement proposed in draft rules would keep 99% of the companies out of purview of section 204 of the Act.

c. Generally, in large corporates the level of governance is expected to be higher compared to smaller companies. In this context, it is all the more necessary to ensure governance in those companies where the public interest would be substantially high. In this context, “public interest” would constitute:

o  Amount of paid-up capital;

o  Total net-worth;

o  Turnover;

o  Borrowings including fixed deposits;

o  Number of stakeholders.

3.  Secretarial Audit comprises of verification of compliance of provisions of various laws and rules/procedure, by an independent professional to ensure that the company has complied with the legal and procedural requirements and also followed due processes. This can’t be overlooked for a public company having a bank borrowing of Rs. 200 crore but with paid-up share capital of Rs. 10 crore only. Also this can’t be overlooked for a private company.

4.  The Companies Act, 2013 for the first time defines the term ‘fraud’. Severe punishment for fraud has been provided at several places throughout the entire Act. Under the Act, the duty has been cast on practicing company secretary who is conducting secretarial audit to report fraud to the Central Government.

5.  In the interest of governance, transparency and compliance, the rules may provide that “For the purposes of sub-section (1) of section 204, the other class of companies may be as under:

(a) every company having a paid-up share capital of ten crore rupees or more or annual turnover of Rs. 25 crore or more as per its last audited financial statement;

or

(b) every company having outstanding loan or borrowing from Bank or Financial Institution or accepted public deposits exceeding Rs. 25 crore or more at any point of time in last financial year.”

Thanking You,

Yours faithfully

(M S Sahoo)

Secretary