One is easily wooed towards the corporate field, especially that of a Company Secretary or an Auditor appointed for the audit of the company’s accounts. However, as the old English saying goes, All that glitters is not gold could be the perfect saying for the corporate world. There are certain concepts, certain compliances and regulations that a professional has to follow in a proper fashion to ensure timely delivery of the regulations/provisions mentioned in the Companies Act, 2013. In the same manner, with the help of this article, we will engage with two important concepts of company law, i.e. Secretarial Compliance Certificate and Secretarial Audit.

Let’s start with the Secretarial Compliance Certificate. Essentially, a SCC (Secretarial Compliance Certificate) covered under Section 383A (1) of the Companies Act, 1956 which was introduced by Companies (Amendment) Act 2000 with certain conditions attached to it (proviso) coupled with the Companies (Compliance Certificate) Rules 2001. The very notion of Secretarial Compliance Certificate was introduced to achieve and promote the standards of Corporate Governance based on the past records received from the Company Secretary.

While mentioning the guidelines of for issuing the Compliance Certificate, it has been made mandatory for the Company Secretary to maintain a register in relation to the attestation services rendered by it which includes signing of annual return, issue of compliance certificate, issue of certificate of Securities Transfers in Compliance with the Listing Agreement and the Certificate of reconciliation of capital, updating of register of members, etc. which are subject to inspection by the authorized personnel. Furthermore, a ceiling of 80 companies in aggregate in a calendar year has been placed on the issuance of Compliance Certificate and annual return coupled with the ceiling on partnership firm being applicable to each and every partner of the partnership firm.

For a better understanding, let’s have a look at what do the above mentioned section say:

• 383A.  certain companies to have secretaries.

(1) Every company having such paid- up share capital as may be prescribed] shall have a whole- time secretary, and where the Board of directors of any such company comprises only two directors, neither of them shall be the secretary of the company.

This section essentially took the exact section from the Companies Act of 1956 and added certain conditions to it.
The conditions attached are as follows:

1. Appointment of a whole-time secretary is made optional under the new amendment as opposed to the original guidelines provided under Section 383A (1) of the Companies Act, 1956.
2. Any and every company having the paid-up share capital of 10 lakh rupees or more is required to file a SCC with the Registrar of the Company from a Company Secretary in whole-time practice.
3. The copy of the SCC is to be attached with the Board’s report.

Adding to the proviso to Section 383A (1) of the Companies Act, 1956, Companies (Compliance Certificate) Rules 2001 have also attached themselves to the company from 1^st February 2001.

The major points of the above mentioned rules are covered under two broad points:

1. Firstly, the Compliance Certificates are to be filed with the Registrar of Companies within 30 days of the date on which the Annual General Meeting has been held. In case the Annual General Meeting was not conducted, then also the Compliance Certificate is required to be sent to the Registrar of Companies within 30 days from the date on which the Annual General Meeting was supposed to be.
    
2. Furthermore, it has also made it mandatory for the companies to present the Compliance Certificate in the Annual General Meeting for the perusal of the members of the company.

Even the penalty has been set for the non-compliance of the said Compliance Certificate. It has been mentioned that if the attestation services rendered coupled with any return, report or any other document mandated by the Companies Act, 2013 any person makes a statement which is either false in any manner or is known to be false or omits a material and relevant information, then he shall be punished with imprisonment of a term which may extend to two years and shall also be liable for a fine, hence making it a non-compoundable offence.

Secretarial Audit:  Section 204 of the Companies Act, 2013 is used as an instrument for corporate compliance management, a secretarial audit in its most basic sense is a check on the company with respect to all the laws, rules, regulations, etc. bestowed upon it by various legislations. Hence, it won’t be wrong to say that a secretarial audit not just forms a major piece of legal compliance reporting system but also provides a two-fold benefit system to both the directors of the company and the government to ensure smooth functioning of the company in a proper fashion and look into the compliance following reputation of the company respectively. The notion of secretarial audit was issued in order to broaden the scope of the Compliance Certificate in the year 2013.

Interestingly, the Parliamentary Standing Committee recommended the Secretarial Audit for listed as well as a company belonging to other class as prescribed. This very Secretarial Audit Report is to be annexed with the Board’s report, where the response of the board with respect to the qualifications made by the Secretary is to be mandatorily be present. Furthermore, to facilitate the process of the preparation of a Secretarial Audit Report, section 143(14) of the Companies Act, 2013 has empowered the Company Secretarial Auditors to seek and scrutinise any and every document they deem fit.

Having known about the Secretarial Audit, the readers must also understand that there is a set eligibility for Secretarial Audit u/s 204 of the Companies Act, 2013. It has prescribed that only the member of the Institute of Company Secretaries of India can do an audit. Now just as we had done above, for a better understanding, let’s have a look at section 204 of the Companies Act, 2013.

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 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 related records of the company.
    
3. The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall explain in full any qualification or observation or other remarks made by the company secretary in practice in his report under sub-section (1).
    
4. If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be ¹[liable to a penalty of two lakh rupees]. [2]

Now if the readers look at the definition coupled with the explanation provided, they would now get a clear picture of the Secretarial Audit, prima facie. However, it doesn’t stop here. An amendment has been brought via the Companies (Amendment) Act, 2020 w.e.f. 21^st December 2020. The amendment has been done in the sub-section (4) of section 204 of the Companies Act, 2013. The words “liable to a penalty of two lakh rupees” has now been substituted with “punishable with the fine which shall not be less than one lakh rupees but which may extend to five lakh rupees”.[3]

In conclusion, when we look at the purpose of compliances like that of Compliance Certificate and Secretarial Audit, it circumnavigates around the search of the inconveniences, mismanagement and non-compliance actions which are ultra vires to the Companies Act, 2013. Hence, it is necessary to incorporate and duly furnish compliances like the above mentioned one, in order to ensure the smooth and legally sound functioning of the company.