COMPANIES ACT 2013 –
Annual Return Certification
and Secretarial Audit
By CS Makarand Joshi
-makarandjoshi@mmjc.in
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Evolution of Secretarial Audit
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Until 2000 – Securities related Audit (Clause 47C)
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February 2000 – Corporate Governance (Clause 49)
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Companies (Compliance Certificate) Rules, 2001 (Section 383A)
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Unlisted companies with paid-up capital of Rs 10 lakh or more
Required even if company had a Company Secretary in employment
(applicable from December 31, 2002)
Secretarial Audit Report for reconciliation of total admitted capital with
depositories and total issued and listed capital (CA or CS)
Annual Return Certification
Due Diligence certificates / reports for IPO, open offer, bonus issue, GDR
issue, etc.
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MCA Voluntary Guidelines, 2009
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Secretarial Audit and Annual Return certification (Companies Act 2013)
Two Types of Certifications
Particulars
Section 192(1)
Section 192(2)
Which companies are
covered
All companies except –
small / one person
company
Listed Companies
Company having paid
up capital of Rs.10 cr or
turnover of Rs.50 cr
Coverage of
Certification
Correctness of contents
of Annual Return
Overall Compliance of
Companies Act 2013
Format
MGT 7
MGT 8
What do we certify in section 192 (1)?
Format MGT 7 runs in 34 pages and covers –
 Details of registered office
 Details of registrar and transfer agent
 Principle business activities
 Details of holding / subsidiary / associate cos
 Great details about authorized/ subscribed / paid
up capital / debentures / other securities
 Securities premium details
 Turnover and Net-worth calculation
What do we certify in section 192 (1)?
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Shareholding pattern in detail
Shareholding pattern of Promoters
Changes in promoters shareholding
Shareholding pattern of top 10 shareholders
Shareholding of Directors / KMP
Indebtedness – secured / unsecured / deposit
Details of Members / Debentures / security holder
Details of transfers of shares / securities
Details of Promoters / KMP / Directors
What do we certify in section 192 (1)?
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Details of meetings of board / committee/
members
Remuneration of Directors and KMP
Penalties, Punishments, compounding details
Details of forms required to be filed and status of
filing
Details of closure of register of security holder
Details of dividend
Changes in nominal value of shares
What do we certify in section 192 (1)?
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Details of inter corporate loans / investments
Related party transactions or transactions in which
director was interested
Details of resolutions passed by postal ballot
Details of CSR
Limits u/s 186 vs. actual spending
Disclosure of directors
IEPF Transfers
Maintenance of Statutory Registers
Appointment of Statutory Auditors
What do we certify u/s 92(2)
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Certification that – “annual return states the facts as
at the close of the aforesaid financial year correctly
and adequately”
“Company has complied with provisions of the Act &
Rules made there under in respect of …. There are
18 points”
Punishment for fraud (Sec 447)
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Section 447 states that without prejudice to any
liability including for repayment of any debt under
the Act or any other law for the time being in force,
any person who is found guilty of fraud, 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 fraud
Punishment for fraud (Sec 447)
The Section further states that where the fraud in
question involves public interest, the term of
imprisonment shall not be less than three years.
Fraud in relation to affairs of a company or any body
corporate, includes any act, ommission, 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 interests of, the company or its shareholders
or its creditors or any other person, whether or not there
is any wrongful gain or wrongful loss
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Punishment for false statement (Sec 448)
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Section 448 states that, save as otherwise provided in the Act,
if in any return, certificate, financial statement, prospectus,
statement or other document required by the Act or 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,
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He shall be liable under Section 447
How to handle?
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Start training and empowering SME Companies
Set compliance system for clients
Set the check list of details required
Develop excel sheets for various calculations
We need lot of data from accounts department
Need precise questions and digging for getting
data
And cross check that with secretarial records of the
Company
Training to team
How to handle?
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Ensure that as on 31 March 2015, there are not
transactions which are against law
Start compiling details from March 2015
Take declaration from client before signing annual
return
Plan your vacations properly !!!
SAR V. Annual Return Certification
Particulars
Annual Return
Secretarial Audit
Which companies All companies except –
are covered
small / one person
company 92 (1);
Listed Companies
Company having paid up
capital of Rs.10 cr or
turnover of Rs.50 cr
[sec.92(2)]
Listed Companies
Public Company –
Public Company with paid up
capital of Rs.50 cr
Turnover of Rs.250 Cr
Coverage of
Certification
Correctness of contents of
Annual Return
Overall compliance
Compliance of various act
Adequate board processes
Adequacy of compliance
system
Format
MGT 7
MGT 8
MR 3
Compliance of which acts?
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The Companies Act, 2013 (the Act) and the rules
made thereunder;
The Securities Contracts (Regulation) Act, 1956
(‘SCRA’) and the rules made thereunder;
The Depositories Act, 1996 and the Regulations
and Bye-laws framed thereunder;
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;
Compliance of which Acts?
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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 Requirements)
Regulations, 2009;
Compliance of which acts?
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(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;
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;
Compliance of which acts?
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(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)
Other Laws specifically applicable
to the Company
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Here we are not expected to cover all applicable
laws eg. Shop act, factories act..etc.
If it is Bank – Banking Regulation Act
If it is NBFC – NBFC Regulations issued by RBI
If it is Pharma Company – Food and Drug act etc.
Is PCS fit person to do this audit?
If not we, WHO?
If not now, When?
How can we handle such new acts?
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Allocate dedicated hours for the study
Allocate time for attending seminars on those laws
Invest in good books on those subject
Identify key provisions of the laws
Identify compliance provisions
Identify substantive provisions of the law
Meet experts and learn how to check substantive
provisions
But good dictionaries of those subject
Board Processes?
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Understand from the Company existing Board
processes
Have a check list for verification of board process
with the provisions of Companies Act, 2013, Listing
Agreement [Particularly Clause 49], Secretarial
Standards.
This is shared with the Company before starting
audit.
If there is any change required in existing processes
we suggest that to the Management
Board Processes
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Based on the documents like notice, agenda,
dispatch proof, minutes, attendance registers etc.
we arrive at some conclusions and beyond that we
rely on declarations given by the management.
Consistency of implementation of board processes
by the company helps us to comment positively on
board processes.
Adequacy of legal compliance
‘system’
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It is an opinion about ‘system’
It is not a certification of all applicable laws
We should not focus in checking each and every
aspect of every law
Rather our focus should be on evaluating existing
system to ensure compliance of laws
And determine ‘adequacy of system’
How to determine there is system
and is adequate?
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Who identifies applicable laws?
Whether there is listing of all activities and scheduling of those
activities ?
Whether clear identification of consequence of non compliance
is done?
Whether the responsibility is fixed for compliance of each of
the activity?
What is the process of identifying suitable person for the
discharge of each responsibility?
Whether his capability is checked before assigning the
responsibility?
How to determine there is system
and is adequate?
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What is the process to capture compliance of each activity?
What is the process for preservation of documents with respect
to each compliance?
What the process of monitoring the compliances being done at
different level?
What is the process, frequency and what are the formats for
reporting the exceptions?
What is the process for updation of entire legal system? And
who is responsible for it?
Who is accountable for verification of various compliances,
what is the frequency and what is reporting method?
Summary
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No body can afford to non comply and do business
Will push overall compliance system to the next level
Yes we can do it!
And yes we can do it to add grace to Profession!
This is a great opportunity for all of us to spread our
wings in other areas of practice
Our next generation will be benefited by this
CS will be able to position in a overall value chain of
business cycle
THANK YOU.
Lets help industry to be better governed