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Secretarial Secretarial

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Secretarial - PPT Presentation

Audit Presentation by A K Kuchhal Managing Partner IndiaCorp Law Corporate Consultants and Advocates In association with Ms A K Kuchhal amp Co Company Secretaries 1 A Wind of Change ID: 559027

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Slide1

Secretarial

Audit

Presentation byA. K. KuchhalManaging PartnerIndiaCorp LawCorporate Consultants and AdvocatesIn association with M/s A. K. Kuchhal & Co. , Company Secretaries

1Slide2

“A Wind of Change”

SecretarialAudit 2Slide3

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DisclaimerThe information contained in this Presentation is selective and is subject to updation, expansion, revision and amendment. The interpretations and implications are still being evaluated and readers are advised to formally cross check with the professional advisors before acting upon this document and applying to specific facts.

This Presentation is confidential being for use only by the persons to whom it is issued. This Presentation may not be copied or distributed by the Recipient to third parties (other than in confidence to the Recipient’s professional advisors).Slide4

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INSIDESEvolution of Secretarial Audit .Introduction.Difference between Secretarial Audit and Compliance Certificate.Need.Objective.Applicability .Benefits and Beneficiaries of Secretarial Audit.Secretarial Auditor

Tenure of Appointment.Resignation/Removal.Powers and duties of Secretarial Auditor.Overview of Corporate Actions and Compliances for Secretarial Audit. Analysis of Compliances under Companies Act 2013 and rules made there under.Analysis of Compliances under SCRA Act 1956, and Rules made there under.Analysis of Compliances under SEBI Act 1992 and Rules made there under.Analysis of Compliances under Depositories Act 1996 and rules made there under.Analysis of Compliances under FEMA Act 1999.Analysis of compliances under FDI (Automatic and Approval Route).Analysis of Compliances under ECB(Automatic and Approval Route).

MR-3 & Scope.Board Balancing & Participation.

Analysis of Secretarial Standards

Analysis of compliances under other applicable laws.

Steps and Process of Secretarial Audit.

Penalty.

Guidelines issued by ICSI and its initiatives.

Conclusion.Slide5

Evolution of

Secretarial audit The Ministry of Corporate Affairs had released Corporate Governance Voluntary Guidelines, 2009 on December 21, 2009.The preamble to Guidelines states that “These guidelines provide for a set of good practices which may be voluntarily adopted by the companies”. The Guidelines, amongst other things, recommend the introduction of Secretarial Audit. Companies, which do not adopt these guidelines, either fully or partially, are expected to inform their shareholders about the reasons for not adopting these Guidelines. Companies Act, 1956 provided for a Compliance Certificate to be issued by a Company Secretary in practice by certain class of Companies. Companies Act, 2013 has now introduced the Secretarial Audit as a new class of audit. 5Slide6

SECRETARIAL AUDIT

VERSUS COMPLIANCE CERTIFICATE 6Slide7

NEED

Effective mechanism to ensure that the legal and procedural requirements are duly Complied with.Provides a level of confidence to the KMPStrengthen in the image and goodwill of a companySecretarial Audit is an effective compliance risk management tool It helps the investor in analyzing the compliance level of companiesSecretarial Audit is an effective governance tool.Help Independent Director to check Compliance Level.7Secretarial Audit is to be on the principal of “prevention is better than cure” rather than post mortem exercise and to find faults.Slide8

objective

8Slide9

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APPLICABILTY As per Section 204 read with Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 notified w.e.f. 01st April, 2014, following Companies 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 Form No. MR-3.Slide10

“SECRETARIAL

AUDIT”10CONTINUE…EVERY LISTEDCOMPANYOTHER CLASS OF THE COMPANIESEvery PublicCompany having apaid-up share capitalof Rs. 50 crore orMore

Every PublicCompany having aturnover of Rs. 250crore or moreORSlide11

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QUESTION? Whether the provisions of Secretarial Audit are applicable on Private Company?AnswerSecretarial Audit would be applicable to a Private company which is a subsidiary of a public company, and which falls under the prescribed class of companies.Slide12

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Secretarial Auditor Tenure of AppointmentSlide13

Guidelines for Issuing

Secretarial Audit issued by ICSI13The Council of ICSI vide Notification dated 6 April 2015, issued following Guidelines for Secretarial Audit.A member of the Institute holding a valid certificate of practice shall be entitled to sign Secretarial Audit Report(s) pursuant to Section 204 of the Companies  Act, 2013(Act No. 18 of 2013) subject to the following limits, for each of the financial year under consideration:-Provided that in the case of a firm of Company Secretaries, the  ceiling in respect of Secretarial Audit as aforesaid would apply to each partner.These Guidelines shall come into effect for issue of Secretarial Audit Report for financial year 2015-2016 onward.S.No.No. of years as member of ICSI as on 1st April of each Financial Year No. of Secretarial Audit Reports 1.Upto and equal to 5 years52.More than 5 years but less than or equal to 10 years 103.

More than 10 years20Slide14

Secretarial auditor

When to be appointed ?14Slide15

Resignation/removal

15Slide16

Powers and duties

of secretarial auditor16Slide17

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Duty to report FraudIf he has sufficient reasons to believe that an offence involving fraud, is being or has been committed against the company by officer / employees. Companies (Amendment) Bill, 2014. – The auditor would be required to report fraud to the Audit Committee/ Board, if it is below the mandated threshold limit. Immediately send Report to Board/Audit Committee seeking reply with 45 days Auditor to send report with Board replies in F‐ ADT 4 with in 15 days of receipt of Reply. If Board does not reply, he shall forward report stating such fact.Slide18

MR-3 & scope …..

The scope of Secretarial Audit comprises verification of compliances under the following enactments, rules, regulations and guidelines:The Companies Act, 2013 (the Act) and the rules made thereunderThe Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunderThe Depositories Act, 1996 and the Regulations and Bye-laws framed thereunderThe Foreign Exchange Management Act, 1999 and the rules and regulations made thereunderThe Securities and Exchange Board of India Act, 1992 & Regulations made thereunder18Slide19

SEBI

19SEBI ACT, 1992 &REGULATIONS MADETHEREUNDERSEBI (Issue of Capital andDisclosureRequirements)Regulations,2009The Securities andExchange Board ofIndia (Issue andListing of DebtSecurities)Regulations, 2008;SEBI(Prohibition ofInsider Trading)Regulations,1992;SEBI (Substantial Acquisition ofShares and Takeovers) Regulations,2011Slide20

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SEBISEBI ACT, 1992 &REGULATIONS MADETHEREUNDERSEBI (Buyback ofSecurities)Regulations, 1998SEBI(Registrars toan Issue and ShareTransfer Agents)Regulations, 1993regarding theCompanies Act anddealing with client;SEBI (EmployeeStock OptionScheme andEmployee StockPurchase Scheme)Guidelines, 1999SEBI (Delistingof EquityShares)Regulations,2009Slide21

MR – 3 & Scope

CONTINUE… Slide22

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CONTINUE…MR-3 & SCOPE Public/Right/Preferential issue of shares/ Debentures/Sweat EquityRedemption/Buy-back of SecuritiesMajor Decisions taken by the members in pursuance to Section 180 of the Companies Act, 2013.Merger/Amalgamation/Reconstruction, etc.Foreign Technical CollaborationSpecific events/action having a major bearing on the Company’s Affairs e.g.:-Slide23

Continue …

BOARD BALANCING & PARTICIPATION23Slide24

OVERVIEW OF DOCUMENTS & CORPORATE

ACTIONS UNDER THE COMPANIES ACT, 2013The Auditor should verify about the maintenance of registers and records and compliance of Companies Act, 2013 in respect of the following:Certificate of Incorporation.Memorandum and Articles of association.Registered Office Requirements. (Section 12).Accounts of the Company.Compliances related to Statutory Auditor, Internal Auditor, Cost Auditor etc.Buy Back of Securities. (Section 68)Issue of shares and other securities. (Section 62 & 42)24Slide25

Continue….25Deposits. (Section 73)Dividend.Compliance of Section 180.Loan to Directors, etc. (Section 185)Loans, Investments, Guarantees and Securities (Section 186).Related Party Transactions ( Section 188)Composition of Board of Directors (section 149)Appointment of Director (Section 152)Investment of company to be held in its own name.(Section 187)Slide26

CONTINUE….

26Appointment and Remuneration of MD, WTD or Manager ( Section 196 & 197)Creation, modification and Satisfaction of Charges.Return to be filed with ROC in case promoter’s stake changes (Section 93)Disclosure of interest by directors (Section 184) Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolution passed by postal ballot. (Section 118)Disqualification for appointment of Director(Section 164).Slide27

CONTINUE….

Audit Committee.Nomination and Remuneration Committee &Stakeholders Relationship Committee.Number of Directorships (Section 165).Report on Annual General Meeting (Section 121).Transfer and transmission of shares and other securities.(Section 56)Secretarial standards.Annual Report.Website of the company.27Slide28

CONTINUE….

Corporate social responsibility.Postal Ballot & E-Voting.Registers:-Register for application and allotment of shares.Register of Member.Register of Transfer.Register of Renewed or Duplicate Share Certificate.Register of Sweat Equity Share. Register of Employee Stock Option.Register of Security Bought-Back.Register of Deposits.Register of Charges.28Slide29

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CONTINUE …10). Register of Directors and Key Managerial Personnel and their shareholding.11). Register of Loans & Investments.12). Register of Investments.13). Register of Contract in which Directors & KMP are interested14). Register of Shareholders’ Attendance.15). Register of discloser of interest by directors16). Register for declaration of interest in the share held by another person who is not a beneficial owner17). Register for payment of Dividend18). Register for Unpaid/unclaimed Dividend.Details of prosecution, show cause notice, if any.Filing of Forms and Returns filed with respective authorities.Notices and Agenda of meetings including notes on Agenda, and publications if any.Slide30

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COMPLIANCE TO BE CHECK UNDER SCRA, 1956 & RULES MADE THEREUNDER30 Check whether the Company has issued securities to the public.Whether the conditions of listing agreement have been complied with, on receipt of approval for listing of securities.Whether the Company has complied with Rule 19A of SCRR with respect to continuous listing requirement with stock exchange. Whether the Company has complied with Rule 19(1) of SCRR with respect to filing of documents. Whether the Company has complied with Rule 19(2)(b) of SCRR withrespect to minimum public shareholding.Slide31

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Whether the Company has entered into agreement with NSDL/CDSL for Dematerialisation of Securities. Whether the Company has complied with Clause 55A of SEBI (Depositories and Participants) Regulations,1996 with respect to the reconciliation of share capital audit.COMPLIANCE TO BE CHECKED UNDERDEPOSITORY ACT, 1996 & REGULATIONS MADE THEREUNDERSlide32

COMPLIANCE TO BE CHECK

UNDER FEMA32Slide33

FOREIGN DIRECT INVESTMENT 33Through two RoutesSlide34

25.

• Eligibility of the person.• FDI is within the sectoral cap.• Consideration received for FDI is as per the permitted mode.• Company has informed about the inflow of fund within 30 daysfrom the of receipt.• Company has issued shares under ADR/GDR• Equity instrument are issued within 180 days of receipt of funds.• Issuing company has reported in FC-GPR within 30 days fromthe date of issue of shares.• Repotting for FDI for Transfer of shares in made in FC-TRS.• Reporting of conversion of ECB into equity in Form ECB-2 alongwith FC-GPR.• Company has reported the issue of ADR/GDR in prescribedform.FDI under Automatic RouteSlide35

Prior approval of FIPB is obtained for FDI which are in excess of sectoral cap.•Before issuing of shares to a person who is citizen of Bangladesh or an entity incorporated in Bangladesh/Pakistan requires to obtain approval from FIPB.•Whether there is any transfer of shares from R to NR whichrequires FIPB approval.•Company has complied with reporting requirement for issue ofshares under approval route.35FDI under Approval Route (FIPB)Slide36

External Commercial Borrowings

36Through Two RoutesAutomatic RoutesApproval Routes (FIPB)Slide37

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ECB UNDER AUTOMATIC ROUTEEligibility of the Borrower; Whether the borrower has obtained the LRN by submitting form 83 to RBI. Maximum amount of ECB by corporate is within USD 750 million or its equivalent during a financial year. Check permitted End use requirements. Check ECB proceeds parked overseas is invested in the permitted liquid assets. Check all in cost ceiling (All in cost includes rate of interest, other fees & expenses in foreign currency except commitment fee, pre-payment fee and fees payable in Indian Rupees). Check whether the Company has filed ECB-2 (Return) everyseventh day of the following month.Slide38

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ECB UNDER APPROVAL ROUTE Eligibility of the Borrower. Recognition of Lender. Check permitted end use requirements. Check whether the parking of ECB funds is as per the norms. Check whether the RBI permission is obtained for Prepayment of ECB for amounts exceeding USD 500 million. Check the all in Cost Ceiling.Slide39

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Every Company shall observe Secretarial Standards with respect togeneral and Board meetings specified by the Institute of CompanySecretaries of India constituted under Section 3 of the CompanySecretaries Act, 1980 and approved as such by the CentralGovernment. (SECTION -118(10)SECRETARIAL STANDARDSSecretarial Standards issued by ICSI

on 23rd April, 2015SS-1SS-2 These SS’s are applicable w.e.f July 01, 2015Slide40

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OTHER LAWSAny other laws as may be applicable “specifically” to the Company/ Industry.Slide41

Continue…

41Slide42

SECRETARIAL AUDIT &

COMPANY SECRETARY IN PRACTICE (PCS)A significant area of competence of PCS include "Corporate, Business, Economic and other laws” (comprising statutes, rules, regulations, notifications, circulars and clarifications, forms, guidelines and byelaws) owing to intensive and rigorous coaching, examinations, training and continuing education programs. PCS is a highly specialized professional in the matters of statutory, procedural and practical aspects involved in proper compliances under corporate laws.A Company Secretary in Practice has been assigned the role of Secretarial Auditor in Section 2(2)(c)(v) of the Company Secretaries Act, 1980 read with Section 204(1) of the Companies Act, 2013.42Slide43

BENEFITS

43Slide44

CONTINUE….

44Slide45

BENEFICIARIES

45Slide46

process

46Slide47

Continue….

47Slide48

Continue…

48Slide49

CONTINUE….

49Slide50

CONTINUE….

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REPORTING WITH QUALIFICATION

The qualification, reservation or adverse remarks should be stated in bold type or in italics by the SAs at the relevant places in the Secretarial Audit Report (FORM MR-3).If the SA is unable to form an opinion on any matter, he should mention the reasons for such inability on that matter. If the scope of work required to be performed, is restricted on account of limitations imposed by the company or on account of circumstantial limitations (like certain books or papers being in custody of another person or Government Authority) the Report should indicate such limitations. If such limitations are so material as to render SA incapable of expressing any opinion, then he should state that: “In the absence of necessary information and records, he is unable to report compliance(s) by the Company”.51Slide52

Continue…

52Slide53

LETTER OF REPRESENTATION

ICSI strongly advised that the Company Secretary in Practice should obtain a “MANAGEMENT REPRESENTATION LETTER” from the auditee company. The letter may be signed by senior management (Company Secretary/Managing Director/ Senior Management) who would normally have authority to issue the same. Suggested format of the management representation letter is included in the publication “Guidance Note on Secretarial Audit” .The format may be changed, depending on the circumstances and facts governing each audit. The Secretarial Auditor can use this letter of representation as part of his Audit evidence.53Slide54

Audit Challenges

BUSINESSES’ PERCEPTIONS OF COMPLIANCE •Too much control and bureaucracy • Too conservative – easy to say no • Impediment to business – too slow • Uncoordinated and disjointed – too “sequential” • Not enough product knowledge or business senseOPERATIONAL HAZARDS • Mapping and connecting all team members spread across Training • Continuous up gradation COST OF COMPLIANCE • Cost of control is too high OTHER • Data Extraction Issues - Low cooperation from secretarial team for providing relevant information • Multiplicity and complexity of laws makes it difficult for the Secretarial Auditor to review (Eg: A company may have more than 100 laws applicable)54Slide55

Penalty

55Default in compliance with the provisions of Section 204COMPANYEVERY OFFICER OF THE COMPANYCOMPANY SECRETARY IN PRACTICEFine which shall not be less than Rs. 1 Lacs but which may extend to Rs. 5 Lacs and

andSlide56

penalty

56If Secretarial Auditor fails to report fraud to Central Government under Section 143 (15)Company Secretary in practiceFine -1 Lacs to 25 LacsSlide57

PENALTY

57If Secretarial Auditor Make a false statement in Secretarial Audit Reportunder SECTION 447 & 448Imprisonment-6 months to 10 yearsFine -1 time to 3 times of fraudinvolvedSlide58

ICSI INITIATIVES

The ICSI has brought out “Guidance note on Secretarial Audit” to familiarize its members about Secretarial Audit and also to prepare them to accomplish the task to the utmost satisfaction of all stakeholders.Special issue of Chartered Secretary on Secretarial Audit- January, 2015.Capacity building workshops are being conducted on Secretarial Audit across the country by the Institute and its Regional Councils and Chapters.Industry meet proposed with chambers of commerce, CII, FICCI, ASSOCHAM and other local bodies to explain the significance of Secretarial Audit to the Corporate Sector.58Slide59

CONCLUSION

Secretarial Audit not only ensures that the company has complied with the provisions of various laws but also extends professional help to the company in carrying out effective compliances and establishment of proper systems with appropriate checks and balances. Secretarial Audit can prove to be an effective and multipurpose mode to assure the regulator, generate and repose confidence amongst the shareholders, creditors and other stakeholders in companies, assure Financial Institutions, including state level Financial Institutions etc. and in still self regulation and professional discipline in companies.Secretarial Audit is of immense benefit even to larger companies which otherwise have a whole-time Company Secretary in its employment.Secretarial Audit is recognized as a good governance tool by corporate.59Slide60

Time to build trust and associationContact Us60Mr. A. K. KuchhalIndiaCorp Law Advocates & Solicitors Kothi No, 154, Block- C, Sector-51,

Noida-201301 Phone No.: 0120-4214372 Mobile : 91- 9810894275, 9650826950 E-mail: indiacorp@live.comWebsite: www.indiacorplaw.comSlide61

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Thank youA. K. KuchhalC -154, Sector 51 Noida, 201301Ph.: 0120 – 4214372, 6540341Mob.: 9810894275, email: csaloknoida@gmail.com