SECRETARIAL COMPLIANCE REPORT REGULATION 24A OF …...secretarial compliance report. sebi lodr...

SECRETARIAL COMPLIANCE REPORT

REGULATION 24A OF LODR & SEBI

CIRCULAR DATED 8TH

FEBRUARY 2019

AN ANALYSIS…….

PRESENTATION BY CS B NARASIMHAN

CENTRAL COUNCIL MEMBER ICSI

•1

SECRETARIAL AUDIT FOR COMPANIES (SEC 204)

Companies covered:

(a) Every Listed Company (includes Companies whose

debentures, warrants are listed)

(b)Other class of companies:

(i) Every Public Company having a paid up share

capital of fifty crore rupees or more

(ii) Every public company having a turnover of two

hundred fifty crore rupees or more

IS SECRETARIAL AUDIT A PANACEA FOR ALL ILLS ????

•2

SECRETARIAL AUDIT FOR COMPANIES

(SEC 204)

ENTITIES NOT COVERED

MATERIAL SUBSIDIARIES OF LISTED ENTITIES

PUBLIC SECTOR BANKS EVENTHOUGH

LISTED……

PSB DO NOT HAVE EVOTING ALSO ???

INSURANCE COMPANIES EVENTHOUGH LISTED

LARGE PRIVATE LIMITED COMPANIES

COMPANIES WITH LESSER PAID UP CAPITAL…

BUT WITH LARGE PUBLIC INTEREST… SAY

HUGE BORROWINGS

•3

MAJOR ITEMS TO BE CHECKED

• Notice, Agenda, Notes on Agenda minutes of meetings,

attendance registers

Draft Financial Statements, Auditor’s Report, Director’s Report

Statements for borrowings and investments

All Statutory Registers

disclosures / consents / declarations

Filings with RoC / regulatory authorities / RBI

Filings / submissions to Stock Exchanges

Relevant approvals / correspondence/disclosures by directors.

Compliance certificates of functional heads for compliance ofapplicable laws

AUDIT PROCEDURE

Determine scope of Audit Request for details of various corporate actions/

events subject to audit

Develop the audit framework

Ascertain applicable laws

Prepare check-lists and time schedule

Call for documents / information

Obtain Management Representation Letter

Discuss and seek clarification, if required

Discuss draft report with Management Finalize and submit draft addressed to

shareholders

WHY SECRETARIAL

COMPLIANCE REPORT

Kotak committee recommendations

NSE examination of SARs

NSE REPORT - Data verified for 1000

companies for the F.Y. 2016-17 and 595

companies for the F.Y. 2015-16; identified

based on the type of non- compliances, market

capitalization and fines levied by the

Exchange

Suspended companies are not considered.

NSE OBSERVATIONS

The format of secretarial audit is not very

transparent.... It does not tell anything about what

was examined, what is the extent of

compliance/non-compliance under different

regulations applicable to the company.

Most of secretarial auditors seem to prefer to

adhere to the format suggested and are ...not

willing to add any additional statements or

annexure to state their points in clear terms.

NSE OBSERVATIONS

The following are the deficiencies generally

noticed in the secretarial audit process:

1. Remark on composition of the Board would say it

is compliant; no specific mention is made about

whether woman director was appointed.

Therefore, one is not sure if woman director is

appointed when a positive certification of

composition of the board is given.

2.Not sure if non-compliances with MCA requirements were verified.

NSE OBSERVATIONS

3.Not sure what are all the corporate actions done or not done. If done, whether the company was in compliance with it or not.

4.Not sure if the affirmations suggested in the corporate governance report are in fact checked or not.

5.Not sure is non-compliances with Listing Regulations were verified.

6.Not sure if non-compliance with other applicable laws is verified.

NSE FINDINGS – 15-16 AND 16-17

Sr. No. Particulars (Reporting of Non-

Compliances)

Companies with

non-compliance

Reported Not Reported

1 Corporate Governance Non-Compliances

2 i. Composition of Board of Directors 126 74 52

3 ii. Composition of Audit Committee 63 21 42

4 iii. Appointment of Women Director 16 16 0

5 100 % Promoter Shareholding not in Demat

Form

98 1 97

6 Limited Review Report non-submission 99 0 99

7 SAST & PIT Non-Compliance 57 0 57

8 Modified/Unmodified Opinion not submitted

along with the Financial results

84 1 83

9 No disclosure for BRR Policy in Annual Report 12 0 12

10 No Disclosure for Dividend Policy in Annual

report

51 51

SECRETARIAL AUDIT & COMPLIANCE REPORT..

GENESIS & THE NEED

CONSTITUTION OF A COMMITTEE UNDER

CHAIRMANSHIP OF SHRI UDAY KOTAK ON 3RD

JUNE 2017

HELD 12 SITTINGS TO GIVE THEIR VIEWS

WITHIN FOUR MONTHS I.E. OCTOBER 2017

SUBMITTED THEIR RECOMMENDATIONS

MOST RECOMMENDATIONS ACCEPTED

AMMENDMENTS MADE IN LODR IN PHASED

MANNER

SEBI ON FEBRUARY 8 2019, CAME OUT WITH

ANNUAL SAR AND SCR

•11

SECRETARIAL AUDIT & COMPLIANCE REPORT

RECOMMENDATIONS OF THE COMMITTEE

OBSERVATIONS…..CURRENTLY the Companies

Act requires a secretarial audit for listed companies

and unlisted companies above certain threshold.

However, there is no specific provision for

Secretarial audit under SEBI LODR Regulations…..

Secretarial functions are critical to efficient board

functioning. Therefore it is recommended that

“ SA be made compulsory for all listed entities under

SEBI LODR Regulations in line with the provisions of

the Companies Act… SA may also be extended to all

material unlisted subsidiaries (MUS)”…….NEW

REGULATION INTRODUCED

•12

SECRETARIAL COMPLIANCE REPORT- SEBI LODR

NEW REGULATION 24A INTRODUCED

24A Secretarial Audit.

Every listed entity and its materialsubsidiaries incorporated in India shallundertake secretarial audit and shallannex with its annual report, asecretarial audit report, given by acompany secretary in practice, in suchform as may be prescribed with effectfrom the year ended March 31, 2019

•13

SECRETARIAL COMPLIANCE REPORT. SEBI LODR

Applicable for all Listed Entity (LE) and its Material

Unlisted Subsidiaries (MUS)

All LE & MUS shall continue with the same form

MR-3 for the purposes of compliance with

Regulation 24A of LODR.

In addition thereto all LE shall in addition to MR-3

require to check and provide by PCS an Annual

Secretarial Compliance Report (SCR) As per format

specified in SEBI circular dated 8th Feb 2019

•14


Applicable for companies falling under Chapter IV

of LODR – “Specified Securities”

Regulation 15(a) and 15(b) however provides

specific exemption for Companies with < 10 crore

capital or net worth <25 crore as also companies

listed in SME segment from Regulation 17 to 27 of

LODR (FOR THESE COMPANIES EXEMPTED)

SAR & SCR WILL COVER ALL LISTED ENTITIES WHICH ARE

NOT INCORPORATED UNDER COMPANIES ACT BUT UNDER

OTHER REGULATIONS LIKE PUBLIC SECTOR BANKS,

INSURANCE COMPANIES ETC

COMPANIES ACT 2013 SHALL CONTINUE TO APPLY

WHEREVER APPLICABLE

•15


• REGULATION 16(1) (c) “material subsidiary” shall mean

a subsidiary, whose income or net worth exceeds

[ten % #] (# earlier 20%) of the consolidated

income or net worth respectively, of the listed

entity and its subsidiaries in the immediately

preceding accounting year. WEF 1st April 2019

• MUS to use same form MR-3 as prescribed

under Companies Act 2013. SCR not required

for them if not listed….. (WHERE & WHOM TO

SEND?... TO PARENT LISTED ENTITY)

•16


• The emphasis on SCR for a LE is for

compliance with all applicable SEBI

Regulations, including all Circulars and

Guidelines, SOP etc issued from time to time

and PCS shall issue a Report in a specific

format

• TIME FRAME 60 DAYS.....

• FOR LISTED ENTITIES SCR WITHIN 60DAYS TO SE..

• MR-3 MAY BE LATER ALONG WITH ANNUAL REPORT

TO SE

•17


FORMAT OF SCRPARA 1…EXAMINATION OF ALL DOCUMENTS &

RECORDS MADE AVAILABLE, EXPLANATION

PROVIDED, FILINGS AND SUBMISSIONS MADE BY LE,

ANY OTHER DOCUMENT, WEBSITE OF THE LE

WITH RESPECT TO COMPLIANCE WITH

PROVIDSIONS OF SEBI ACT AND SCRATHIS WOULD ENCOMPASS ALL RULES, CIRCULARS

GUIDELINES ETC

SPECIFIC REGULATIONS WHICH ARE COVERED AS PER

ILLUSTRATIVE LIST PROVIDED IN THE CIRCULAR

INCLUDES AS UNDER……..

•18

ANALYSIS OF SECRETARIAL AUDIT UNDER

COMPANIES ACT 2013 & SEBI LISTING

REGULATIONS 2015

•19

Secretarial Audit

SEBI MCA

SEBI Listing Regulations,

Circulars

Companies Act, 2013 and

Rules made there under

Regulatio

n 24A

Section

204

Analysis


LODR

ICDR

SAST

BUY-BACK

ESOP

ISSUE AND LISTING OF

DEBT SECURITIES

ISSUE AND LISTING OF NON-CON REDEEMABLE PREF SHARES

PIT

CIRCULARS &

GUIDELINES

•20

•21

Rule 9- Companies (Appointment and

Remuneration of Managerial Personnel)

Rules, 2014

(1) For the purposes of sub-section (1)

of section 204, the other class of

companies shall be as under-

(a) Every public company having a paid-

up share capital of fifty crore rupees

or more; or

(b)Every public company having a

turnover of two hundred fifty crore

rupees or more.

(2) The format of the Secretarial Audit

Report shall be in form MR_3.

SEBI Circular No.

CIR/CFD/CMD1/27/2019 vide dated

February 08, 2019- Format for annual

secretarial audit report and annual

secretarial compliance report for

listed entities and their material

subsidiaries

Secretarial audit to be extended to all

material unlisted Indian subsidiaries

in line with the recommendations of

the Committee on strengthening

group oversight and improving

compliance at a group level for listed

entities.

4.

Observations

1. The SEBI Listing Regulations 2015, specify that every listed entity and its

material unlisted subsidiaries to conduct secretarial audit i.e. if an unlisted

material subsidiary is a private company, the private company is required

to carry out secretarial audit.

2. Further, even if the unlisted material subsidiary is a public company, SEBI

has not categorised the public company as per the Companies Act, 2013. It

is implied that, every unlisted material subsidiary which is a public

company or private company, it has to fall under the category of material

subsidiary which is defined under SEBI Listing Regulations to which the

secretarial Audit is applicable.

That is why SEBI has written specifically in its circular dated February 08,

2019 that improving compliance at a group level for listed entities by

widening the scope of secretarial audit beyond the Companies Act, 2013.

•23

4.

Observations

4. Filing of Secretarial Audit Report

i. For every listed entity: Within 30 days of AGM with ROC and

before AGM with the Stock Exchanges (the date of dispatch of

annual report to Shareholders).

ii. For MUS: Submit to parent Company Board which is a LE, which

will submit along with its AR.

It may be noted that MR 3 is to be annexed with the financial

statements in the annual report in case of filing with ROC and in

case of filing with Stock Exchanges, MR 3 is to be annexed with the

annual report.


FORMAT OF SCR3(a)…EXCEPTION REPORT: The LE has complied with the

provisions of the above Regulations and circulars /guidelines

except in respect of matters specified below:-

•24

SR NO Compliance requirement

Regulations/circulars/

guidelines including

specific clause

Deviations Observations/

Remarks of

the Practicing

Company

secretary

1

2


FORMAT OF SCR3(b)…..MAINTENENACE OF RECORDS: The LE has

maintained proper records under the provisions of the above

Regulations and circulars/guidelines issued there under

insofar as it appears from my/our examination of those

records…….

•25

Provide details of records nor maintained giving reference to the Regulations, circular/guidelines


FORMAT OF SCR3 (c)….ACTION TAKEN REPORT AGAINST LE: FOLLOWING

ARE THE DETAILS OF ACTION TAKEN AGAINST THE LE/ ITS

PROMOTER/DIRECTORS/MATERIAL SUBSIDIARIES BY SEBI OR BY

SE’S (INCLUDING UNDER SOP ISSUED BY SEBI THROUGH

VARIOUS CIRCULARS) UNDER THE AFORESAID Acts/Regulations

and circulars and guidelines

•26

SR

NO

Action

taken by

Details

of

violatio

ns

Details of action

taken e.g. Fines

warning letter

debarment, etc

Observations/re

marks of the

PCS, if any.

1

2


FORMAT OF SCR3(d)…ACTION TAKEN BY LE: The LE has taken the following

actions to comply with the observations made in previous reports :

•27

SR

NO

Observatio

ns of the

PCS in

previous

Reports

Observati

ons made

in the

SCR for

the year

ended.....

Actions

taken by

the LE

Comments of the

PCS on the

actions taken by

the LE

1


SCR….. NOTES

1. Provide the list of observations in the

report for the previous year along with

the action taken by the LE on those

observations

2. Add the list of observations in the

reports pertaining to the periods prior

to the previous year in case the LE has

not taken sufficient steps to address

the concerns raised/ observations

•28


SCR….. NOTES

E.g. In the report for the year ended 31st

March, 2021, the PCS shall provide a list

of :All the observations in the report for the year

ended 31st March, 2020 along with the actions

taken by the LE on those observations

The observations in the reports pertaining to the

year ended 31st march, 2020 and earlier, in case

the entity has not taken sufficient steps to

address the concerns raised/ observation in

those reports.

In the year 2019, what to give??

•29


SPECIFIC DIRECTIONS GIVEN BY SEBI

REQUESTING ICSI TO PREPARE GUIDANCE

NOTES (Sr. no (4) of circular… When expected????

SOME UNANSWERED QUESTIONS:

1. Whether existing PCS can do the SCR as well?..YES WHY

NOT

2. PCS to sensitize their client on the new requirement.

IMMEDIATELY

3. If so does it require Board approval? YES OR GET IT

RATIFIED

4. Whether new appointment letter required? YES

PREFERRABLE

•30


SOME UNANSWERED QUESTIONS:

5. Does the existing limit prescribed by ICSI

apply for SCR as well? NO. (Proposed 5+5)

6. Time limit for SA is before the AGM

whereas for SCR it is 60 days from closure

of FY… Does it create complications for LE

and PCS? IT SHOULD NOT

7. YES CHARGEABLE… HOW MUCH????

•31

PIT REGULATIONS

Sr. No Requirement Regulation Compliance Point / Source

1 Board’s Policy for determination of “legitimate

purposes” as a part of “ Code “ formulated under

regulation 8.

3 [2(A)] Disclosure of price

sensitive information to

be checked

2 Execution of agreements by the concerned parties in

relation to their obligations as per the Confidentiality /

Non-Disclosure requirements.

3 ( 4 ) Check the clauses of

agreement executed

with parties.

3 Maintenance of a structured digital database

containing the names of such persons or entities

with whom information is shared under this

regulation along with PAN or any other identification

authorized by law, in the absence of PAN

3 (5) Details of database to

be checked.

4 Formulation of a trading plan by the insider , it’s

presentation to the compliance officer for approval

and public disclosure pursuant to which trades may

be carried on, as per the plan

5 (1) Check Insider Trading

Plan of insider to the

Company.

5 Receipt of Continual Disclosures from insiders. 7 (2) Check disclosures

made by promoters /

designated persons/

directors and if related

disclosures are made

to stock exchange.

PIT REGULATIONS


6 Contents of disclosures made by any person to

include those relating to trading by his immediate

relatives and / or any other person for whom such

person takes trading decisions.

6 (2) Check all disclosures

received by the

company

7 Receipt of Initial Disclosures received from insiders. 7 (1) Check disclosures made

by insiders

8 Formulation of a code of practices and procedures for

fair disclosure of unpublished price sensitive

information as per Schedule A to these regulations by

the BOD .

8 (1) Check the Code duly

approved by BOD and

disclosed on website of

the company.

9 Display of the Code on the company’s website and

forwarding a copy of the Code to the Stock

Exchange/s

8 (2) Verify if the Code is

available on the website

and communication to

SEs.

10 Formulation of Code of conduct by the company to

regulate, monitor and report trading by insiders as per

Schedule B of these regulations.

9 (1) Check the code of

conduct approved by

BOD and disclosure on

website.

11 Identification and designation of a compliance officer

to administer the code of conduct and other

requirements under these regulations?

9 (3) Check Board resolution

PIT REGULATIONS


12 Specification of designated persons to be covered

by the code of conduct, by the BOD in consultation

with compliance officer.

9 (4) Check Board resolution

and the list for

changes, if any.

13 Existence of adequate and effective system of

internal controls as per requirements given in these

regulations.

9A. (1) Check the internal

control procedure laid

down by the Board of

the Company.

14 Review of compliance with the provisions of these

regulations at least once in a financial year and also

that internal control are adequate and are operating

effectively, by the Audit Committee .

9A. (4) Verify from the minutes

of Audit Committee.

15 Existence of a Whistle Blower Policy to enable

employees to report instances of leak of

unpublished price sensitive information?

9A. (6) Check the Whistle

Blower Policy

formulated by the

company

16 Any enquiry has been initiated by a listed company

in case of leak of unpublished price sensitive

information?

9A. (7) Check the details of

enquiry proceedings by

the company.

REMOVAL & RESIGNATION OF SECRETARIAL

AUDITOR – UNANSWERED QUESTIONS

Removal of Secretarial Auditor – no provisions in the

Act

Resignation of Secretarial Auditor – Board to note and

file form with ROC (not specified)

Secretarial Auditor also to file form with ROC (not

specified)

Appointment of Secretarial Auditor on casual

vacancy??...How and when to do????

Would it be desirable to have rotation of SA?

•60

OTHER LAWS AS MAY BE SPECIFICALLY

APPLICABLE TO THE COMPANY

Reporting on compliance of ‘Other laws as

may be applicable specifically to the

company’ which shall include all the laws

which are applicable to specific industry for

example for Banks- all laws applicable to

Banking Industry; for insurance company-all

laws applicable to insurance industry;

likewise for a company in petroleum sector-

all laws applicable to petroleum industry;

similarly for companies in pharmaceutical

sector, cement industry etc.

LIST OF LAWS

Primarily Other Laws Compliance System

1.Companies Act 2013

2. Securities Contract

(Regulation Act 1956

3. Depositories Act 1996

4. FEMA (FDI / ODI /

ECB)

5. SEBI Regulations wrt –

Takeover Regulations,

Insider Trading, ICDR

ESOP, Issue and Listing

of Debt , RTA Compliance

Delisting, Buy Back

Listing Agreement

Secretarial Standards

Other Laws

as may be

‘specifically

applicable’

to the

Company

We further report that

there are adequate

systems and processes in

the Company

commensurate with the

size and operations of the

company to monitor and

ensure compliance with

‘applicable laws’, rules,

regulations and

guidelines

MR 3 – STATEMENT ABOUT SPECIFIC

LAWS APPLICABLE TO THE COMPANY

• I have examined books, papers, minutes books, forms and

records according to provisions of –

1. 5 laws mentioned earlier

2. …. (Mention the other laws as may be specifically applicable

to the Company)

During the period under review the Company has complied with

the provisions of the Act, Rules, Regulations, Guidelines,

Standards etc. mentioned above subject to following ….

MR 3 – STATEMENT ABOUT

‘SYSTEM’

“We further report that there are

adequate systems and processes in the

Company commensurate with the size

and operations of the company to

monitor and ensure compliance with

applicable laws, rules, regulations and

guidelines”

WHAT IS THE DIFFERENCE IN 2

STATEMENTS?

Laws Specifically

applicable to the

Company

Laws [generally]

applicable to the

Company

Secretarial Auditor

confirms compliance with

provisions of these laws,

rules, regulations,

guidelines, standards

Secretarial Auditor

confirms existence of

adequate system and

processes

commensurate with the

size and operations of

the Company to monitor

and ensure compliance

WHAT KIND OF TRANSFORMATION

ACHIEVED BY THE CORPORATE WORLD

• SINGLE MOST DIFFICULT QUESTION TO BE ANSWERED

• HAS THEIR BEEN ANY PERCIPTIBLE CHANGE?

• HOW HAVE THE COMPANIES RESPONDED DURING THE

LAST FIVE YEARS?

• IS THE REGULATOR RESONABLY SATISFIED….SEBI, MCA

AND STOCK EXCHANGES?

• DOES THE BOARD DERIVE CONFIDENCE FROM THE

REPORT

• HOW HAVE THE STAKEHOLDERS TAKEN IT?

• STUDY CARRIED OUT BY A GROUP OF PROFESSIONAL

REVEALS SOME ANSWERS TO THESE QUESTIONS……

71

TOP CS FIRMS SECRETARIAL AUDITORS BASED ON THE NUMBER

OF AUDITS UNDERTAKEN OF NIFTY COMPANIES 2016 - 2017

2017 2018

Rank Firm Name # of

Companies

Ran

k

Firm Name # of

Companies

1 BNP Associates, Mumbai 6↔ 1 BNP Associates, Mumbai 7↑

2 Chandrashekaran & Associates,

New Delhi

4↑ 2 Chandrashekaran & Associates,

New Delhi

4↔

3 Dr.KR Chandratre, Pune 4↓ 2 Dr.KR Chandratre, Pune 4↔

4 Parikh & Associates, Mumbai 5↔ 2 Parikh & Associates, Mumbai 4↓

5 Vinod Kothari & Co Kolkatta 3 ↑ 2 Vinod Kothari & Co Kolkatta 4 ↑

72

• 153 unique Acts, Rules, Regulations,

Guidelines, Agreements and Standards were

referred to in the Secretarial Audit Reports of

48 companies in 2016.

• This represents a decrease in the number of

mandates reported by 4 from 157 reported in

2015.

Ten companies had qualified Secretarial

Audit Reports of which seven were public

sector companies. in 2016

OBSERVATIONS ON AUDITS UNDERTAKEN OF NIFTY COMPANIES 2016

73

• There is a reduction by three companies with

qualified Secretarial Audit Reports in 2016, as 13

companies had qualified reports in 2015

• In public sector companies, qualified Secretarial

Audit Reports remained unchanged at seven in 2016,

the same as in 2015.

• Overall, the standards of compliance have

improved with lesser number of companies

having qualified Secretarial Audit Reports.

However, the improvement is only in private

sector companies, as compliance levels in

public sector companies remained

unchanged.

OBSERVATIONS ON AUDITS UNDERTAKEN OF NIFTY COMPANIES 2016

74

• Secretarial Audit Firms

• The Companies Act, 2013 for the first time mandated

Secretarial Audits for bigger public companies.

• 2017-18 is the fourth year where companies have included

Secretarial Audit Reports in the Annual

• Reports. Of the Nifty 50 Companies, only 49 companies

underwent Secretarial Audit.

• The top CS firm conducted SEVEN secretarial audits in 2017-

18. The top 5 Firms conducted Secretarial audit for 23 Nifty

companies (48%) in 2017-18, as compared to 25 companies

(52%) in 2016-17.

• SBI has not undergone Secretarial Audit.

OBSERVATION ON AUDITS UNDERTAKEN OF NIFTY COMPANIES 2016

KEY FINDINGS

Company Secretary still remains the most popular

designation, despite a reduction of 4% in the last one year

from 59% to 55%.

The title of Chief Compliance Officer has been added to

Company Secretaries in 1% of companies.

The combination of CFO with role of CS declined by 1%.

Further, the designation of CS amplified by a

prefix reflecting their standing in the corporate

hierarchy as illustrated by: President & Company

Secretary, Head Secretarial & Company

Secretary, Senior V. P. & Company Secretary,

General Manager & Company Secretary, Manager

& Company Secretary increased by 4%.

COMPENSATION FOR CS

Average annual compensation for Company

Secretaries of the Nifty 50 Companies in

2018 is ₹116 lakhs, in the range of ₹26 lakhs

(Adani Ports) to ₹601 lakhs (Hindustan

Unilever).

In 2018, eight out of the 50 Company

Secretaries of Nifty 50 Companies are

WOMEN. Women account for only 16% of

the Company Secretaries in the Nifty 50

Companies.

• FRAUDS AND ITS

IMPLICATIONS ON

AUDIT UNDER THE

COMPANIES ACT 2013

DUTIES OF SECRETARIAL AUDITOR – FRAUD

REPORTING [SEC 143(12)(14)]

Reference to Fraud appears in 45 sections of the New Act(Section

7,8,34,35,36,38,46,56,66,73,74,75,130,134,140,143,144,149,177,

195,199,206,210,211,212,213,216,218,219,221,223,224,225,226,

229,245,251,266,271,336,339,430,442,447 & 448)

If Company Secretary in Practice, during conduct of

Secretarial Audit, has sufficient reason to believe that an

offence involving fraud is being committed or has been

committed against the company by officers or employees

of the company, he shall report the same to the Central

Government immediately but not later than 60 days of his

knowledge with a copy to the Board / Audit Committee

seeking their reply within 45 days

•78

•4/22/2019

•79

FRAUD

Criminal liability for fraud for mis- statement in prospectus-

Liability of every person who authorizes issue of

misleading prospectus.

Promoter, director, expert or any other person who has either

assented to be director of the company or who has authorized

The issuance of prospectus, to be held liable for fraud.

Definition “Officer in Default” includes Key Managerial Personnel

In case of frauds, all the professionals and experts rendering

independent services to the Company are to be held liable.

•4/22/2019

•80

DEFINITION OF FRAUD[Section 447]

“Fraud” includes

•Any act,

•Omission,

•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.

•4/22/2019

•81

PENALTY FOR FRAUD

Any person guilty of fraud –

Imprisonment: 6 months to 10 years; and

Fine: Atleast amount involved in fraud, but may

extend to 3 times the amount

involved in fraud.

Where the fraud involves public interest,

imprisonment shall not be less than 3

years.

•4/22/2019

•82

REPORTING OF FRAUD TO CENTRALGOVERNMENT

[Section143 (12)]

If an auditor of a company,

in the course of the performance of his duties as

auditor,

has reason to believe that an offence involving fraud

is being or has been committed against the company

by officers or employees of the company, he shall

report the matter to the

Central Government

Immediately or within prescribed time & manner.

•4/22/2019

•83

APPLICABLE TO COST & SECRETARIAL AUDITORS[Section 143(14]

Section 143(14) extends obligation cast by section 143 mutatis

mutandis to:

Cost Auditors appointed u/s148 &

Secretarial Auditors appointed u/s204.

NO DUTY OF CONFIDENTIALITYUNDER THE CA ACT. [Section 143(13)]

No duty to which an auditor of a company may be subject to (e.g.

duty of confidentiality under the CA Act, 1949) shall be regarded as

having been contravened by reason of his reporting the matter as above

if it is done in good faith

•4/22/2019

•84

Security Market frauds since 1990

Scams above Rs 5000 Crores

Year Name of the Scam

Amount in

Crores

1992 Harshad Mehta 5400

1993 Vanishing Companies 25000

1995

Plantation companies

Scam 50000

1995-

98 Mutual Funds Scam 15000

2008 FX derivative scam 32000

2009 Satyam scam 12000

2012-

13 Sahara ?????? 25000

2013 Saradha scam 20000

TOTAL 184400

WHAT IS BHAKTI FOR A

PROFESSIONAL IN HIS WORK?

CAN WE CALL IT PASSION..

CAN WE CALL IT INVOLVEMENT..

CAN WE CALL IT KNOWLEDGE…

CAN WE CALL IT EYE FOR DETAILS….

CAN WE CALL IT HARDWORK….

OR IS IT ALL COMBINED……

IN ORDER TO SUCCEED YOUR DESIRE FOR

SUCCESS SHOULD BE FAR GREATER THAN YOUR

FEAR OF FAILURE………..ALBERT EINSTEIN

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THANK YOU

SECRETARIAL COMPLIANCE REPORT REGULATION 24A OF …...secretarial compliance report. sebi lodr...

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