Secretarial Audit Services under Section 204 (Form MR-3)
An independent examination of your company's compliance with the Companies Act 2013, SEBI regulations, FEMA and other applicable laws — reported in Form MR-3.
What is a secretarial audit?
Secretarial audit is an independent, statutory examination of a company's compliance with applicable corporate and securities laws, board and general-meeting processes, statutory registers, and event-based filings. It is a compliance-assurance mechanism — much like a financial audit tests the books of account, a secretarial audit tests the company's adherence to the framework of laws that govern how it is run. The exercise is designed to give the Board, shareholders, regulators and other stakeholders reasonable assurance that legal and procedural requirements have been observed, and to flag gaps early so they can be corrected.
The legal basis is Section 204 of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Section 204 requires prescribed companies to annex a secretarial audit report, given by a Company Secretary in Practice, to the report of the Board of Directors. The report is issued in Form MR-3, the format prescribed under Rule 9.
Applicability: does secretarial audit apply to your company?
Under Section 204 and Rule 9, a secretarial audit is mandatory for the following classes of companies:
| Category | Threshold |
|---|---|
| Every listed company | Applicable in all cases (no size threshold) |
| Every public company — paid-up share capital | Paid-up share capital of Rs. 50 crore or more |
| Every public company — turnover | Turnover of Rs. 250 crore or more |
| Every company (public or private) — borrowings | Outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more |
The relevant figures are generally assessed with reference to the audited financial statements of the immediately preceding financial year. If a company meets any one of these thresholds, secretarial audit is triggered — the conditions are independent, not cumulative.
An important and often-missed point: the borrowing threshold of Rs. 100 crore applies to every company, including a private limited company. A private company is otherwise outside the paid-up capital and turnover limits, but a private company that has outstanding loans or borrowings of Rs. 100 crore or more from banks or public financial institutions is required to obtain a secretarial audit.
Worked examples
- A private company with Rs. 120 crore of bank borrowings: Although it is unlisted and private, the borrowing exceeds Rs. 100 crore, so secretarial audit is applicable.
- An unlisted public company with paid-up capital of Rs. 20 crore, turnover of Rs. 300 crore and no significant borrowings: The turnover exceeds Rs. 250 crore, so secretarial audit is applicable even though the paid-up capital is below Rs. 50 crore.
- A private company with paid-up capital of Rs. 60 crore, turnover of Rs. 40 crore and Rs. 30 crore of borrowings: The capital and turnover tests apply only to public companies, and the borrowing is below Rs. 100 crore — so, on these figures alone, secretarial audit is not mandatory under Section 204.
Who can conduct a secretarial audit?
A secretarial audit can be conducted only by a Company Secretary in Practice holding a valid Certificate of Practice (CoP) issued by the Institute of Company Secretaries of India (ICSI). No other professional is authorised to sign Form MR-3. For listed entities, SEBI has additionally strengthened the eligibility norms under the SEBI (LODR) Regulations, 2015 — the secretarial auditor is required to be a peer-reviewed Company Secretary in Practice (or a firm with a valid peer-review certificate), appointed with the approval of shareholders and subject to prescribed limits on tenure. These safeguards are intended to reinforce the independence and quality of the audit for listed companies.
Scope of examination
The scope of a secretarial audit is deliberately broad. Form MR-3 requires the auditor to report on compliance with the specific laws applicable to the company, which typically include:
- The Companies Act, 2013 and the rules made under it;
- The Securities Contracts (Regulation) Act, 1956 and rules;
- The Depositories Act, 1996 and regulations;
- Foreign Exchange Management Act (FEMA), 1999, to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;
- For listed companies, the applicable SEBI regulations — including LODR, PIT (Prohibition of Insider Trading), SAST (Takeovers), ICDR, Buyback, Share Based Employee Benefits, and related regulations;
- Other laws specifically applicable to the company having regard to its industry and operations.
In addition, the auditor examines board and committee processes — proper constitution of the Board, notices, quorum, minutes and dissent recording — as well as maintenance of statutory registers and the company's event-based compliances (allotments, charges, changes in directors, related-party transactions, and similar filings with the Registrar of Companies).
The secretarial audit process, step by step
- Engagement and appointment: The auditor is appointed by a resolution of the Board, the scope is agreed, and the period under audit is fixed.
- Document and record review: Statutory registers, minutes of board, committee and general meetings, filings, resolutions and disclosures are examined.
- Verification and testing: Compliance under each applicable law is tested, and event-based filings are checked against the underlying transactions and prescribed timelines.
- Management discussion: Observations and apparent gaps are discussed with management and the company secretary, giving the company an opportunity to explain or rectify.
- Reporting: The auditor issues the report in Form MR-3, with qualifications, observations or remarks where warranted.
Form MR-3: what the report contains
Form MR-3 is the prescribed format of the secretarial audit report. It records the laws examined, the auditor's opinion on whether the company has complied with statutory provisions and followed proper board processes, and any qualifications, reservations, adverse remarks or disclaimers. Where the auditor notes non-compliance, the observation is set out specifically so the Board and shareholders can see the nature of the gap. The report is annexed to the Board's report for the relevant financial year. Under Section 134(3), the Board is required to explain, in its report, any qualification or observation made by the secretarial auditor.
Secretarial Compliance Report for listed companies (LODR Regulation 24A)
Listed entities have an additional, distinct obligation. Under Regulation 24A of the SEBI (LODR) Regulations, 2015, every listed entity must obtain an Annual Secretarial Compliance Report from a Practising Company Secretary, focused specifically on compliance with SEBI regulations and the circulars and guidelines issued under them. This is separate from the Form MR-3 secretarial audit: the secretarial audit is a broad review of all applicable laws, while the Secretarial Compliance Report is a focused SEBI-compliance check. The Secretarial Compliance Report is submitted to the stock exchanges within the timeline prescribed by SEBI (within 60 days of the end of the financial year). Material unlisted subsidiaries of listed entities may also fall within the secretarial audit requirement under LODR.
Penalties for non-compliance
Section 204(4) provides that if a company or any officer of the company, or the Company Secretary in Practice, contravenes the provisions of Section 204, they shall be liable to a penalty. Beyond the direct penalty, failing to obtain or annex a secretarial audit report exposes the company and its officers to compliance risk, adverse remarks in the Board's report, and difficulties in due diligence for fundraising, lending and transactions. Timely compliance is therefore both a statutory duty and a matter of good governance.
Timeline: when to start
Because Form MR-3 must be annexed to the Board's report placed before the Annual General Meeting, the audit should begin well before the financial year-end reporting cycle. Starting early — ideally soon after the close of the financial year, or on a rolling basis through the year — gives time to gather records, discuss observations with management and rectify curable gaps before the report is finalised.
How CS Sapna Malpani can help
CS Sapna Malpani, a practising Company Secretary in Bengaluru and a partner at Vivek Hegde & Co, undertakes secretarial audit engagements for companies falling within Section 204. Each engagement is scoped to the company's specific facts — its structure, applicable laws and compliance history — with a structured review of records, a management discussion of observations, and a clear Form MR-3 report.
Discuss a secretarial audit: reach out on WhatsApp, call +91 96208 03375, or email [email protected] to discuss whether secretarial audit applies to your company and how an engagement would be scoped.
Frequently asked questions
Is secretarial audit mandatory for private companies?
A private company is not covered by the paid-up capital or turnover tests, which apply only to public companies. However, the borrowing test under Rule 9 applies to every company: a private company with outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more is required to obtain a secretarial audit and annex Form MR-3 to its Board's report.
What are the applicability thresholds under Section 204?
Secretarial audit applies to every listed company; every public company with paid-up share capital of Rs. 50 crore or more; every public company with turnover of Rs. 250 crore or more; and every company (public or private) with outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more. Meeting any one condition triggers the requirement.
Who is authorised to conduct a secretarial audit?
Only a Company Secretary in Practice holding a valid Certificate of Practice can conduct a secretarial audit and sign Form MR-3. For listed entities, SEBI additionally requires the secretarial auditor to be a peer-reviewed Company Secretary in Practice, appointed with shareholder approval and subject to prescribed tenure limits.
What is Form MR-3?
Form MR-3 is the prescribed format of the secretarial audit report. It sets out the laws examined, the auditor's opinion on the company's compliance and board processes, and any qualifications, observations or adverse remarks. It is annexed to the Board's report, and the Board must explain any qualification the auditor raises.
How is the Secretarial Compliance Report different from secretarial audit?
The secretarial audit (Form MR-3) is a broad review of compliance with all laws applicable to the company. The Annual Secretarial Compliance Report under SEBI LODR Regulation 24A is a separate, focused check by a Practising Company Secretary on a listed entity's compliance with SEBI regulations and circulars, submitted to the stock exchanges within 60 days of the financial year-end.
What happens if a company does not obtain a secretarial audit?
Under Section 204(4), the company, every officer in default and the Company Secretary in Practice may be liable to a penalty for contravention. Non-compliance also creates governance risk, invites adverse remarks in the Board's report, and can complicate due diligence for lending, fundraising and transactions.
CS Sapna Malpani is a Company Secretary in practice. This page is for general information and does not solicit work or advertise professional fees; scope and terms are agreed individually. Applicability thresholds are as per Section 204 of the Companies Act, 2013 and the rules made thereunder.