Amendment in Secretarial Audit applicability and mandatory appointment of Whole Time Company Secretary

The Ministry of Corporate Affairs (MCA) has vide an amendment dated 3rd January 2020 to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 amended the thresholds for applicability of Secretarial Audit and the thresholds for mandatory appointment of Whole Time Company Secretary. This amendment is applicable in respect of financial years commencing on or after 1st April 2020.

A. Applicability of Secretarial Audit

1. Thresholds:- 

Before this amendment, Secretarial Audit was applicable to all types of companies (public or private) having any securities listed and such public companies having paid up capital of Rs. 50 crores or more, OR such public companies having turnover of Rs. 250 crores or more. 

Now vide this amendment, with effect from the financial years commencing on or after 1st April 2020, Secretarial Audit has been made applicable to all types of companies (public or private) having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crores or more. Hence, now secretarial audit is applicable to even private companies which are heavily leveraged as mentioned above (irrespective of whether it is long term or short term borrowing). 

2. From which year Secretarial Audit is applicable?

a. Companies which have already crossed the new threshold:-

Since this Amendment is applicable in respect of financial years commencing on or after 1st April 2020, in case of companies (private or public) which already have outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crores or more, Secretarial Audit will be applicable for the financial year 2020-21 onwards. 

b. Companies which cross the new threshold after 1st April 2020:-

In the above Rules, an Explanation has been inserted to the effect that the paid up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of latest audited financial statement shall be taken into account.

The governing section, i.e., Section 204 states about annexing the Secretarial Audit Report to the Board’s report, i.e., an event which happens post the audit of financial statements of a particular year. Hence it can be said that if Secretarial Audit is newly applicable to any Company for a particular financial year, then Secretarial Audit must be undertaken for that particular financial year only, and not beginning from the next financial year. For example: if Secretarial Audit is applicable to any Company as per the financial statements of the financial year 2020-21, then Secretarial Audit is applicable with effect from financial year 2020-21 only.

B. Thresholds for the appointment of Whole Time Company Secretary

In the above Rules, the thresholds for the appointment of Whole Time Company Secretary has been increased from paid-up capital of Rs. 5 crores to Rs. 10 Crores. It is to be noted that even if a private company has paid-up capital of less than Rs. 10 crores but has its equity shares or any other securities listed, then this exemption is not available to such listed companies.