Market regulator SEBI has recently released a circular notifying of an amendment to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
The amendment is the introduction of a new regulation, Regulation 24A, in line with the provisions of the Companies Act, 2013 which makes it compulsory for all listed entities (whose equity shares are listed) and its material unlisted Indian subsidiaries to undertake a secretarial compliance audit and submit secretarial audit and compliance reports along with its annual report with effect from financial year ended 31 Mar 2019.
The recommendation was made to SEBI by The Committee on Corporate Governance which was founded under the Chairmanship of Uday Kotak on October 5, 2017. Extending the new compliance requirements to the subsidiaries comes based on the committee’s recommendation to strengthen group oversight and improve compliance at a group level for listed entities.
Subsequent to SEBI’s circular and directions, the Institute of Company Secretaries of India (ICSI) has also issued a guidance note to Practising Company Secretaries to enable them to undertake certifications in accordance with the Regulations.
The excerpt from SEBI’s original circular on Regulation 24 A reads as below:
“24A: Secretarial Audit
Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex with its annual report, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed with effect from the year ended March 31, 2019.”
The Annual Secretarial Audit Report:
At present, section 204 of Companies Act, 2013 read with rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 requires listed companies (and certain unlisted companies) to undertake Secretarial Audit by experienced company secretaries for and submitted on Form No. MR-3.
Under the new regulation and requirement, listed entities and their material unlisted Indian subsidiaries can continue to utilize the same Form No.MR-3 to comply with the requirements of Regulation 24A.
The Annual Secretarial Compliance Report:
The annual secretarial compliance report is an additional requirement under the new regulation. SEBI has also prescribed the format, as an annexure to their original circular, in which the report must be produced by practicing company secretaries.
While the annual secretarial audit will broadly check compliance with all laws which are applicable to an entity, the annual secretarial compliance has been introduced for the purpose of checking compliance of listed entities to applicable SEBI Regulations and circulars/ guidelines issued thereunder.
The annual secretarial compliance must be undertaken on an annual basis, and listed entities and their material subsidiaries must provide all documents/information requested by the practicing company secretary for the purpose of the audit and issuing report and certification under Regulation 24A, which must then be submitted within 60 days of end of the financial year.
The original circular was published on 08 Feb 2019, and you can read it on SEBI website at www.sebi.gov.in under the category ‘Legal > Circulars’