Secretarial Audit (Form MR-3)

Under Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, secretarial audit is mandatory for: every listed company; every public company having a paid-up share capital of ₹50 crore or more; every public company having a turnover of ₹250 crore or more; and, following the Companies (Amendment) Act, 2020, every private company that is a subsidiary of a public company which itself falls within any of the above thresholds. The thresholds are checked as at the end of the preceding financial year.

Only a Practising Company Secretary — that is, a member of the Institute of Company Secretaries of India who holds a valid Certificate of Practice — is authorised to conduct a secretarial audit and sign Form MR-3 under Section 204 of the Companies Act, 2013. A Company Secretary employed by the company (in whole-time employment) cannot sign Form MR-3 as auditor for that company. The auditor must be independent of the company and must not have any disqualifying interest as prescribed under the Act and the ICSI guidelines.

The scope of Form MR-3 encompasses the Companies Act, 2013 and Rules; the Securities Contracts (Regulation) Act, 1956; the Depositories Act, 1996; FEMA, 1999 in relation to FDI, ODI, and ECB; SEBI Act, 1992 and all Regulations and Guidelines thereunder including SEBI (LODR), SEBI (ICDR), the Takeover Code, and Insider Trading Regulations; and Secretarial Standards issued by ICSI. The auditor also covers sector-specific laws applicable to the company's business, such as RBI regulations for banking and NBFC companies or IRDAI regulations for insurance companies.

The Secretarial Audit Report in Form MR-3 must be annexed to the Board's Report for the relevant financial year under Rule 8 of the Companies (Accounts) Rules, 2014. The Board's Report, along with the annexed Form MR-3, is filed with the Registrar of Companies as part of the Annual Report. For companies following a financial year ending March 31, the Annual Return in Form MGT-7 and financial statements must be filed within sixty days and thirty days respectively of the Annual General Meeting, which must be held within six months of year-end. Accordingly, the secretarial audit report must be completed within this timeline.

Form MR-3 is the prescribed format for the Secretarial Audit Report as specified in Annexure to Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The report follows a structured format covering: the scope of the audit and the auditor's responsibility; a list of all laws reviewed; the auditor's opinion on compliance with each applicable law; specific qualifications, reservations, or adverse remarks; and the place and date of signing. The report is addressed to the members of the company and signed by the Practising Company Secretary with their membership number and Certificate of Practice number.

When the Secretarial Auditor gives a qualified opinion, reservation, or adverse remark in Form MR-3, the Board of Directors is required under the Companies Act, 2013 to specifically explain each such qualification or adverse remark in the Board's Report. A failure to adequately explain qualifications may attract regulatory scrutiny from the Ministry of Corporate Affairs or, in the case of listed companies, from SEBI. Repeated adverse remarks across years can signal systemic governance failures and may trigger inspection of the company's books by MCA or SEBI.

Under Section 204(4) of the Companies Act, 2013, if a company or any officer of the company is in default with respect to the secretarial audit requirement, the company and every officer in default shall be punishable with a penalty of not less than ₹1 lakh, which may extend to ₹5 lakh. Following the Companies (Amendment) Act, 2019, this is a civil penalty levied by the Registrar of Companies and does not require court prosecution. The Adjudicating Officer has the power to impose the penalty after providing the defaulter an opportunity of being heard.

Yes. A private company that does not fall within the prescribed thresholds may voluntarily appoint a Practising Company Secretary to conduct a secretarial audit. Voluntary secretarial audits are particularly valuable for private companies preparing for an IPO, private equity investment, or significant debt fundraising, as they identify compliance gaps well in advance of due diligence by investors or lenders. Investors and institutional lenders increasingly expect evidence of robust legal compliance as part of their investment covenants, and a clean secretarial audit report provides this assurance.

The statutory audit conducted under Section 143 of the Companies Act, 2013 by a Chartered Accountant examines the financial statements of the company to give an opinion on whether they present a true and fair view of the company's financial position in accordance with Accounting Standards. The secretarial audit conducted under Section 204 by a Practising Company Secretary examines the company's compliance with corporate and securities laws and procedural requirements — such as board meeting conduct, statutory filings, disclosure obligations, and share capital transactions — and gives an opinion on legal compliance rather than financial accuracy. The two audits are complementary and together provide a comprehensive independent review of the company's affairs.