Secretarial Auditor as per Companies Act, 2013

Secretarial Auditor ( Section 204 ) - All about Secretarial Auditor

Who is a Secretarial Auditor? 🔹

A Secretarial Auditor is a Practising Company Secretary (PCS) who is appointed by a company to conduct the Secretarial Audit under Section 204 of the Companies Act, 2013.

📘 Legal Basis

• Section 204(1) – mandates certain companies to obtain a Secretarial Audit Report.
• Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014) – specifies which companies must appoint a Secretarial Auditor.
• Only a member of the Institute of Company Secretaries of India (ICSI) who holds a Certificate of Practice (COP) is eligible.

🧑‍💼 In short:

A Secretarial Auditor = Practising Company Secretary (PCS) registered with ICSI and holding a valid Certificate of Practice.

🔹 Who needs to appoint a Secretarial Auditor (as per Section 204 & Rule 9)?

Type of Company	Applicability Condition
Every listed company	Mandatory
Every public company	With paid-up share capital ≥ ₹50 crore OR turnover ≥ ₹250 crore
Every company	Having outstanding loans or borrowings from banks or public financial institutions ≥ ₹100 crore

🧾 Appointment Process

1. Board Resolution – Passed at a Board Meeting under Section 179(3) read with Rule 8(3) of the Companies (Meetings of Board and its Powers) Rules, 2014.
2. Consent Letter – The PCS gives written consent for appointment.
3. Intimation to ROC – Company files Form MGT-14 with the resolution within 30 days (if applicable).
4. Reporting – The PCS conducts the audit and issues a Secretarial Audit Report in Form MR-3.

📄 Form MR-3

This report is attached to the Board’s Report in the company’s annual report. It covers compliance with:

• Companies Act, 2013
• SEBI regulations (for listed cos.)
• FEMA, Depositories Act, and other applicable laws
• Secretarial Standards, etc.

✅ Summary

Particular	Description
Who can be appointed	Practising Company Secretary (PCS)
Eligibility	Member of ICSI with valid COP
Form of Report	MR-3
Appointed by	Board of Directors
Filing	Disclosed in Annual Report & MGT-14 (if applicable)

 

FAQ’s on Secretarial Auditor

Can someone please clarify whether the ₹100 crore threshold under Section 204 read with Rule 9 includes non-fund-based limits (such as Bank Guarantees or Letters of Credit), or if it applies only to fund-based borrowings?

Section 204(1) of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, states:

“Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more shall be required to obtain a secretarial audit report…”

🔹 Key Phrase: “Outstanding loans or borrowings”

This wording indicates actual outstanding financial exposure — that is, the amount disbursed and due for repayment at the balance sheet date.

Therefore:

• Fund-based limits (like term loans, cash credit, overdraft, working capital demand loans, etc.) are included, since these are actual borrowings outstanding.
• Non-fund-based limits (like Bank Guarantees, Letters of Credit, or other contingent liabilities) are not included, since no amount is actually “outstanding” — these are contingent obligations, not borrowings.

🔹 Supporting Interpretations

1. ICSI Guidance Note on Secretarial Audit (2022 edition) – It specifically clarifies that:

“For determining the applicability of Secretarial Audit under Section 204, only the outstanding fund-based borrowings are to be considered. Non-fund-based facilities such as BGs or LCs should not be included, as these are contingent in nature.”

2. Common practice among auditors –

Professional firms and PCS (Practising Company Secretaries) uniformly follow this interpretation and report based on actual fund-based borrowings outstanding as per audited financial statements.

✅ Conclusion

For Section 204 read with Rule 9:

• Only fund-based outstanding borrowings are counted toward the ₹100 crore threshold.
• Non-fund-based limits (BG/LC, etc.) are excluded from this calculation.

🧾 Example: Determining Applicability of Secretarial Audit under Section 204

ABC Pvt. Ltd. — a private company — has the following borrowings as on 31st March 2025 (as per its audited balance sheet):

Type of Facility	Description	Amount (₹ Crores)	Fund / Non-Fund Based	Remarks
Term Loan from Bank A	Long-term loan for machinery	45	Fund-based	Outstanding principal ₹45 Cr
Cash Credit (CC) from Bank B	Working capital	30	Fund-based	Utilized ₹30 Cr as on 31 Mar
Overdraft from Bank C	Short-term	10	Fund-based	Utilized ₹10 Cr
Bank Guarantee (BG) issued to customer	Performance guarantee	25	Non-fund-based	Only contingent liability
Letter of Credit (LC) issued	Import purchase	20	Non-fund-based	Not yet invoked

🔹 Step 1: Identify outstanding loans/borrowings

Only fund-based facilities are counted:

₹45 (Term Loan) + ₹30 (CC) + ₹10 (OD) = ₹85 crore

🔹 Step 2: Exclude non-fund-based facilities

Bank Guarantee ₹25 Cr and LC ₹20 Cr → excluded, since they are contingent.

🔹 Step 3: Compare with threshold

Threshold under Rule 9 = ₹100 crore

₹85 crore < ₹100 crore → ✅ Secretarial Audit not applicable

📘 Alternate Scenario

If the company had another working capital loan of ₹20 crore,
then total = ₹105 crore → Secretarial Audit becomes mandatory.

✅ Conclusion

When checking the ₹100 crore threshold:

• Include ➜ Fund-based outstanding borrowings (term loan, CC, OD, WCDL, etc.)
• Exclude ➜ Non-fund-based exposures (BG, LC, derivative guarantees, etc.)

Read More on: Section 366 of the Companies Act 2013 - Everything You Need to Know