HOW TO AVOID QUALIFICATIONS IN A SECRETARIAL AUDIT REPORT? HOW TO OBTAIN A CLEAN MR-3 REPORT? COMMON RED FLAGS IN A SECRETARIAL AUDIT REPORT?

 HOW TO AVOID QUALIFICATIONS IN A SECRETARIAL AUDIT REPORT?

HOW TO OBTAIN A CLEAN MR-3 REPORT?

COMMON RED FLAGS IN A SECRETARIAL AUDIT REPORT?

Remarks by a Secretarial Auditor are not casual observations—they are formal, reportable qualifications, reservations, or adverse comments issued under Section 204 of the Companies Act, 2013 and the Secretarial Audit Report (Form MR-3).

These remarks signal non-compliance, weak governance, or procedural lapses and often attract regulatory scrutiny.

HIGH-RISK CLAUSES TO SCRUTINIZE

(A) Companies Act, 2013 Non-Compliance

Check for:

·      Delay in ROC filings (AOC-4, MGT-7, PAS-3, DIR-12)

·      Non-maintenance of:

·      Register of Members (Section 88)

·      Minutes (Section 118)

NON-APPOINTMENT OF:

·      Company Secretary (Section 203)

·      Internal Auditor (Section 138)

·      Non-appointment of women director wherever applicable – About 189 public sector companies have not appointed a woman director in their board

(B) BOARD PROCESS & GOVERNANCE FAILURES

Look for:

·      Board meetings not held as per Section 173

·      Improper notice / agenda circulation

·      Minutes not signed within 30 days

·      Committees not properly constituted

·      Improper constitution of Board / Committees

·      Lack of independent directors (for applicable companies)

·      Minutes not properly recorded or signed

(C) SHARE CAPITAL & SECURITIES ISSUES

Red flags include:

·      Allotment without receipt of money (VARDHMAN AIRPORT SOLUTIONS LIMITED)

·      Private placement violations (Section 42)

·      Delay in PAS-3 filing

·      Non-issue of share certificates within timelines

D) DEPOSITS & LOANS COMPLIANCE

·      Acceptance of deposits in violation of Sections 73–76

·      Non-compliance with Section 186 (loans, guarantees)

(E) RELATED PARTY TRANSACTIONS (SECTION 188)

·      No Board / shareholder approval

·      Not at arm’s length

·      Not disclosed properly

(F) SEBI / LISTING REGULATIONS (IF APPLICABLE)

·      Delay in disclosures to Stock Exchanges

·      Non-compliance with LODR

·      Insider trading lapses

(G) OTHER LAWS APPLICABLE TO COMPANY

·      FEMA, RBI, Labour laws, Environmental laws

·      Industry-specific regulatory non-compliance.

IMPACT OF SECRETARIAL AUDITOR’S REMARKS

These remarks can have serious consequences:

·      Regulatory action by ROC / SEBI

·      Monetary penalties and prosecution

·      Negative impact on investors and stakeholders

·      Red flags in due diligence / IPO (RHP stage)

·      Reputational damage

BOARD’S RESPONSIBILITY

Under Section 134, the Board must:

·      Provide explanations to each qualification/remark

·      Include responses in the Board’s Report

·      Take corrective action and strengthen compliance systems

BEST PRACTICES TO AVOID ADVERSE REMARKS

·      Robust compliance calendar and tracking system

·      Periodic secretarial compliance audits (internal)

·      Proper documentation and record keeping

·      Timely filings and disclosures

·      Strong coordination between legal, finance, and secretarial teams

 

# YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,