Secretarial Audit Report: The Compliance Check Most Investors Skip

A secretarial audit report is the one page in an annual report where an outside company secretary tells shareholders whether the company actually followed the corporate laws it says it follows. Board meetings held on time, filings made, related-party approvals taken, SEBI listing rules respected. Most retail investors flip straight past it to the profit and loss statement. We think that is a mistake, because this is often where the first quiet warning about governance shows up, months before it turns into a headline.

This guide covers what the law requires, which companies need the audit, the newer SEBI rules on who can sign it and for how long, and a practical way to read one in about ten minutes. Every rule quoted here comes from Section 204 of the Companies Act, 2013, Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, and SEBI’s December 2024 amendment to the Listing Obligations and Disclosure Requirements (LODR) Regulations, all linked at the end.

What a secretarial audit report actually is

Think of the statutory audit as a check on the numbers. The secretarial audit is a check on the process. A chartered accountant signs off on whether the financial statements give a true and fair view. A company secretary in practice looks at the company’s books, minutes, registers and filings and reports on whether it complied with company law, securities law and the other rules that apply to it.

Section 204 of the Companies Act, 2013 sets out four simple obligations:

• Every listed company, and every company in a prescribed class, must attach a secretarial audit report given by a company secretary in practice to its Board’s report under Section 134(3).
• The company has a duty to give the company secretary in practice all assistance and facilities needed to audit its secretarial and related records.
• The Board must explain in full, in its own report, any qualification, observation or other remark the secretarial auditor makes.
• If the company, any officer or the company secretary in practice contravenes the section, each one in default is liable to a penalty of two lakh rupees.

That third point is the useful one for investors. The auditor flags a problem, and the Board then has to respond to it in writing, in the same annual report. You get both sides on paper.

The statutory audit tells you whether the numbers add up. The secretarial audit tells you whether the people running the company followed the rules while producing them.

Which companies need a secretarial audit report

Listed companies are covered by Section 204 directly. For unlisted ones, Rule 9 of the Managerial Personnel Rules brings in three more groups:

1. Every public company with a paid-up share capital of ₹50 crore or more.
2. Every public company with a turnover of ₹250 crore or more.
3. Every company, public or private, with outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more.

The third test was added by an amendment that took effect on 1 April 2020, and it matters because it is the only one that reaches private companies. Rule 9 also clarifies that the paid-up capital, turnover or borrowings are measured as they stood on the last date of the latest audited financial statement. The report itself has to be in Form MR-3.

On the listed side, SEBI goes one step further. Under the amended Regulation 24A of the LODR Regulations, every listed entity and its material unlisted subsidiaries incorporated in India must undertake a secretarial audit and annex the report to the listed entity’s annual report. So if you own shares of a listed group, the audit trail can extend into its big unlisted subsidiaries too.

Worked example: does this company need one?

Here is a hypothetical, with made-up figures purely to show how the tests work. Say we are looking at three unlisted companies, each measured on the last date of its latest audited balance sheet:

• Company A is a public company with paid-up capital of ₹40 crore and turnover of ₹310 crore. Capital is below ₹50 crore, but turnover crosses ₹250 crore. It needs a secretarial audit.
• Company B is a private company with turnover of ₹600 crore and bank borrowings of ₹70 crore. The turnover test applies only to public companies, and its borrowings are below ₹100 crore. Under Rule 9 as it stands, it does not need one.
• Company C is a private company with turnover of ₹90 crore but ₹120 crore of term loans from banks. The borrowing test covers every company, so it needs a secretarial audit.

Company B is the interesting one. A large business can sit outside the requirement simply because of its legal form and how it funds itself. When such a company later files for an IPO, the listed-company rules kick in, and that is often the first time an outside company secretary reviews its processes in this formal way.

SEBI’s newer rules on who signs the secretarial audit report

The December 12, 2024 amendment rewrote the first part of Regulation 24A. The changes are worth knowing because they decide how independent the person signing the report really is.

Peer review is mandatory. The secretarial auditor must be a Peer Reviewed Company Secretary, which the regulation defines as a company secretary in practice, working individually, as a sole proprietor or as a partner of a peer-reviewed practice unit, who holds a valid peer review certificate from the Institute of Company Secretaries of India.

Term limits now exist. On the Board’s recommendation and with shareholder approval at the AGM, a listed entity can appoint an individual for not more than one term of five consecutive years, or a firm for not more than two terms of five consecutive years.

Cooling-off periods apply. An individual or firm that completes its term cannot be re-appointed in the same entity for five years. A firm that shares a common partner with an outgoing firm whose tenure expired in the immediately preceding financial year also cannot be appointed for five years.

Casual vacancies have a deadline. If the auditor resigns, dies or becomes disqualified, the Board must fill the vacancy within three months, and the replacement holds office until the next AGM.

Other services are restricted. The secretarial auditor can provide the listed entity only those other services the Board approves, and never the services SEBI specifies as off-limits.

The clock started in 2025. These appointment rules apply from April 1, 2025, and any association of the auditor with the company before March 31, 2025 is not counted toward the five-year tenure. From the same April 1, 2025 date, the annual Secretarial Compliance Report sent to the stock exchanges must be signed only by the secretarial auditor or by a peer-reviewed company secretary who meets the same eligibility conditions.

Worked example: mapping the tenure

Another hypothetical. A listed company appoints a peer-reviewed secretarial audit firm at its AGM in 2025 for a five-year term covering FY2025-26 to FY2029-30. Because work done before March 31, 2025 does not count, it does not matter that the same firm had audited the company for the previous six years.

• At the 2030 AGM, shareholders can re-appoint the firm for a second and final five-year term, covering FY2030-31 to FY2034-35.
• After that, the firm sits out for five years before it can be appointed again in the same company.
• A different firm that shares a partner with the outgoing one is also barred for five years, so the company cannot simply rename the same team.

Had the company appointed an individual practitioner instead of a firm, the limit would be a single five-year term, followed by the five-year cooling-off.

If this pattern feels familiar, it is because statutory auditors follow a similar logic. We covered that in our explainer on auditor rotation.

How to read a secretarial audit report in ten minutes

You will usually find it as an annexure to the Board’s report in the annual report, along with the Board’s reply to any remarks. Here is the order we read it in.

1. Go straight to the opinion and the “subject to” lines. A clean report says the company complied with the listed laws. A qualified one says it complied “subject to” certain observations. Those observations are the whole point of the exercise.

2. Sort each observation by type. A late filing of a routine form by a few days is a process slip. A missed related-party approval, a board without the required independent directors, or a penalty from a stock exchange for a listing violation tells you much more about how the company is run.

3. Read the Board’s explanation. Section 204(3) forces the Board to explain every remark in full. A specific explanation with a fix and a date is reassuring. A one-line “noted, will be complied with” repeated every year is not.

4. Compare with last year’s report. This is the step most people skip, and it is the most revealing. The same observation appearing three years in a row is a pattern, not an accident.

5. Check who signed and whether they changed. Note the name of the practitioner or firm. A sudden change of secretarial auditor mid-term, especially one followed by a tougher report from the new auditor, deserves a closer look at the company’s disclosures.

One late form is a slip. The same remark three years running, with the same one-line reply from the Board, is a habit.

How it fits with the other audit reports

The secretarial audit report is one of three outside checks we would read together. The statutory auditor’s report covers the financial statements. The CARO report, for companies it applies to, adds a set of specific checks on things like fixed assets, loans and statutory dues, which we walked through in our guide to the CARO report. The secretarial audit report then covers legal and regulatory compliance.

When all three are clean, that is a good sign, though not a guarantee. When the secretarial auditor raises a governance concern that neither of the other two touches, it is worth asking why. And when a qualification in one report lines up with a remark in another, the signal gets much stronger.

Results season is a good time to build this habit. Quarterly numbers tell you how the business is doing; the annual governance reports tell you how much you can trust those numbers. If you want a framework for the quarterly side, start with our guide on how to analyse quarterly results of a company.

Common mistakes investors make with secretarial audits

• Treating it as boilerplate. Much of the report is standard text listing the laws reviewed. The value sits in a few lines of observations, so skim the list and slow down at the remarks.
• Ignoring material subsidiaries. For listed groups, Regulation 24A covers material unlisted subsidiaries incorporated in India too. Problems sometimes show up there first.
• Assuming a clean report means a good business. Compliance is not the same as profitability. A company can follow every rule and still lose money.
• Not reading the Board’s reply. The law makes the Board explain itself. That explanation is one of the few places management has to respond on record to an outside reviewer.

Quick recap

1. Section 204 requires listed companies and prescribed classes of companies to attach a secretarial audit report from a company secretary in practice to the Board’s report.
2. Rule 9 covers public companies with ₹50 crore paid-up capital or ₹250 crore turnover, and any company with ₹100 crore of bank or public financial institution borrowings, in Form MR-3.
3. For listed entities, SEBI now requires a peer-reviewed auditor, with term limits of one five-year term for individuals and two for firms, and a five-year cooling-off.
4. Read the observations, the Board’s reply and last year’s report side by side. Repetition is the real warning sign.

Sources

• Section 204, Companies Act, 2013 (Secretarial audit for bigger companies)
• Rule 9, Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
• SEBI (LODR) (Third Amendment) Regulations, 2024, Gazette notification of December 12, 2024

Disclaimer: This article is for education only and is not investment, legal or tax advice. The examples use hypothetical figures. Rules and thresholds can change, so check the latest law and consult a qualified professional before acting.