Sections 204 and 205 of Companies Act 2013: Secretarial Audit and Functions of Company Secretary
Sections 204 and 205 of the Companies Act, 2013 form an important part of the corporate compliance framework. Section 204 requires secretarial audit for listed companies and other prescribed classes of companies, while Section 205 states the statutory functions of a company secretary.
Section 204 - Secretarial Audit for Bigger Companies
Section 204 requires every listed company and every other prescribed class of company to annex to its Board's Report a secretarial audit report given by a company secretary in practice. The Board's Report referred to in Section 204 is the report prepared under Section 134 of the Companies Act, 2013.
Companies covered by secretarial audit
Under Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, secretarial audit applies to the following classes in addition to listed companies:
- every public company having paid-up share capital of Rs. 50 crore or more;
- every public company having turnover of Rs. 250 crore or more; and
- every company having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more.
For these thresholds, the paid-up share capital, turnover, or outstanding loans or borrowings existing on the last date of the latest audited financial statement are taken into account under Rule 9.
Form MR-3
The secretarial audit report under Section 204(1) is given by a company secretary in practice in Form MR-3, as prescribed by Rule 9.
Duties of the company during secretarial audit
Under Section 204(2), the company must provide the company secretary in practice with the assistance and facilities necessary for auditing the secretarial and related records of the company.
Board's response to qualifications and observations
Section 204(3) requires the Board of Directors to explain fully in its Board's Report every qualification, observation or other remark made by the company secretary in practice in the secretarial audit report.
Penalty under Section 204
Under the current Section 204(4), if the company, an officer of the company, or the company secretary in practice contravenes Section 204, the person in default is liable to a penalty of Rs. 2 lakh. This penalty provision was substituted by the Companies (Amendment) Act, 2020 with effect from 21 December 2020.
Section 205 - Functions of Company Secretary
Section 205 identifies the statutory functions of a company secretary. These functions are part of the company's compliance and governance framework and operate in addition to duties prescribed elsewhere under the Companies Act, 2013 and applicable rules.
1. Reporting compliance to the Board
Under Section 205(1)(a), the company secretary is required to report to the Board about compliance with the provisions of the Companies Act, 2013, the rules made under it and other laws applicable to the company.
2. Ensuring compliance with applicable Secretarial Standards
Section 205(1)(b) requires the company secretary to ensure compliance with the applicable Secretarial Standards. For Section 205, "Secretarial Standards" means standards issued by the Institute of Company Secretaries of India under the Company Secretaries Act, 1980 and approved by the Central Government.
3. Other prescribed duties
Section 205(1)(c) also requires the company secretary to discharge such other duties as may be prescribed. These duties should therefore be read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and other applicable provisions.
Duties of directors and managerial personnel remain unaffected
Section 205(2) clarifies that Sections 204 and 205 do not affect the duties and functions of the Board of Directors, chairperson, managing director or whole-time director under the Companies Act, 2013 or any other law in force.
Section 204 and Section 205 at a Glance
| Provision | Main requirement |
|---|---|
| Section 204(1) | Secretarial audit report by a company secretary in practice for listed and prescribed companies. |
| Rule 9 | Prescribes additional classes of companies and Form MR-3. |
| Section 204(2) | Company must provide assistance and facilities for the audit. |
| Section 204(3) | Board must explain qualifications, observations and other remarks in its report. |
| Section 204(4) | Penalty of Rs. 2 lakh for contravention by persons covered by the provision. |
| Section 205(1) | Company secretary reports compliance, ensures applicable Secretarial Standards are followed and performs prescribed duties. |
| Section 205(2) | Responsibilities of the Board and specified managerial personnel remain unaffected. |
Official and Professional References
For the current statutory text and compliance material, refer to the official Ministry of Corporate Affairs - Companies Act, 2013, the India Code - Companies Act, 2013, and the ICSI Secretarial Audit resources. The ICSI Secretarial Standards page provides professional material on the standards referred to in Section 205.
Note: This article is a general legal information resource. For a particular company, applicability should be checked against the latest Act, rules, notifications, amendments and, where relevant, securities law requirements.