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Sub-regulation 2 of Regulation 24A of SEBI (LODR) Regulations, 2015 provides for the submission of secretarial compliance report by listed entities on an annual basis within 60 days from the end of each financial year, in such form as specified.

While the annual secretarial audit covers status of compliance with all laws, rules and regulations applicable to a listed company or its material unlisted subsidiary, a secretarial compliance report focusses on compliance with all SEBI Regulations and circulars/ guidelines issued thereunder, as may be applicable to the listed company.

The prescribed format for the secretarial compliance report contains the observations/ remarks of the Practising Company Secretary (PCS) in relation to compliance/ deviations, if any, details of the action taken against the listed entity/ its promoter/ directors/ material subsidiaries by SEBI or by the Stock exchanges, and the actions taken, if any, by the listed entity to comply with the observations made in the previous reports. The format enables the reader to take note of any continuing non-compliance by the listed company.

In March, 2023, SEBI expanded the scope of this report. Some of the additions include:

1. Compliance with the Secretarial Standards (SS) issued by ICSI:

SS derive their legitimacy from the Companies Act, 2013. Since the focus of the Secretarial Compliance Report is on SEBI Regulations, it is not clear why this has been included. The Secretarial audit report focusses on compliance with SS.

2. Adoption and timely updation of the Policies as per regulations/circulars/guidelines issued by SEBI:

SEBI regulations provide for the formation of certain policies like whistle-blower policy, policy for preservation of documents, nomination and remuneration policy, etc. Although listed entities adhere to such provisions, and formulate the required policies, a number of companies do not update them periodically.

3. Maintenance and disclosures required to be made on Website:

The website is one of the platforms for obtaining information about an entity. Hence, it should be updated at all times. SEBI regulations provide for certain mandatory disclosures on the website of the listed company. However, a number of listed companies do not ensure that the disclosures are complete and/or updated.

4. Accuracy of the Web-links provided in annual corporate governance reports under Reg 27(2):

An Annual report is a vital document, which provides mandatory disclosures under a number of heads. In order for the report to not be needlessly long, SEBI provides that with regard to some disclosures, the company can provide a hyperlink of the same to the relevant page on the website of the company. It has been observed that a number of companies do not give the specific link, but a general link, or that the link expires after some time. Accuracy of the link is very important for ease of locating the information.

5. Affirmation that none of the director of the company are disqualified under Section 164 of Companies Act, 2013:

Section 164 of the Companies Act, 2013 provides for disqualifications to be a director, under certain situations, and disclosures relating to the same. Since this is coming from the the Companies Act, and not SEBI Regulations, the need for including this in the Secretarial compliance report is not clear. Further, each company is required to make this disclosure in the Annual report.

6. Identification of material subsidiary companies and the requirement with respect to the disclosures of material as well as other subsidiaries:

Some companies do not clearly indicate the material subsidiaries, as defined under SEBI regulations, or compliance with requirements relating to material subsidiary companies.

7. Preservation and maintenance of records as prescribed under SEBI Regulations and disposal of records as per Policy of Preservation of Documents and Archival policy prescribed under SEBI LODR Regulations, 2015:

Various SEBI regulations provide for the maintenance of various records and their preservation for a prescribed period of time. Given the importance of some of these documents, both the formulation of a policy to that effect, and its implementation are important.

8. Whether performance evaluation of Board, Independent Directors and the Committees at the start of every financial year has been conducted as prescribed in SEBI Regulations:

Increasingly, a number of Boards are seeing value in evaluation of the Board, its committees and the Directors. There are disclosures to be made in the Annual Report to that effect. The need for a PCS to recheck whether this process has been undertaken is not clear.

9. Prior approval of Audit Committee for all Related party transactions and in case no approval obtained, the detailed reasons should be provided along with confirmation whether the transactions were subsequently approved/ratified/rejected by the Audit committee:

Approval of Related Party Transactions (RPTs) is important since there is a potential of misuse of such transactions. SEBI Regulations already have a detailed framework for approval of RPTs. The need for an added layer of check is not clear.

10. Disclosure of events or information under Regulation 30 alongwith Schedule III of SEBI LODR Regulations, 2015 within the prescribed time limit:

Regulation 30 refers to some  material events, which can impact the company and its functioning, which have to be disclosed to the Stock Exchanges on their occurrence. However, a number of companies either do not make these disclosures, or delay such disclosures. Further, some of them are either incomplete or incorrect.

11. Compliance with Regulation 3(5) & 3(6) of SEBI (Prohibition of Insider Trading) Regulations, 2015:

The scope of compliance with PIT Regulations is large. It is a good idea for a PCS to check whether the Compliance Officer is ensuring compliance with the relevant provisions of PIT Regulations.

12. Additional Non-compliances, if any: 

This is an enabling provision for any specific non compliance that might have not been covered.

Further, the format of disclosure has been changed to include specific reference to the regulation or circular number, the details of deviation and action taken, as also the type of action (advisory, clarification, fine, show cause notice or warning), amount of fine, observation of the PCS, and management’s response to the same. It is a good practice to have management response since the stakeholder perusing the report can make his/her own judgment on the validity of the response.

The above mentioned changes/ additions to the format of the Secretarial Compliance Report have been made in order to make it more comprehensive. This is also likely to help the Board in tracking some of the non-compliances that may skip their attention.

Kritika Goswami