Secretarial Audit Qualifications at an Unlisted Public Company
Suvarna Agro Foods Ltd is an unlisted public company with paid-up equity share capital of ₹55 crore, turnover of ₹260 crore and 1,400 shareholders. It has three directors, all men. The company engaged a practising company secretary for secretarial audit for FY 2023-24. The secretarial auditor found: (i) board meetings were held on 22 April, 14 July, 26 October 2023 and 3 March 2024; (ii) the minutes of the 26 October 2023 meeting were signed by the chairman on 12 December 2023; (iii) a dividend of ₹12,000 declared in 2016 on shares of a shareholder who died in 2018 remains unpaid and was not transferred to the IEPF; and (iv) the company has no woman director. The managing director says the board-meeting gap was caused by a family bereavement and asks the company secretary to omit the qualification from Form MR-3 and the board’s report. The company secretary is also asked whether the company needed a woman director at all. The board will approve the secretarial audit report at its meeting on 30 May 2024.
1. Assess each of the four findings. Which are actual violations, which are not, and why?
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(i) Board-meeting gap. Section 173(1) requires at least four board meetings every year and a gap of not more than 120 days between two consecutive meetings. From 26 October 2023 to 3 March 2024 is 129 days. This is a violation, even though four meetings were held. Bereavement may explain the delay but does not create a statutory exemption.
(ii) Late signing of minutes. Section 118(1) requires minutes to be prepared within 30 days of the meeting. From 26 October to 12 December 2023 is 47 days. This is a violation. The minutes must also be signed by the chairman; late signing does not cure the delay.
(iii) IEPF transfer. A dividend declared in 2016 that remained unpaid or unclaimed for seven years should have been transferred to the Investor Education and Protection Fund under Section 124(5), with interest where applicable. The shareholder’s death in 2018 does not remove the obligation; the company should deal with the legal heirs and transfer the unclaimed amount. This is a violation.
(iv) Woman director. The requirement applies to listed companies and to public companies with paid-up share capital of ₹100 crore or more or turnover of ₹300 crore or more. Suvarna has ₹55 crore paid-up capital and ₹260 crore turnover, so a woman director was not mandatory on these facts.
Secretarial audit itself is mandatory because the company is a public company with paid-up capital of ₹50 crore or more or turnover of ₹250 crore or more.
2. Can the secretarial auditor omit the qualification because the MD says the gap was due to bereavement? What should the CS do, and what disclosure is required in the board’s report?
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No. The secretarial auditor’s report in Form MR-3 must state whether the company has complied with the applicable laws. The auditor cannot omit a non-compliance because management offers an explanation. The explanation belongs in the board’s report or in the company’s response, not in place of the qualification.
The company secretary should refuse to sign or support a false or incomplete report. The CS should place the facts before the board, recommend that the qualification be included, and recommend remedial action: hold the next board meeting within the 120-day limit, approve the pending minutes, and transfer the IEPF amount with interest. If the board insists on omission, the CS should record dissent in writing, seek independent legal advice and consider reporting the matter under the company’s whistleblower policy. Professional misconduct consequences may follow if a practising CS certifies a false statement.
Under Section 134(3)(f), the board’s report must annex the secretarial audit report. If the report contains qualifications, the board must explain them in the report. The board cannot simply ignore the qualification.
3. What remedial and penalty consequences follow from the board-meeting gap, delayed minutes and IEPF lapse?
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Board-meeting gap. Section 173(2) exposes the company to a penalty and every officer in default to a penalty. The company should regularise the meeting calendar immediately and ensure no future gap exceeds 120 days. The board should record the reason for the lapse and the corrective steps.
Delayed minutes. Section 118(11) provides a penalty for non-compliance with the minutes requirements. The company should approve and sign the minutes immediately, maintain the minutes book and ensure future minutes are prepared within 30 days.
IEPF lapse. Section 124(7) provides a penalty for failure to comply with Section 124. The company must transfer the unpaid dividend with interest to the IEPF, file the prescribed IEPF forms and reconcile the unpaid dividend account. The board should disclose the lapse and the transfer in the board’s report.
Governance response. The board should also fix responsibility for the compliance failures, strengthen the secretarial compliance calendar, obtain a quarterly compliance certificate from the CS and ensure the secretarial auditor has direct access to the audit committee. Paying the penalty does not by itself cure the underlying non-compliance.