Private companies with debts may soon have to undergo mandatory secretarial audit

Economy


New Delhi: The government may soon mandate private companies with outstanding debts above a certain threshold undergo a mandatory secretarial audit, a senior government official said Saturday.

“Mandatory secretarial audit is right now restricted to listed companies, but I think it may have to get extended to private companies which have outstanding (debts ) beyond a threshold,” Corporate Affairs Secretary Injeti Srinivas said while speaking at the 51st foundation day of the Institute of Company Secretaries of India. He said this might be necessary in cases where companies have borrowed heavily from banks.

Under the Companies Act, all listed companies are required to provide a secretarial audit report annually.

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Experts have welcomed the developments as the move will help improve compliance and corporate governance standards in the county.

“The majority of India Inc works as private limited companies, with huge turnover, bank loans, etc. Bringing such companies under the scope of a secretarial audit will help in improving the level of governance and will also lead to an increase in the level of compliance and transparency in operations,” said Ankit Singhi, executive director at law firm Corporate Professionals.

Singhi also said that such audits would particularly help in ensuring that borrowed funds were used for their intended purpose and not diverted to other related entities. Corporate governance issues have taken centre stage after a series of banking frauds largely due to corporate misgovernance.

In February, the Securities and Exchange Board of India amended disclosure requirements for all listed entities to include a mandatory secretarial audit as well as an annual secretarial compliance report to be filed by a practicing company secretary.



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