On December 12, 2024, the Securities and Exchange Board of India (SEBI) introduced a series of amendments to its Listing Obligations and Disclosure Requirements (LODR) regulations, known as the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024. These changes are a result of recommendations from the S K Mohanty-led committee, which was set up to improve the ease of doing business for both listed and soon-to-be-listed companies in India. The areas of amendments include related party transactions (RPTs), promoter reclassification, and secretarial audit. One of the significant changes with regards to governance and audit accountability is of Secretarial Auditor and its Audit. It is one of the game changers to bring the structural clarity and is expected to redefine the position of Secretarial Auditor in the corporate landscape.
The amendments to Regulation 24A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, introduce detailed guidelines for secretarial auditors in listed companies. These changes focus on establishing clear norms for the role and responsibilities of secretarial auditors, ensuring better compliance and corporate governance practices within listed entities:
- Every listed entity and its material unlisted subsidiaries in India must conduct a secretarial audit by a Peer Reviewed Company Secretary, who will annex a Secretarial Audit Report with the entity's annual report.
- Listed entities must appoint or re-appoint a Secretarial Auditor based on the Board of Directors' recommendation: either an individual for one term of five consecutive years, or a firm for two terms of five consecutive years each, subject to shareholder approval at the Annual General Meeting.
- With effect from 1st April, 2025, the secretarial compliance report must exclusively be signed by a Secretarial Auditor or a Peer Reviewed Company Secretary.
The crux of the amendment is that the SEBI in consultation with the Institute of Company Secretaries of India (ICSI) has introduced the Secretarial Audit to be conducted in the listed entity and its material subsidiary, by the Peer Reviewed Secretarial Auditors. It has aligned the provisions for the appointment of secretarial auditors in line with the provisions of Statutory Auditors. After the amendment, the appointment of secretarial auditors shall also be approved by the shareholders in the Annual General Meeting. SEBI has introduced a cooling-off period of five years which prescribed the re-appointment of an individual as a secretarial auditor and for re-appointment of a secretarial audit firm after two consecutive terms to bring an effective compliance management.
In conclusion, previously, Secretarial Auditors were appointed by the Board of Directors, but with this amendment, a practising Company Secretary can now act independently, without Board interference. This change is expected to enhance transparency and accountability in compliance processes, thereby strengthening corporate governance. The alignment of provisions of secretarial auditor with statutory auditor brings in fair distribution of work and the Practising Company Secretaries playing a parallel role with the Practicing Chartered Accountants is now established in documents with this amendment. The amendment will bring in a transformation for the Secretarial auditor as well as for the Indian companies with respect to regulating the compliances and its audit. The evolution of the Indian Legal framework by SEBI in the field of corporate compliance serve as a strong deterrent against corporate misconduct, contributing to improved corporate governance and fostering a healthier economic environment.
Originally published January 2025.
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