Jan 7, 2020

Private companies with large borrowings to undergo secretarial audit

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Private companies with total outstanding debt of Rs 100 crore or more to banks and financial institutions will now have to submit a secretarial audit report to the government, according to a rule notified by the corporate affairs ministry on Monday.

Under the previous rules, public companies with a paid-up share capital of Rs 50 crore or more or those with a turnover of Rs 250 crore or more were required to submit secretarial audit reports along with their board reports. In a move aimed at boosting the ease of doing business, the threshold for paid up capital at which private companies are required to employ a company secretary was raised from Rs 5 crore to Rs 10 crore.

A senior government official, who wished to remain anonymous, said these changes were aimed at reducing the compliance cost for companies without substantive operations and to protect public interest in the case of companies with substantial borrowings.

“A number of companies that do not have substantive business operations had represented that it is onerous for them to employ a company secretary only because they have a paid up share capital of Rs 5 crore and this was raising compliance cost,” the official said. Experts said the move is a step in the right direction and would push the ease of doing business.

Madhu Sudan Kankani, Partner – Deloitte India said the move to increase the threshold for the appointment of a company secretary would reduce the cost of compliance for smaller companies. “This eases the burden on private companies and is a welcome move from the ease of doing business, cost and compliance perspective,” said Kankani.

On the move to bring all companies with outstanding loans of Rs 100 crore or more under the ambit of secretarial audit, Kankani said: “This move will increase cost a little but will ensure better compliance by companies which have exposure to public funds.”

Ankit Singhi, partner at law firm corporate professionals also said the move to bring private companies with large borrowings under the ambit of a secretarial audit was a positive move. He added that the government should consider including a requirement that company secretaries certify that borrowed funds are being utilised for their intended purpose to further strengthen compliance.

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