It has been the experience of the authorities that a large number of such companies do not maintain proper records as are required under the Act. With a view to ensure that all such companies not only maintain proper records, but also file regularly the annual accounts and other returns within the prescribed time, section 383A of the Act has been amended by the Companies (Amendment) Act, 2000.

The section now includes a provision to the effect that, every company which is not required to employ a wholetime secretary and has a paid up share capital of Rs 10 lakhs or more shall file with the ROC a certificate from a secretary in wholetime practice.

Secretarial Audit
The Companies Act provides for several types of audit, viz., financial audit (section 224), cost audit (section 233B), audit by the Comptroller and Auditor General (section 619) and special audit (section 233A).Though, there is no legal requirement to have an internal audit, the statutory financial auditor has to report in what is popularly called the social audit report, whether there is an internal audit system commensurate with the size and nature of business.

Here it may be clarified that the words used in section 383A are "compliance certificate" and not secretarial audit. However, to issue such a certificate, the secretary in whole time practice will have to first conduct an audit before certifying that the concerned company has complied with the provisions of the Act.

Such an audit is in the interest of every corporate management as, an independent professional will certify that the company has carried out the compliances under the Act. This will also serve the larger interest of the shareholders, creditors and employees.

The exact scope of the audit and contents of the certificate to be issued by a practising company secretary will depend upon the rules to be prescribed in this regard by the central government.

At present only the provisions of the Act are covered by this provision, but the scope of the audit will have to be widened to do proper justice to the shareholders and other stakeholders.

When a new measure like this is introduced, an inevitable question that is raised is, who will benefit by such a provision? Here it would be pertinent to mention that the underlying purpose for such a requirement is to create greater accountability in small and medium size companies and ensure timely compliance by them with the provisions of the Act.

The company which is required to obtain the compliance certificate will benefit from the expertise of the practising professional who will examine the records of the company. The management can be assured that the legal procedures and formalities are duly complied with in accordance with the provisions of the Act and irregularities, if any, are detected and set right without causing undue damage.

It should be noted that all the fines under the Act have increased to ten times and it will prove a costly affair for a company which neglects to comply with the provisions of the Act within the prescribed time.

Even the statutory auditor as well as the internal auditor will benefit as their work load will be reduced and they can safely accept and rely on the report of the company secretary in wholetime practice in respect of the records maintained by the company under the Act.

The secretarial audit will also help the department of company affairs and the office of the registrar, as the documents filed by the small and medium companies covered by this provision will ensure proper compliance. This will even help in reducing the work of the inspection department.

Conclusion
After much discussions and deliberations in the past several years, the Companies Act, 1956, has been finally amended and now the Act has a provision which will help bring greater discipline amongst the medium and small size companies. The compliance certificate will be a testimony to the fact that the provisions of the Act have been duly complied with by the company. The practising company secretary will not be able to give a clean chit if the company has committed defaults under the Act.

Hence, this provision is bound to have a salutary effect on all such companies and should result in better accountability and discipline.The author is a practising company secretary