Corporate Accounting and Auditing · Secretarial Audit

Appointment and Qualification of Secretarial Auditor

Updated 10 October 2026 · Fact-checked

A secretarial auditor must be a company secretary in practice. Section 204 requires every listed company and prescribed class of companies to annex a secretarial audit report from such a person to the Board's report. The company must give all assistance and facilities. The Board must explain every qualification or remark in full.

Understand Appointment and Qualification of Secretarial Auditor

A secretarial audit is an independent check of whether a company follows the Companies Act, 2013 and other applicable laws, and keeps proper secretarial records. It is done by an outsider, not by the company's own staff.

Section 204(1) says that every listed company and a company in any other class prescribed must annex a secretarial audit report to its Board's report made under section 134(3). The report must be given by a company secretary in practice, in the prescribed form (Form MR-3, covered in a separate topic).

The key qualification point is simple: the person must be a company secretary in practice. A company secretary in practice is a member holding a certificate of practice under the Company Secretaries Act, 1980. This definition comes from outside section 204. The usual understanding is that an employee of the company, or a member without a certificate of practice, does not qualify. Do not confuse this with the in-house company secretary under section 205, who reports to the Board on compliance. That person is a manager of compliance. The secretarial auditor is an independent examiner.

Section 204 is silent on a detailed appointment procedure, a remuneration rule or a term of office. These are governed by the rules and the company's own procedures. If a question asks for them, say that section 204 does not set them out. Do not assert who does it, and do not quote section numbers you are unsure of.

The law also protects the audit. The company must give all assistance and facilities for auditing the secretarial and related records. The Board must explain in full any qualification, observation or other remark made by the auditor. Section 143 applies with necessary changes to a company secretary in practice conducting secretarial audit under section 204, as section 143(14)(b) states. So the auditor has a right of access to records, and a duty to report fraud under section 143(12).

Key rules to remember

Who must get a secretarial audit (s.204(1)): Every listed company + prescribed class of companies; The report is annexed to the Board's report under section 134(3).
Who can be the auditor (s.204(1)): Company secretary in practice; Report must be in the prescribed form.
Company's duty (s.204(2)): Give all assistance and facilities for auditing secretarial and related records; This is a duty of the company, not an option.
Board's duty (s.204(3)): Explain in full every qualification, observation or other remark; Done in the Board's report under section 134(3).
Penalty for contravention (s.204(4)): ₹2,00,000 on each of: the company, every officer of the company, or the company secretary in practice, who is in default; A person is liable only if that person is in default or has contravened the section.
Application of s.143 (s.143(14)(b)): Section 143 applies mutatis mutandis to a company secretary in practice conducting secretarial audit under s.204; Gives rights of access and the duty to report fraud.
Fraud reporting penalty (s.143(15)): Listed company: ₹5,00,000. Other company: ₹1,00,000; Applies if the company secretary in practice fails to comply with s.143(12).

How to solve Appointment and Qualification of Secretarial Auditor questions

Use this order for any question on who can be a secretarial auditor, how the appointment works, or what happens on default.

1Check whether the company must have a secretarial audit: it is a listed company or in a prescribed class.
2Identify the person: confirm he or she is a company secretary in practice. An employee, or a member without a certificate of practice, is not usually treated as one.
3State the source: section 204(1) for the requirement and qualification.
4Describe the process in plain words: section 204 does not set out the appointment procedure or remuneration, which follow the rules and the company's own procedures. The report is in the prescribed form and is annexed to the Board's report under section 134(3).
5Add the duties: the auditor examines secretarial and related records, reports, and follows section 143 as applied by section 143(14)(b).
6Add the company's duties: give all assistance and facilities, and explain every remark in the Board's report.
7Close with the penalty if there is a default: ₹2,00,000 under section 204(4) on the company, an officer or the auditor, each only if in default, and ₹5,00,000 or ₹1,00,000 for failing to report fraud under section 143(15).

Quickest way: Four-point recall: Who, What, Duty, Penalty

When to use it: For short MCQs and 3 to 5 mark written answers where time is tight.

Who: a company secretary in practice.
What: report annexed to the Board's report under section 134(3).
Duty: company gives all assistance, Board explains all qualifications in full.
Penalty: ₹2,00,000 on each person in default under section 204(4).

Common mistakes in Appointment and Qualification of Secretarial Auditor

Saying that any company secretary can be the secretarial auditor.
Students remember 'company secretary' and drop the words 'in practice'.
Fix: Always write 'company secretary in practice'. An in-house company secretary under section 205 is a different role.
Confusing section 204 (secretarial audit) with section 205 (functions of company secretary).
The two sections are adjacent and both mention the company secretary.
Fix: Section 204 is the audit by an outsider. Section 205 lists the in-house secretary's functions, such as reporting to the Board on compliance.
Stating that the Board may ignore adverse remarks in the report.
Students treat the report as advice only.
Fix: Section 204(3) says the Board must explain in full any qualification, observation or other remark.
Writing the penalty as only on the company.
Students assume the company alone is penalised.
Fix: Section 204(4) covers the company, every officer of the company and the company secretary in practice, but only each one who is in default. Each such person is liable to a penalty of ₹2,00,000.
Quoting section numbers or limits for tenure and remuneration from memory.
Students mix up rules for statutory auditors with secretarial auditors.
Fix: Section 204 does not set these out. State the general position in words and avoid numbers you cannot support.

Worked examples

Example 1

Sundaram Textiles Ltd is a listed company. Its Board wants its own company secretary, Mr. Rao, who is an employee, to give the secretarial audit report. Advise the Board.

Show the solution

Sundaram Textiles is a listed company, so section 204(1) applies.
Section 204(1) requires the report to be given by a company secretary in practice, that is, a member holding a certificate of practice under the Company Secretaries Act, 1980.
Mr. Rao is an employee. The usual understanding is that an employee is not a company secretary in practice, so he would not ordinarily qualify.
His role as in-house secretary falls under section 205: reporting to the Board on compliance and ensuring secretarial standards are followed. That is not the audit.
Hence the Board should appoint an independent company secretary in practice.

Answer: The Board should not use Mr. Rao. It should appoint a company secretary in practice under section 204(1) and annex the report to the Board's report.

Example 2

A listed company's secretarial auditor, Ms. Iyer, gives a report with two qualifications. The company did not give her access to some records, and the Board's report is silent on the qualifications. State the legal position and the penalty.

Show the solution

Section 204(2) makes it the company's duty to give all assistance and facilities for auditing the secretarial and related records. Denying access breaches this.
Section 204(3) requires the Board to explain in full each qualification, observation or remark in its report under section 134(3). Silence breaches this.
Section 204(4) says that if the company, any officer of the company or the company secretary in practice contravenes the section, the company, every officer of the company or the company secretary in practice, who is in default, is liable to a penalty of ₹2,00,000.
The company is in default on both counts, so it is liable to ₹2,00,000.
The facts do not name any officer. Each officer who is found to be in default is liable to ₹2,00,000. An officer who is not in default is not liable.
Ms. Iyer has not contravened the section, so no penalty applies to her.

Answer: The company has contravened section 204(2) and (3) and is liable to a penalty of ₹2,00,000 under section 204(4). Each officer found to be in default is also liable to ₹2,00,000. Ms. Iyer is not liable.

Exam tips

Write 'company secretary in practice' every time. That phrase carries the mark.
In MCQs, watch for options that say 'company secretary employed by the company'. These are wrong for section 204.
If asked for the penalty, give ₹2,00,000 and name who bears it: the company, officers in default and the auditor in default.
Keep section 204 (audit) and section 205 (company secretary's functions) apart in written answers.
For tenure and fee questions, answer in plain words and do not invent section numbers.

Practice questions from Secretarial Audit

Appointment and Qualification of Secretarial Auditor in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Appointment and Qualification of Secretarial Auditor: frequently asked questions

Who can be appointed as a secretarial auditor?

Only a company secretary in practice. Section 204(1) uses these words. A company secretary in practice is a member holding a certificate of practice under the Company Secretaries Act, 1980. An employee company secretary is not usually understood to meet this requirement.

Which companies need a secretarial audit?

Every listed company and a company belonging to any other class prescribed. The prescribed classes are set by the rules, so name them only if you know them.

Does the secretarial auditor have the same rights as a statutory auditor?

Section 143(14)(b) says section 143 applies with necessary changes to a company secretary in practice conducting secretarial audit under section 204. So rights such as access to records and the duty to report fraud under section 143(12) apply.

What is the penalty for breaching section 204?

The company, every officer of the company, or the company secretary in practice, who is in default, is liable to a penalty of ₹2,00,000 under section 204(4). A person who is not in default is not liable.