Compliance Management, Audit and Due Diligence · Secretarial Audit

Applicability of Secretarial Audit under Section 204

Updated 11 October 2026 · Fact-checked

Section 204 requires a secretarial audit report, given by a company secretary in practice, for every listed company and for prescribed classes. Under Rule 9, these are public companies with paid-up capital of ₹50 crore or more or turnover of ₹250 crore or more, and any company with bank or public financial institution borrowings of ₹100 crore or more.

Understand Applicability of Secretarial Audit under Section 204

A secretarial audit is an independent check of whether a company has complied with the laws and rules that apply to it, and whether its secretarial records are in order. Section 204 decides who must get one. Not every company has to.

Section 204(1) names two groups. The first is every listed company. The second is a company belonging to other classes of companies as may be prescribed. The Act does not give the thresholds. It leaves them to the rules. The class is prescribed in Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Under Rule 9, besides listed companies, the audit applies to: a public company with paid-up share capital of ₹50 crore or more; a public company with turnover of ₹250 crore or more; and every company (public or private) with outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more. Meeting any one test is enough. The tests are alternatives, not cumulative.

The rule measures the figures as they stood on the last day of the previous financial year. So a company checks its position at the close of the last year to decide whether the audit is needed for the current year. Note the difference in who is caught: the capital and turnover tests apply only to public companies, but the borrowing test applies to any company, including a private one.

If the company is covered, the report must be annexed to the Board's report under section 134(3). The Board must explain in full any qualification or observation made by the auditor (section 204(3)). The company must give all assistance and facilities (section 204(2)). Default attracts a penalty of ₹2 lakh on the company, every officer in default, and the company secretary in practice (section 204(4)). Separately, SEBI's listing regulations add secretarial audit requirements for listed entities and their material unlisted subsidiaries. Check those separately in your study material.

Key rules to remember

Statutory basis: Section 204(1): every listed company + prescribed class of companies must annex a secretarial audit report to the Board's report; The prescribed class comes from Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Listed company test: Listed company → secretarial audit applies, whatever its size; No threshold applies. Size tests are only for unlisted companies.
Paid-up capital test: Public company with paid-up share capital ≥ ₹50 crore; Applies to public companies only. A private company is not caught by this test.
Turnover test: Public company with turnover ≥ ₹250 crore; Applies to public companies only. Compare with turnover of the last day of the previous financial year per the rule's explanation.
Borrowing test: Any company with outstanding loans or borrowings from banks or public financial institutions ≥ ₹100 crore; Applies to private companies too. Only bank and public financial institution borrowings count, not loans from directors, members or group companies.
Who gives the report: Report given by a company secretary in practice, annexed to the Board's report under section 134(3); The Board must explain in full any qualification or observation (section 204(3)).
Penalty for contravention: ₹2 lakh on the company, every officer in default and the company secretary in practice; Section 204(4), as substituted with effect from 21-12-2020.

How to solve Applicability of Secretarial Audit under Section 204 questions

Use this order for any applicability question. It stops you missing a test and keeps the answer in the provision, analysis, conclusion format.

1State the provision: section 204(1) covers listed companies and a prescribed class, and Rule 9 prescribes that class.
2Check if the company is listed. If yes, conclude the audit applies and stop the size analysis.
3If unlisted, note whether it is a public or a private company. This decides which tests can apply.
4For a public company, test paid-up capital against ₹50 crore and turnover against ₹250 crore. Either one is enough.
5For any company, test outstanding bank and public financial institution borrowings against ₹100 crore. Exclude other lenders.
6Use figures as on the last day of the previous financial year, and say so.
7Conclude clearly: applicable or not, and which test applies.
8Add the compliance consequence: report by a CS in practice, annexed to the Board's report, Board explains qualifications, ₹2 lakh penalty on default.

Quickest way: Four-question applicability check

When to use it: Use this when a case gives many figures and you have little time. It is a fast filter for a short answer.

Q1: Is it listed? Yes means applicable.
Q2: Is it a public company with paid-up capital of ₹50 crore or more? Yes means applicable.
Q3: Is it a public company with turnover of ₹250 crore or more? Yes means applicable.
Q4: Does it have bank or public financial institution borrowings of ₹100 crore or more? Yes means applicable, even if private.
If all four answers are no, the audit is not mandatory under section 204 and Rule 9. Write one line citing the rule.

Common mistakes in Applicability of Secretarial Audit under Section 204

Applying the paid-up capital and turnover tests to private companies.
Students remember the figures but forget that these tests are limited to public companies.
Fix: Write 'public company' next to the ₹50 crore and ₹250 crore tests in your notes. Only the borrowing test covers private companies.
Treating the tests as cumulative, so that all must be met.
The rule lists four conditions together, and students read them as one combined condition.
Fix: Treat each condition as a separate trigger. Meeting any one is enough.
Counting loans from directors, members or group companies towards the ₹100 crore borrowing test.
Students read 'borrowings' loosely.
Fix: Count only outstanding loans or borrowings from banks and public financial institutions.
Using the current-year figures instead of the figures on the last day of the previous financial year.
The case may give both years' numbers, and students pick the latest.
Fix: State that the position as on the last day of the previous financial year decides applicability for the current year.
Stopping at applicability and forgetting the compliance consequences.
The question seems to ask only 'is it applicable?'.
Fix: Add one or two lines: report by a CS in practice annexed to the Board's report, Board explains qualifications in full, penalty of ₹2 lakh under section 204(4).
Quoting the penalty as ₹1 lakh or an older figure.
Older notes carry the earlier amount.
Fix: Use ₹2 lakh, the amount in the current text of section 204(4).

Worked examples

Example 1

Sunrise Textiles Limited is an unlisted public company. At the end of the last financial year its paid-up share capital was ₹40 crore, turnover ₹260 crore, and bank borrowings ₹30 crore. Is a secretarial audit required under section 204?

Show the solution

Provision: section 204(1) covers listed companies and a prescribed class. Rule 9 prescribes the class.
Listed? No, so the company is not caught on that ground.
Paid-up capital test: ₹40 crore is below ₹50 crore, so this test is not met.
Turnover test: it is a public company and turnover of ₹260 crore is at least ₹250 crore. This test is met.
Borrowing test: ₹30 crore is below ₹100 crore, so not met. It does not matter because one test is enough.

Answer: Yes. Sunrise Textiles Limited must get a secretarial audit under section 204 read with Rule 9 because its turnover of ₹260 crore is at least ₹250 crore. The report by a company secretary in practice must be annexed to the Board's report, and the Board must explain any qualification in full.

Example 2

Kaveri Engineering Private Limited is an unlisted private company. On the last day of the previous financial year, its paid-up capital was ₹60 crore and turnover ₹300 crore. It had outstanding term loans of ₹70 crore from banks and ₹40 crore from a group company. Does section 204 apply to it?

Show the solution

Provision: section 204(1) with Rule 9.
Listed? No.
Paid-up capital and turnover tests apply only to public companies. Kaveri is private, so ₹60 crore and ₹300 crore are irrelevant.
Borrowing test: count only bank and public financial institution borrowings. That is ₹70 crore. The ₹40 crore from the group company is excluded.
₹70 crore is below ₹100 crore, so the borrowing test is not met.

Answer: No. Kaveri Engineering Private Limited is not required to get a secretarial audit under section 204 and Rule 9, because it is private and unlisted and its qualifying bank borrowings of ₹70 crore are below ₹100 crore. It would become covered if such borrowings reach ₹100 crore or more as on the last day of a previous financial year.

Exam tips

Begin the answer with 'Section 204(1) read with Rule 9' and then apply each test to the facts. The marks are for provision, analysis and conclusion.
Look for the private company trap in the case. Large capital and turnover figures do not matter for a private company. Only the borrowing test does.
In borrowing cases, list who the lenders are. Exclude directors, members and group companies from the count.
Always add the consequences: CS in practice, annexed to the Board's report, qualifications explained by the Board, ₹2 lakh penalty.
Do not mix this with section 177. The Audit Committee applies to every listed public company and prescribed classes, and has its own tests.

Practice questions from Secretarial Audit

Applicability of Secretarial Audit under Section 204 in other exams

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

Applicability of Secretarial Audit under Section 204: frequently asked questions

Which companies need a secretarial audit under section 204?

Every listed company, and the prescribed class of companies. Under Rule 9, that class is public companies with paid-up capital of ₹50 crore or more or turnover of ₹250 crore or more, and every company with bank or public financial institution borrowings of ₹100 crore or more.

Does a private company need a secretarial audit?

Only under the borrowing test. A private company with outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more is covered. The paid-up capital and turnover tests apply only to public companies.

Do I need to meet all the Rule 9 thresholds?

No. The conditions are alternatives. Meeting any one makes the audit mandatory. A listed company is covered without any size test.

Who conducts the secretarial audit and where is the report placed?

A company secretary in practice gives the report. It is annexed to the Board's report made under section 134(3). The Board must explain in full any qualification or observation in its report.

What is the penalty if a covered company skips the secretarial audit?

Under section 204(4), the company, every officer in default and the company secretary in practice, if in default, are each liable to a penalty of ₹2 lakh.