Environmental, Social and Governance (ESG) - Principles and Practice · Board Processes through Secretarial Standards

Secretarial Audit under Section 204 of the Companies Act

Updated 11 October 2026 · Fact-checked

Secretarial audit under Section 204 is an audit of a company's secretarial and related records by a company secretary in practice. Every listed company and other prescribed companies must annex the report to the Board's report. The Board must explain in full any qualification, observation or remark in it.

Understand Secretarial Audit under Section 204

A statutory audit checks the financial statements. Secretarial audit checks something different: whether the company has followed the laws, rules, regulations and Secretarial Standards that apply to it, and whether its secretarial records are in order.

Section 204(1) says every listed company and a company in other classes as may be prescribed must annex a secretarial audit report to the Board's report made under section 134(3). The report must be given by a company secretary in practice, in the prescribed form. The prescribed form is Form MR-3. The thresholds for the other classes (for example, by paid-up capital, turnover or borrowings) sit in the Rules, so check the current Rules before you state them.

The company has a duty under section 204(2) to give the auditor all assistance and facilities for auditing the secretarial and related records. This means minutes, registers, filings, notices and similar records.

The report is not the end of the matter. Under section 204(3), the Board must explain in full every qualification, observation or other remark made by the secretarial auditor, in its own report. So an adverse remark becomes public through the Board's report.

Section 205(2) adds that sections 204 and 205 do not reduce the duties and functions of the Board, chairperson, managing director or whole-time director under the Act or any other law. Secretarial audit is a check on them, not a transfer of their responsibility. Section 143(14) also applies the auditor provisions of section 143 mutatis mutandis to a company secretary in practice conducting secretarial audit. This includes the duty in section 143(12) to report fraud.

Key rules to remember

Who must get it done: Every listed company + other prescribed classes of companies; Section 204(1). The prescribed classes are in the Rules, so state them only from the current Rules.
Who can be the auditor: Company secretary in practice; A company secretary in employment cannot give this report.
Where the report goes: Annexed to the Board's report under section 134(3), in the prescribed form (MR-3); It is part of the Board's report package, not a separate filing in the exam answer.
Company's duty: Give all assistance and facilities for auditing secretarial and related records; Section 204(2).
Board's duty on remarks: Explain in full any qualification, observation or other remark; Section 204(3), in the Board's report.
Penalty: ₹2,00,000 on the company, every officer in default, or the CS in practice in default; Section 204(4), as substituted by Act 29 of 2020. It is a penalty, not imprisonment.
Fraud reporting: Section 143(12) and 143(15) apply mutatis mutandis (section 143(14)(b)); Non-compliance by the CS in practice: ₹5,00,000 for a listed company, ₹1,00,000 for any other company.

How to solve Secretarial Audit under Section 204 questions

Use this order for any case question on secretarial audit. It follows the paper's format of provision, analysis and conclusion.

1Identify the company: is it listed, or does it fall in a prescribed class under the Rules? Say so with the facts given.
2State the rule: section 204(1) requires a secretarial audit report from a company secretary in practice, annexed to the Board's report under section 134(3).
3Check who gave the report. If it is an employee CS, a non-CS or a CS not in practice, the requirement is not met.
4Check the content: whether the secretarial and related records show compliance with applicable laws and Secretarial Standards, and whether the report is in the prescribed form (MR-3).
5Check the consequences of any adverse remark: the Board must explain it in full in its report under section 204(3).
6Check the company's conduct: did it give assistance and facilities under section 204(2)?
7Conclude with the penalty under section 204(4), naming who is liable, and any fraud reporting duty under section 143(12).

Quickest way: Four-line answer frame

When to use it: Use this for short-note questions or when you have under five minutes.

Who: listed companies and prescribed classes; auditor is a CS in practice.
What: report on secretarial and related records, in the prescribed form, annexed to the Board's report.
Board: explain every qualification or remark in full.
Default: ₹2,00,000 penalty on the company, officers in default or the CS in practice.

Common mistakes in Secretarial Audit under Section 204

Saying secretarial audit applies only to listed companies.
Students remember the first words of the section and miss the second limb.
Fix: Write both limbs: every listed company and companies in other classes as prescribed.
Confusing secretarial audit with statutory audit.
Both end in an audit report that goes to the members.
Fix: Statutory audit is on financial statements and true and fair view. Secretarial audit is on compliance with laws and Secretarial Standards and on secretarial records.
Saying the company secretary on the payroll can sign the report.
Students link it with section 205, which covers the company secretary as a functionary.
Fix: Section 204 needs a company secretary in practice. The in-house CS under section 205 reports to the Board on compliance.
Stating the penalty as imprisonment or a fine on the company only.
Students blend section 204 with other default provisions.
Fix: The penalty is ₹2,00,000 on the company, every officer in default, or the CS in practice in default.
Ignoring the Board's duty to respond to qualifications.
Students focus on the auditor and forget what follows the report.
Fix: Always add that the Board must explain in full any qualification, observation or remark in its report under section 134(3).
Quoting turnover or capital thresholds from memory.
Thresholds are in the Rules and appear in many summaries.
Fix: If the question does not give the figures, say 'prescribed classes under the Rules'. Use figures only if the question supplies them.

Worked examples

Example 1

Sundaram Textiles Ltd is a listed company. Its Board's report for the year was approved without a secretarial audit report. The CFO says the statutory auditor's report is enough. Advise the company.

Show the solution

Provision: section 204(1) requires every listed company to annex a secretarial audit report, given by a company secretary in practice, to the Board's report under section 134(3).
Analysis: Sundaram Textiles is listed, so it falls within the first limb. No further condition on size is needed.
The statutory auditor reports on the financial statements. That is a different audit with a different purpose, so it cannot replace the secretarial audit report.
Consequence: the company has contravened section 204. Under section 204(4), the company and every officer in default are liable to a penalty of ₹2,00,000.

Answer: The CFO is wrong. Sundaram Textiles must obtain a secretarial audit report from a company secretary in practice and annex it to the Board's report. Failure attracts a penalty of ₹2,00,000 on the company and each officer in default.

Example 2

The secretarial auditor of Kaveri Pharma Ltd, a listed company, qualifies the report because two Board meeting minutes were not signed within the prescribed time and the company's secretarial records were incomplete. The Board wishes to leave the qualification out of its report. Advise.

Show the solution

Provision: section 204(3) requires the Board, in its report under section 134(3), to explain in full any qualification, observation or other remark made by the secretarial auditor.
Analysis: the late-signed minutes and incomplete records are qualifications or observations. The Board has no option to omit them.
The company also has a duty under section 204(2) to give the auditor assistance and facilities. Incomplete records may reflect poor cooperation or poor record-keeping, and the Board should review this.
Practical point: the Board should give the reasons and the corrective steps, such as tightening the minute-signing process, with the company secretary's support under section 205.
Consequence: omitting the explanation is a contravention of section 204, with a penalty of ₹2,00,000 on the company and officers in default.

Answer: The Board cannot omit the qualification. It must explain it in full in its report and should state the corrective action. Omission would attract the ₹2,00,000 penalty under section 204(4).

Exam tips

Open every answer with the section: 204(1) for applicability, 204(2) for facilities, 204(3) for the Board's reply, 204(4) for the penalty.
In a compare-and-contrast question, use three rows of difference: subject matter, who audits, and what the report states.
In case questions, state whether the company is listed first. That decides the applicability limb straight away.
Link to section 205 and section 143(12) in a line or two. It shows you know the neighbouring provisions.
Do not cite thresholds from the Rules unless the question gives them. Say 'prescribed class' instead.

Practice questions from Board Processes through Secretarial Standards

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.

Secretarial Audit under Section 204: frequently asked questions

Which companies need a secretarial audit under Section 204?

Every listed company and companies in other classes prescribed by the Rules. The Act itself leaves the other classes to the Rules, so check the current Rules for the exact criteria.

Who can conduct a secretarial audit?

Only a company secretary in practice. An employee company secretary of the company cannot give the report under section 204.

What is the difference between secretarial audit and statutory audit?

Statutory audit looks at the financial statements and gives an opinion on true and fair view. Secretarial audit checks compliance with applicable laws and Secretarial Standards and the state of secretarial records. The auditors are also different: a statutory auditor is appointed under section 139, while the secretarial auditor must be a CS in practice.

What is the penalty for contravening Section 204?

The company, every officer in default, or the company secretary in practice in default is liable to a penalty of ₹2,00,000 under section 204(4).

Does the Board have to respond to the secretarial auditor's remarks?

Yes. Under section 204(3), the Board must explain in full any qualification, observation or other remark in its report made under section 134(3).