Labour Laws and Practice · Industrial and Labour Laws Audit

Role of Company Secretary in Labour Law Audit

Updated 11 October 2026 · Fact-checked

A Company Secretary in a labour law audit reviews whether the company follows the labour codes, tests records and returns against the law, reports gaps with a risk rating, and advises corrective action. As an officer, the CS can also face personal liability for offences under the Codes if there is consent, connivance or neglect.

Understand Role of Company Secretary in Labour Law Audit

A labour law audit is a structured check of whether an establishment follows the labour laws that apply to it. Today those laws sit mainly in four Codes: Wages, Social Security, Occupational Safety, Health and Working Conditions (OSH), and Industrial Relations. The audit compares what the law requires with what the company actually does.

The Company Secretary is well placed for this work. You already manage compliance calendars, registers, returns and board reporting. In a labour audit you can act in two ways: as an auditor or reviewer (independent, gives findings and an opinion) or as an in-house compliance professional (owns the system, fixes gaps, and reports to the board).

The audit is not only paperwork. You test records (registers, wage slips, contribution proofs), test practice (are safety and welfare measures actually in place) and test governance (who is responsible, and is the board informed). Then you report, with a risk rating and a time-bound action plan.

Risk matters because the Codes make officers answerable. Under the OSH Code, section 109, where a company commits an offence, every person in charge of and responsible for the conduct of the business, along with the company, is deemed guilty. The Code on Social Security, section 135, has a similar rule, using the words 'directly in charge'. Both give a defence: the offence happened without the person's knowledge, or the person exercised all due diligence to prevent it. A documented audit is strong evidence of due diligence.

There is also a second limb. If an offence is proved to be with the consent or connivance of, or attributable to neglect by, any director, manager (OSH Code) or secretary (Social Security Code), company secretary or other officer, that person is also deemed guilty. So a CS who ignores a known gap is exposed. Note that for these sections 'company' means any body corporate and includes a firm or other association of individuals.

Keep one distinction clear. Audits of social security bodies are done by the Comptroller and Auditor-General under section 116 of the Code on Social Security. Audit of an employer's accounts in a bonus dispute is under section 48 of the Code on Wages. Neither is the CS's compliance audit, so do not mix them up.

Key rules to remember

Liability of persons in charge (OSH Code, s.109(1)): Offence by company → company + every person in charge of and responsible for the conduct of business = deemed guilty; Defence: offence without his knowledge, or he exercised all due diligence to prevent it. He must prove this.
Consent, connivance or neglect (OSH Code, s.109(2)): Proved consent / connivance / neglect → director, manager, company secretary or other officer = deemed guilty; Applies notwithstanding s.109(1). The company secretary is named expressly.
Social Security Code, s.135: Offence under the Chapter by company → company + person directly in charge and responsible = deemed guilty; consent, connivance or neglect → director, secretary or other officer also guilty; Same due diligence and no-knowledge defence. Applies to offences under the relevant Chapter.
Meaning of 'company' for these sections: Company = any body corporate, including a firm or other association of individuals; So partnership firms are covered. 'Director' for a firm means a partner.
Audit of social security bodies (s.116, Code on Social Security): Accounts of each Social Security Organisation audited annually by the CAG; This is not a CS audit. Know it only to avoid confusion.
Employer's accounts in bonus dispute (Code on Wages, s.48): Pending bonus claim + employer not a company/corporation + accounts not audited by a qualified auditor → authority may direct audit; employer pays; Auditor must be qualified under section 141 of the Companies Act, 2013. Cost is determined by the authority and paid by the employer.

How to solve Role of Company Secretary in Labour Law Audit questions

Labour audit questions are case-based. Use a fixed structure so you collect marks for provision, analysis and conclusion.

1Read the facts and identify the capacity in which the CS acts: independent auditor, in-house compliance head, or officer facing liability.
2Name the Code and the provision that applies (Wages, Social Security, OSH or Industrial Relations). Cite a section number only if you are sure of it.
3List what the law requires: registration, registers, returns, payments, safety and welfare measures.
4Compare each requirement with the facts. Mark each as compliant, partly compliant or non-compliant.
5Assess risk and exposure: penalty, liability of the company and of officers, and whether the due diligence defence is available.
6Recommend corrective action with owners and timelines, and the reporting route to the board.
7Conclude with a clear opinion or advice in one or two sentences.

Quickest way: Scope, Test, Rate, Report

When to use it: Use when time is short and the question asks for the CS's role, steps or advice in a given situation.

Scope: which Code, which establishment, which period.
Test: records, payments, practice and governance.
Rate: high, medium or low risk for each gap.
Report: findings, action plan, board communication.
Add one line on officer liability and the due diligence defence.

Common mistakes in Role of Company Secretary in Labour Law Audit

Saying a CS is automatically liable for every offence of the company.
Students read 'deemed guilty' and stop there.
Fix: State the conditions: in charge of and responsible for the business, or consent, connivance or neglect. Then add the defence of no knowledge or due diligence.
Confusing the CAG audit under section 116 or the bonus accounts audit under section 48 with the CS compliance audit.
All three have 'audit' in the heading.
Fix: Remember who audits what: CAG audits Social Security Organisations; section 48 deals with employer accounts in bonus disputes; the CS audit is a compliance review.
Writing only a list of checks with no conclusion.
Students treat it as a theory question.
Fix: Always end with findings, risk rating, action and opinion, as the paper is case-based.
Quoting section numbers from memory.
Students try to look precise.
Fix: Quote only sections you are certain of, such as OSH Code s.109 and Social Security Code s.135. Otherwise describe the rule in words.
Ignoring documentation of the audit.
Focus stays on finding errors, not on proof of diligence.
Fix: Stress that working papers, board reports and follow-up records support the due diligence defence.

Worked examples

Example 1

Sundaram Textiles Pvt. Ltd. failed to comply with a requirement under the OSH Code. The company secretary had earlier noted the gap in an internal note but did not escalate it to the board. Discuss the CS's exposure.

Show the solution

Provision: under section 109 of the OSH Code, where a company commits an offence, persons in charge of and responsible for the business, and the company, are deemed guilty. Section 109(2) also covers any director, manager, company secretary or other officer where the offence is with consent or connivance, or is attributable to neglect.
Analysis: the CS knew of the gap and did not escalate it. That can be argued as neglect on the CS's part, if it is proved that the offence is attributable to it.
Defence: the no-knowledge defence is weak because the CS had noted the gap. The due diligence defence needs proof that all due diligence was exercised to prevent the offence. A private note without escalation is unlikely to be enough.
Conclusion and advice: the CS is exposed. The CS should have reported the gap to the board in writing, recorded the response and followed up.

Answer: The CS may be deemed guilty under section 109(2) of the OSH Code if neglect is proved. The no-knowledge defence fails and the due diligence defence is doubtful, because the gap was known and not escalated.

Example 2

As a practising Company Secretary, you are engaged to conduct a labour law compliance audit of Kaveri Engineering Ltd. Outline your approach and the report you will give.

Show the solution

Scope: confirm which Codes apply (Wages, Social Security, OSH, Industrial Relations), which units and which period.
Planning: prepare a checklist of registrations, registers, returns, payments and safety and welfare measures under each Code.
Testing: check records against practice, such as wage payments, contribution proofs and safety arrangements, and interview HR and plant staff.
Findings: classify each item as compliant, partly compliant or non-compliant, and rate the risk.
Exposure: explain the penalty risk to the company and to officers under section 109 of the OSH Code and section 135 of the Code on Social Security, and note the due diligence defence.
Reporting: issue a report with findings, action plan, owners and timelines, and present it to the board or audit committee.
Follow-up: review closure of actions and keep working papers.

Answer: The CS conducts a scoped, checklist-based audit, tests records and practice, rates risks, reports gaps with a time-bound action plan to the board, and follows up. The documented process also supports the due diligence defence for the officers.

Exam tips

Answer in the order: provision, analysis of facts, conclusion. Examiners reward the structure.
Quote the due diligence and no-knowledge defence whenever liability of officers is asked.
Name the CS expressly in section 109(2) of the OSH Code. Section 135 of the Code on Social Security says 'secretary'.
Give practical points: checklist, risk rating, board report, follow-up.
Do not state penalty amounts unless you are sure. Describe the exposure in words.

Practice questions from Industrial and Labour Laws Audit

Role of Company Secretary in Labour Law Audit in other exams

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

Role of Company Secretary in Labour Law Audit: frequently asked questions

Can a Company Secretary be punished for a company's labour law offence?

Yes, but only on the conditions in the law. Under section 109(2) of the OSH Code and section 135(2) of the Code on Social Security, a company secretary is deemed guilty if the offence is proved to be with consent or connivance, or attributable to neglect. The no-knowledge and due diligence defences are available to persons in charge.

What is the CS's role in a labour law audit?

The CS can act as an independent auditor or as an in-house compliance professional. The work covers checking records, returns and practice against the Codes, rating risk, recommending corrective action and reporting to the board.

Does 'company' in these liability sections include a partnership firm?

Yes. For both section 109 of the OSH Code and section 135 of the Code on Social Security, 'company' means any body corporate and includes a firm or other association of individuals. A 'director' of a firm means a partner.

Is the CAG audit under section 116 the same as a labour law audit?

No. Section 116 of the Code on Social Security requires the CAG to audit the accounts of Social Security Organisations annually. A labour law audit by a CS checks an employer's compliance with the Codes.