Currently, private firms aren’t required to furnish financial statements; only listed companies are required to disclose their statements every 3 months.
The ministry of corporate affairs (MCA) has made it mandatory for unlisted companies, or private firms, with outstanding loans of Rs 100 crore or more to file their financial audit reports for financial year 2020-21 onwards. Such private companies will have to conduct a mandatory secretarial audit and submit the findings with the government.
Under the Companies (appointment and remuneration of managerial personnel) Rules, 2020, which will come into effect from April 1, 2020, a private company that has a paid-up share capital of Rs 10 crore or more would have to have a company secretary (CS) on its rolls. Besides, companies with outstanding loans or borrowings from banks or public financial institutions of Rs 100 crore or more will have to submit its audit findings with the MCA.
Currently, private firms aren’t required to furnish financial statements; only listed companies are required to disclose their statements every 3 months. According to the MCA data, out of the total 11.65 lakh active companies, around 10.94 lakh are private companies, including more than 25,000 one person firms as on November 2019.
AMRG & Associates chief executive Gaurav Mohan said with this amendment private companies will come under the requirement of secretarial compliance. This move can be seen as an effective means of improving corporate governance. “Secretarial audit will lead to better compliance with the Companies Act, other applicable corporate and economic laws and would lead to early detection of non-compliances which would enable authorities to take punitive action. It would eventually lead to strengthening of the corporate culture in the country,” he explained.
An official said that a secretarial audit is conducted to check compliance with various rules and regulations, including the Companies Act. “This will aid in improving corporate compliance and will also help MCA track firms, which are private but have a significant market presence. As is known, several large private companies are battling with financial issues, which have a bearing on the market,” he added.
Sandeep Jhunjhunwala, director at Nangia Andersen, said the amendments, which are effective from next fiscal, have expanded the scope of mandatory secretarial audit covering private companies where loans or borrowings as on March 31, 2019, is Rs 100 crore or more. “The provisions of mandatory secretarial audit were till now applicable only to public companies. At the same time, provisions related to mandatory appointment of whole-time company secretary has been relaxed and henceforth companies with paid up share capital of Rs 10 crore would be required to do so,” he added.