Many private companies assume secretarial audit is for listed companies only. For a private company with large bank borrowings, that assumption can be wrong. Section 204(1) of the Companies Act, 2013 requires every listed company, and every company in a class prescribed by rules, to annex a secretarial audit report from a company secretary in practice to its Board's report. For a private company there is only one prescribed route in: the borrowing test in Rule 9(1)(c) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Which limb applies to a private company
Rule 9(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 sets out the "other class of companies" for Section 204(1). It has three clauses:
- Rule 9(1)(a) — every public company with paid-up share capital of fifty crore rupees or more;
- Rule 9(1)(b) — every public company with turnover of two hundred fifty crore rupees or more;
- Rule 9(1)(c) — every company with outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.
Clauses (a) and (b) are written for public companies only. A private company does not come into secretarial audit through its paid-up capital or its turnover, however large either is. Clause (c) says "every company", so it reaches private companies as well as public ones.
Clause (c) and the Explanation to Rule 9(1) were inserted by G.S.R. 13(E) dated 3 January 2020, the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020. Rule 1(2) of that amendment makes it applicable to financial years commencing on or after 1 April 2020.
Note what clause (c) measures: outstanding loans or borrowings from banks or public financial institutions. It does not say total debt, and it does not mention promoter loans, trade credit or loans from group companies. Getting the borrowing base wrong can push a company either way: into an audit it does not need, or out of one it does.
Paid-up capital still matters, for a different rule
Paid-up capital is not a secretarial audit test for a private company, but it is not irrelevant. The same 2020 amendment substituted Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: every private company with paid-up share capital of ten crore rupees or more must have a whole-time company secretary. That is an appointment requirement, not a secretarial audit trigger. Keep the two separate when you check your position.
Check your position first
Gather these inputs before concluding anything under Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Note: the table is read with Section 204(1) of the Companies Act, 2013 and Rule 9(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended by G.S.R. 13(E) dated 3 January 2020.
Reconcile the borrowing measure
Clause (c) uses a precise phrase: "outstanding loans or borrowings from banks or public financial institutions". Two parts of it need care.
Lender identity. "Public financial institution" is defined in Section 2(72) of the Companies Act, 2013. The definition covers named institutions such as the Life Insurance Corporation of India, plus institutions notified by the Central Government. A lender is a public financial institution only if it falls within that definition. Check each lender against Section 2(72) and do not assume.
What "outstanding" covers. Interpretation, not stated in the rule: our reading is that "outstanding" means amounts actually drawn and owed on the measurement date, so a sanctioned limit that has not been drawn would not count. On the same reading, loans from a non-banking finance company would fall outside clause (c) unless that lender is itself a bank or a public financial institution within Section 2(72). Neither Rule 9 nor G.S.R. 13(E) says this in terms. Where the answer changes whether you cross ₹100 crore, have a professional confirm the position.
Take the number from the audited balance sheet and the loan ledgers together, not from a sanction letter. Where the figure is close to the threshold, keep the full reconciliation: lender-wise balances, facility types, and the date each balance is struck.
Measure on the right date
The Explanation to Rule 9(1), inserted by G.S.R. 13(E), settles the date. Paid-up share capital, turnover, or outstanding loans or borrowings, as the case may be, are taken as they existed on the last date of the latest audited financial statement.
That has two practical effects:
- Intra-year peaks do not decide the test. A company that drew more than ₹100 crore during the year but repaid below that level by the balance-sheet date is measured on the balance-sheet figure.
- The test is read off audited figures. You confirm applicability once the financial statements for that year have been audited. Do not rely on management accounts or a mid-year balance.
Plan the appointment and the records
Neither Section 204 nor Rule 9 sets a date by which the company secretary in practice must be appointed. In practice, once the latest audited financial statements show bank and public financial institution borrowings of ₹100 crore or more on their closing date, plan the appointment without delay. The audit report has to be annexed to the Board's report under Section 134(3) of the Companies Act, 2013.
Under Section 204(2), the company must give the company secretary in practice all assistance and facilities for auditing its secretarial and related records. That duty is easier to meet when the records are kept in order through the year. If borrowings are approaching ₹100 crore, keep Board papers, registers, filings and borrowing documents ready for audit before the measurement date arrives. Rebuilding them afterwards is slower and weaker.
Do it in order
- Classify the company. Is it listed (Section 2(52) of the Companies Act, 2013), unlisted public, or private? A listed company is covered by Section 204(1) directly.
- For a private company, test only Rule 9(1)(c). Paid-up capital and turnover limbs in Rule 9(1)(a) and (b) apply to public companies only.
- Fix the measurement date. Use the last date of the latest audited financial statement, per the Explanation to Rule 9(1).
- Reconcile the borrowing measure lender by lender from the audited balance sheet and loan ledgers. Check each lender against "bank" and against Section 2(72) for public financial institutions.
- Appoint a company secretary in practice where the measure is ₹100 crore or more. Section 204(1) requires the report to be given by a company secretary in practice.
- Organise the records: Board papers, registers, filings, borrowing documents and compliance checklists for the audit period. Section 204(2) puts the duty to assist on the company.
- Prepare the Board's response. Under Section 204(3), the Board must explain in full, in its report under Section 134(3), any qualification, observation or other remark in the secretarial audit report. Draft replies with evidence, not adjectives.
Worked example: ₹99 crore versus ₹101 crore
Take two unlisted private companies that are identical except for borrowings. Both have large paid-up capital and turnover, which do not matter for either of them. At the last date of its latest audited financial statements, Company A has ₹99 crore of outstanding bank borrowings and Company B has ₹101 crore.
Note: the thresholds applied are those in Rule 9(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, with clause (c) and the Explanation inserted by G.S.R. 13(E) dated 3 January 2020.
Now change one fact for Company B: ₹40 crore of its ₹101 crore is an inter-corporate loan from its holding company, which is neither a bank nor a public financial institution. The clause (c) measure drops to ₹61 crore and the test is not met on these facts. What decides is who the lender is, not the headline debt.
Change a second fact: Company A drew ₹130 crore from its bank in the middle of the year but had repaid down to ₹99 crore by the balance-sheet date. Under the Explanation to Rule 9(1), the balance-sheet figure governs, so Company A is still below the test.
If you miss it
Section 204(4) of the Companies Act, 2013 provides 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 two lakh rupees.
Separately, Section 204(3) requires the Board's report to explain every qualification or remark in the secretarial audit report. A missing audit and a missing explanation are separate failures to comply with the section.
FAQ
Does every private company need secretarial audit?
No. A private company is caught only by Rule 9(1)(c) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more. Clauses (a) and (b), on paid-up capital and turnover, cover public companies only.
Our private company has paid-up capital above ₹50 crore. Does that trigger the audit?
No. The ₹50 crore paid-up capital limb in Rule 9(1)(a) applies to public companies. For a private company, paid-up capital of ₹10 crore or more matters under Rule 8A (whole-time company secretary), not for secretarial audit.
What counts in the ₹100 crore borrowing test?
Outstanding loans or borrowings from banks or public financial institutions (Section 2(72) of the Companies Act, 2013), measured on the last date of the latest audited financial statement. Our interpretation, not stated in the rule, is that undrawn limits do not count. Debt from lenders that are neither banks nor public financial institutions, such as group companies or promoters, is outside the clause.
Who conducts the audit?
A company secretary in practice, under Section 204(1) of the Companies Act, 2013. It is separate from the statutory audit under Section 139 and from cost audit under Section 148.
What is Form MR-3?
Rule 9(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 prescribes Form No. MR.3 as the format of the secretarial audit report. Section 204(1) requires it to be annexed to the Board's report under Section 134(3).
We crossed ₹100 crore mid-year but repaid before year-end. Are we covered?
The Explanation to Rule 9(1) takes the outstanding loans or borrowings as they existed on the last date of the latest audited financial statement. Intra-year peaks do not decide it. Reconcile the position at that date and keep the evidence.
What does a missed secretarial audit cost?
Under Section 204(4) of the Companies Act, 2013, the company, every officer of the company or the company secretary in practice who is in default is liable to a penalty of two lakh rupees.
Must the Board answer audit qualifications?
Yes. Section 204(3) requires the Board, in its report under Section 134(3), to explain in full any qualification, observation or other remark in the secretarial audit report.
Sources
- Companies Act, 2013, Section 204(1)–(4) (secretarial audit scope; duty to assist; Board explanation; penalty)
- Companies Act, 2013, Section 2(52) ("listed company") and Section 2(72) ("public financial institution")
- Companies Act, 2013, Sections 134(3), 139 and 148 (Board's report; appointment of auditors; cost audit)
- Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Rule 9(1)(a)–(b) and Rule 9(2) (Form No. MR.3)
- G.S.R. 13(E) dated 3 January 2020, Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020: Rule 8A substituted; Rule 9(1)(c) and the Explanation to Rule 9(1) inserted; applicable to financial years commencing on or after 1 April 2020
- The company's audited balance sheet, loan ledgers, lender-wise borrowing reconciliation and Board papers
For the explanatory context this task page supports, see the HRA parent article on what Section 204 says: https://www.harunraaj.com/blog/secretarial-audit-section-204-mr-3-report. That article covers the background; this page covers MR-3 applicability for a private company and the evidence to keep.
What to send for a review
Send your company class, whether any securities are listed, and the lender-wise borrowing reconciliation as at the last date of your latest audited financial statements. The review returns your secretarial-audit applicability decision with the complete evidence matrix for the audit.
Next steps on annual compliance
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