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What is Secretarial Audit?

A Secretarial Audit is an independent verification of a company’s compliance with corporate laws, rules, and regulations.

It helps companies to:

• Detect instances of non-compliance early.
• Promote good governance and transparency.
• Ensure that legal and procedural requirements are consistently met.

The audit is conducted by an independent professional, usually a Company Secretary (CS) holding a valid Certificate of Practice issued by the Institute of Company Secretaries of India (ICSI).

Secretarial Audit Applicability

Under the Companies Act, 2013, certain classes of companies are required to undergo a Secretarial Audit.

It is mandatory for:

• All Listed Companies.
• All Public Companies with:
  
  • Paid-up Share Capital of ₹50 crore or more, or
  • Turnover of ₹250 crore or more.
• All types of companies (including Private Companies) having outstanding borrowings of ₹100 crore or more from banks or financial institutions.

Secretarial Audit Report

The Secretarial Audit Report is the formal output of the audit process. It:

• Certifies whether the company is in compliance with applicable laws.
• Identifies any governance risks or gaps.
• Highlights areas of non-compliance and recommends corrective actions.

The report is prepared in Form MR-3, submitted to the Board of Directors, and included in the company’s Annual Report. As per Section 204 of the Companies Act, 2013, the audit can only be conducted and the report issued by a:

• Practising Company Secretary (PCS).
• Holding a valid Certificate of Practice from ICSI.

Scope of Secretarial Audit

The scope of a Secretarial Audit is broad and spans multiple laws, including but not limited to:

• Companies Act, 2013
• Securities Laws, including:
  
  • SEBI (LODR) Regulations
  • SEBI Takeover Code
  • SEBI Insider Trading Regulations
  • SEBI Listing Agreement
• Foreign Exchange Management Act (FEMA)
• Labour Laws
• Environmental Laws
• Industry-specific Regulations
• Secretarial Standards issued by ICSI

Additionally, the Secretarial Auditor also:

• Reviews the company’s systems and processes for compliance.
• Examines the Board structure and its functioning.
• May rely on reports from other professionals (auditors, legal counsel) for certain compliance areas.
  
  

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Eligibility Criteria for the Appointment of a Secretarial Auditor

To be appointed as a Secretarial Auditor, the individual must:

• Be a qualified Company Secretary (CS) and a member of ICSI.
• Hold a valid Certificate of Practice (CoP) issued by ICSI.
• Have undergone relevant training in corporate governance and compliance.
• Maintain professional ethics and conduct in line with ICSI guidelines.

Only a Practising Company Secretary (PCS) is authorised to conduct and issue a Secretarial Audit Report.

Process of Secretarial Audit

The typical step-by-step process for conducting a Secretarial Audit is:

1. Preparation of a Compliance Checklist:
   Based on applicable laws and regulatory frameworks.
   
   
2. Compliance Verification:
   The auditor examines the company’s records, registers, filings, and processes.
   
   
3. Management Interaction:
   Discusses preliminary findings and areas of concern with management.
   
   
4. Recommendations and Corrective Actions:
   Advises management on how to address any gaps or non-compliance issues.
   
   
5. Preparation of the Final Report (MR-3):
   The auditor formally documents observations and recommendations.
   
   
6. Filing and Disclosure:
   The report is submitted to the Board and included in the Annual Report as required.

Features of Company Secretarial Audit

A Secretarial Audit is distinguished by several key features:

• Independent Audit:
  Conducted by an external Practising Company Secretary.
  
  
• Comprehensive Scope:
  Covers company law, securities law, tax law, labour law, environmental law, and other applicable legal frameworks.
  
  
• Systematic & Evidence-Based:
  Based on a thorough review of records and procedures.
  
  
• Board-Level Reporting:
  Findings and recommendations are directly reported to the Board of Directors.
  
  
• Governance-Focused:
  Designed to strengthen the company’s corporate governance practices.

Punishment for Default Secretarial Audit

Non-compliance with Secretarial Audit provisions carries penalties under:

Section 204(4) of the Companies Act, 2013:

The company, every officer in default, and the PCS (if found guilty) are liable to a fine of up to ₹5 lakh.

Section 448 (False Statements):

• Imprisonment up to 10 years, and/or
• Fine up to ₹10 lakh for making false statements in the audit report.

The Company Secretaries Act, 1980:

Disciplinary action against the Company Secretary may include:

• Suspension or cancellation of the Certificate of Practice.
• Monetary penalties.
• Professional misconduct proceedings.

Objectives of Secretarial Audit

The key objectives of Secretarial Audit are:

• Ensure the company complies with legal and regulatory frameworks.
• Identify non-compliance issues before they become liabilities.
• Promote good corporate governance.
• Protect the interests of stakeholders- investors, employees, customers, and regulators.
• Help management take corrective actions proactively.
• Prevent penalties and legal actions for non-compliance.

Benefits of Secretarial Audit

Conducting a Secretarial Audit offers many advantages:

• Enhances the company’s compliance culture.
• Reduces legal risks and the likelihood of penalties.
• Supports better corporate governance and transparency.
• Increases stakeholder confidence- important for investors and regulators.
• Helps Directors and Management make more informed decisions.
• Facilitates continuous improvement in internal processes and systems.

Frequently Asked Questions

About the Pharma Company in India

A pharmaceutical company is an entity involved in the development, manufacturing, distribution, and marketing of medicines and healthcare products. Depending on the business model, pharma companies in India are typically classified as:

• Manufacturing companies: involved in the production of drugs and medicines.
• Marketing companies: focus on branding and distribution, often outsourcing manufacturing.
• Wholesale businesses: supply medicines in bulk to retailers, hospitals, and distributors.
• Retail businesses: run pharmacies and directly sell medicines to consumers.

India’s pharmaceutical industry has been expanding rapidly. As of 2025, it is valued at $55 billion and is projected to reach $120–130 billion by 2030. The government has also introduced several supportive measures:

• 100% Foreign Direct Investment (FDI) allowed in greenfield pharma projects.
• ₹15,000 crore PLI (Production Linked Incentive) scheme to promote domestic manufacturing.
• Incentives for Active Pharmaceutical Ingredients (APIs) and medical devices to reduce import dependency.

With this growth potential, starting a pharmaceutical business in India is both a profitable and impactful opportunity.

Choosing the Right Business Structure for a Pharma Company

The first step in starting a pharmaceutical business in India is selecting the proper business structure. The choice depends on the scale of operations, funding requirements, and ownership preferences. Common structures include:

• Limited Liability Partnership (LLP): Offers flexibility with limited liability.
  Private Limited Company (Pvt Ltd): Ideal for manufacturing and marketing businesses due to scalability and investor appeal.
• Public Limited Company: Suitable for large-scale operations planning to raise funds from the public.
• Indian Subsidiary of a Foreign Company: Allows foreign companies to establish a presence in India and leverage the growing market.

India ranks 3rd in the world by volume and 14th by value in pharmaceuticals, making it a preferred hub for domestic and international players. Choosing the right structure ensures smooth registration and compliance.

Eligibility for Registering a Pharma Company

Eligibility criteria are designed to maintain quality and compliance in the pharma sector. Key rules include:

• The applicant must be legally competent to enter into a contract.
• The company must appoint qualified directors and pharmacists, depending on the business type.
• Proper compliance with the Drugs and Cosmetics Act of 1940 is mandatory.
• Only individuals or entities with relevant pharmaceutical qualifications/experience can run such businesses.

Requirements for Registering a Pharma Company

Corporate & Structural Requirements

These are the standard legal requirements for forming a company under the Ministry of Corporate Affairs (MCA).

• Directors and Members: The structure depends on your company type. For a Private Limited Company, a minimum of two directors and two members (shareholders) are required. The same individuals can hold both positions.
• Director Credentials: Every proposed director must have a Digital Signature Certificate (DSC) for online document submission and a Director Identification Number (DIN), a unique identifier issued by the MCA.
• Unique Company Name: Your proposed company name must be unique and not resemble any existing company or trademark. It must be approved and reserved through the MCA portal.
• Registered Office Address: You must provide a physical address in India as the company's official registered office. Proof of address, such as a utility bill or rental agreement, is mandatory for verification.

Pharmaceutical & Technical Requirements

These are specific mandates from the Drugs and Cosmetics Act, 1940, enforced by state drug control departments, which are essential for obtaining a drug license.

Qualified Technical Personnel: 

You must employ qualified individuals to supervise the sale and distribution of drugs. The requirements vary based on the business type:

• For Wholesale Business (Distribution): The operations must be supervised by a "Competent Person." This can be:
  
  • A Registered Pharmacist.
  • A graduate with at least one year of experience in dealing with drugs.
• For Retail Business (Pharmacy): All sales and dispensing activities must be conducted under the direct supervision of a Registered Pharmacist.

Adequate Storage Premises: 

You must have a proper commercial space for storing medicines. The premises are inspected by a Drug Inspector and must meet specific conditions:

• Minimum Area: Typically, a minimum of 10 square meters is required for a wholesale license. This can vary by state.
• Proper Storage Facilities: The premises must be clean, well-lit, and equipped with necessary storage solutions like cupboards, racks, and, crucially, a refrigerator and freezer to store temperature-sensitive drugs like vaccines and serums.

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How to Start a Pharmaceutical Company in India?

The incorporation process is now simplified through the SPICe+ (Simplified Proforma for Incorporating a Company Electronically Plus) form by the Ministry of Corporate Affairs. Steps include:

Phase 1: Business Incorporation

The first step is to register your business as a legal entity with the Ministry of Corporate Affairs (MCA). The modern SPICe+ (Simplified Proforma for Incorporating a Company Electronically Plus) form has streamlined this process significantly.

• Get Director Credentials: All proposed directors of the company must obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN). The DSC is an electronic signature used for filing documents online, and the DIN is a unique number assigned to each director.
• Reserve a Company Name: You must apply for and reserve a unique name for your company. This can be done through the MCA portal's RUN (Reserve Unique Name) service or directly within the SPICe+ form.
• Draft Foundational Documents: Two critical documents need to be prepared:
  
  • Memorandum of Association (MoA): This document defines the company's objectives and the scope of its business activities.
  • Articles of Association (AoA): This document outlines the internal rules and regulations for managing the company.
• File the SPICe+ Form: This single, integrated web form is used to file for incorporation. It combines applications for the company name, DIN allotment, and issuance of important tax numbers like PAN and TAN.
• Receive Certificate of Incorporation: Once the MCA approves your application, you will receive a Certificate of Incorporation. This certificate includes your unique Corporate Identity Number (CIN) and officially marks the legal birth of your company.

Phase 2: Securing Pharmaceutical Licenses

This is the most critical phase and is specific to the pharmaceutical industry. These licenses are granted by the Central Drugs Standard Control Organization (CDSCO) and State Drug Control Departments.

• Drug License: This is the primary license required to deal with drugs and cosmetics. The type of license depends on your business model:
  
  • Manufacturing License: Required if you plan to manufacture drugs. This involves a rigorous inspection of your manufacturing facility to ensure it complies with Good Manufacturing Practices (GMP) and has the necessary technical staff and equipment.
  • Wholesale/Distribution License: Required for stocking, selling, and distributing drugs. This requires having adequate storage premises with proper refrigeration facilities and employing a registered pharmacist.
• GST Registration: Before you can apply for a drug license, you must complete your Goods and Services Tax (GST) registration. The GSTIN is a mandatory requirement for the drug license application.

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Phase 3: Brand and Tax Formalities

With your company and licenses in place, the final step is to protect your brand and manage your finances.

• Trademark Registration: It is highly advisable to register your company name, logo, and the brand names of your pharmaceutical products. This protects your intellectual property and prevents others from using similar names.
• Bank Account Opening: You can open a corporate bank account using the Certificate of Incorporation and other registration documents.

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Documents Required to Register a Pharma Company

Here’s a checklist of essential documents required to open pharma company:

For Indian Directors/Shareholders:

• PAN Card
• Aadhaar Card
• Passport-size photographs
• Address proof (utility bill, bank statement)

For Foreign Directors/Shareholders:

• Passport (notarised and apostilled)
• Proof of overseas address
• Photograph

For the Company:

• Registered office address proof (rent agreement/ownership proof)
• Utility bill of the premises (electricity/water bill)
• MoA and AoA

Other Registrations Required for a Pharma Company

After incorporation, a pharma company must obtain additional registrations and licenses to operate legally:

1. Drug License (under the Drugs and Cosmetics Act, 1940)
   
   
   
   • Manufacturing License
   • Wholesale License
   • Retail License
   • Loan License (for outsourcing manufacturing)
   • Import License (for foreign medicines)
     
     
2. GST Registration – Mandatory for taxation and interstate sales.
3. FSSAI Registration – Required if dealing with nutraceuticals or dietary supplements.
4. Trademark & Patent Registration – Protects brand identity and intellectual property.
5. Import Export Code (IEC) – For companies engaged in pharma exports/imports.

Frequently Asked Questions (FAQs)

What is an Asset Reconstruction Company?

An Asset Reconstruction Company (ARC) is a specialised financial institution that buys NPAs or stressed assets from banks and other lenders. By transferring these assets to ARCs, banks can focus on fresh lending and growth, while ARCs work to recover value from distressed accounts.

The importance of ARCs lies in their ability to:

• Clean up bank balance sheets.
• Strengthen financial stability.
• Contribute to economic growth by reviving stressed businesses.

In simple terms, ARCs buy bad loans from banks and try to recover as much as possible, either by reviving the business or liquidating its assets.

Background of Asset Reconstruction Companies in India

The Narasimham Committee first recommended ARCs in India in 1998, recognising the growing problem of NPAs in the banking system. This led to the enactment of the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), which provided the legal foundation for ARCs.

Key points about ARCs in India:

• ARCs must register with the Reserve Bank of India (RBI) under Section 3 of the SARFAESI Act.
• They primarily acquire secured NPAs from banks and financial institutions.
• Their role includes asset reconstruction and securitisation, simplifying lender balance sheets.

The Evolution of ARCs

Over the years, ARCs have evolved as a vital solution to the rising NPAs that hamper the profitability and liquidity of banks. By purchasing and managing these stressed assets, ARCs not only reduce risk exposure for banks but also:

• Create investment opportunities in the distressed debt market.
• Provide a structured framework for debt recovery.
• Support economic stability by reviving potentially viable businesses.

How Does ARC Work?

The ARC business model typically involves the following steps:

1. Acquisition of Assets: ARCs purchase NPAs from banks, usually at a discount, either in cash or through the issuance of Security Receipts (SRs) to the banks.
   
   
2. Management of Assets: Once acquired, ARCs restructure, reschedule, or attempt to revive the borrower’s operations.
   
   
3. Recovery Mechanisms: Recovery can happen via settlement with borrowers, enforcing collateral, selling assets, or bringing in new investors.
   
   
4. Return on Investment: ARCs earn returns by successfully recovering dues and distributing proceeds to banks or SR holders.

Note: ARCs must maintain a minimum Net Owned Fund (NOF) of ₹100 crore to operate legally.

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The Core of the ARC Business Model

The ARC business model is built on three core pillars:

1. Acquisition: Buying NPAs at a discounted value from banks and financial institutions.
2. Restructuring: Developing strategies to revive stressed businesses, including debt restructuring or converting debt into equity.
3. Recovery: Enforcing security interests, liquidating assets, or monetising businesses to recover maximum value.

These pillars determine the sustainability and profitability of ARCs.

Process of Asset Reconstruction by ARCs

The process of asset reconstruction typically involves:

• Management takeover of the borrower’s business.
• Sale or lease of part or entire business.
• Debt rescheduling to provide repayment flexibility.
• Enforcing security by selling collateral.
• Possession of secured assets for liquidation.
• Conversion of debt into equity, enabling ARCs to hold a stake in the borrower company.

This multi-step process maximises recovery and ensures balance sheet clean-up for lenders.

What are the Services Provided by Asset Reconstruction Companies?

ARCs provide a wide range of services, including:

• Acquisition and management of distressed assets.
• Debt restructuring and settlement.
• Recovery and asset monetisation.
• Investor management through security receipts.
• Advisory services for stressed asset management.

While they operate under the SARFAESI Act, 2002 and RBI guidelines, ARCs must adapt to challenges like economic downturns, legal delays, and shifting regulations. Technology adoption is also becoming critical in driving recovery efficiency and risk management.

Recent Changes in ARC Regulations by RBI

The RBI has introduced significant regulatory reforms to strengthen governance in the ARC sector. Recent updates include:

• Stronger corporate governance with mandatory independent directors.
• Enhanced transparency through periodic performance disclosures.
• Revised investment norms for security receipts (SRs), encouraging higher skin-in-the-game from ARCs.

Challenges Faced by ARCs

While ARCs play a vital role, they face multiple hurdles:

• Legal and Judicial Delays: Court proceedings and enforcement under SARFAESI or IBC can be time-consuming.
• Regulatory Changes: Frequent shifts in RBI and government policies impact operations.
• Capital Requirements: ARCs often struggle with limited capital for large NPA acquisitions.
• Economic Uncertainty: Market downturns can reduce asset valuation and recovery potential.

Best Practices for Aspiring ARCs

For ARCs to thrive, the following best practices are essential:

• Build a robust risk management framework.
• Continuously innovate restructuring strategies.
• Leverage technology and analytics for recovery.
• Develop strong relationships with regulators and stakeholders.
• Invest in training and upskilling teams.

Frequently Asked Questions (FAQs)