Failure to Address Auditor’s Remarks in Director’s Report: MCA imposes Rs. 4.5 Lakhs Penalty on Company and Directors [Read Order]

In the adjudication passed by the Ministry of Corporate Affairs (MCA) Registrar of Companies under Section 454 of the Companies Act, 2013, a total penalty of Rs. 4.5 lakhs was imposed on a company and its directors for failing to address the auditor’s remarks in board reports.

The company named Unionbase Nidhi Nidhi Limited was registered under the Companies Act, 2013, on 1-5-2016, and its authorized capital is Rs. 15 lakhs.

During the inquiry, it was observed that the auditor's report for the financial year ending 31.03.2018 stated that the company did not maintain the mandatory 10% unencumbered term deposits as required under Rule 5(1)(c) read with Rule 14 of the Nidhi Rules, 2014.

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The adjudicatory authority observed that the directors failed to provide sufficient explanations for this non-compliance in their report, and this omission has led to the violation of Section 134(3)(f) of the Companies Act, 2013.

Section 134(3)(f) of the Companies Act states that "There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors which shall include explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made:

(i) by the auditor in his report; and

(ii) by the company secretary in practice in his secretarial audit report."

Further, Section 134(8) of the Companies Act 2013, which deals with the penalty which is imposed, states that: “If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees, and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.”

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Although a show cause notice (SCN) was issued to the company and its officers on 19-3-2024, no reply was furnished, and as the company and its officers neglected to respond to the SCN, therefore, no hearing was scheduled.

The adjudicating authority reached the conclusion that the company violated the provisions of Section 138(3)(f) of the Companies Act and imposed a total of Rs. 3 lakhs on the company and Rs. 1,50,000 on the defaulting directors, which comes to a total of Rs. 4.5 lakhs under Section 134(8) of the Companies Act.

This order was issued by Seema Rath, Registrar of Companies & Adjudicating Officer, Uttar Pradesh, Kanpur.

To Read the full text of the Notification CLICK HERE

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