MCA Penalizes Company and Directors for Failing to Address Auditor’s Remarks in Board Reports for FY 2017-18 and 2018-19 [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 penalty of Rs. 4.5 lakhs was imposed on a company and its 3 directors for each year, which comes to a total fine of Rs. 9 lakhs forfailing to address the auditor’s remarks in board reports for the financial year (FY) 2017-18 and 2018-19.

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

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After examining the board reports of the company for FY 2017-18 and 2018-19, it was observed by the adjudicating authorities that the directors of the company have not provided sufficient explanations regarding the auditor's remarks in the director's report for the above-mentioned FYs. The adjudicating authority reached the conclusion that the company violated the provisions of Section 134(3)(f) of the Companies Act, 2013, and was liable for penal consequences.

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 25-4-24, 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 penalty under Section 138(8)  of the Companies Act, and they were instructed to make an e-payment within 90 days of the receipt of the order.

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

To Read the full text of the Order CLICK HERE

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