Board’s Report Ignoring Auditor’s Adverse Remarks Breaches S.134(3)(f): MCA Slaps ₹3 Lakh Penalty on Company and ₹50K Each on Directors [Read Order]

The Ministry of Corporate Affairs (MCA) has imposed a penalty of Rs 3 lakh on company and Rs 50,000 each on directors for the breach of Section 134(3)(f) of the Companies Act by ignoring the auditor’s adverse remarks in the board’s report.

The adjudication order arose from the inspection of the books and accounts of the company, Mylapore Hindu Permanent Fund Nidhi Limited that was conducted by the Inspecting Officer.

During the inspection it was found that during the financial years 2015-16 to 2017-18 the Auditor in his report which is a part of the financial statements has given adverse remarks on (a) Non-compliance of Rule 5(d)(b) Non- compliance of Rule 14 and (c) Non-compliance of prudential norms as prescribed in Rule 20 of Nidhi Rules, 2014.

It was further observed that the director's report, which is part of the financial statements, commented only on non-compliance with Rule 5(d) and the Board has chosen not to comment on the remaining adverse remarks. This was in violation of Section 134(3) (f) of the Companies Act, 2013 and the company and its Officers in default are liable under Section 134(8) of the Companies

Section 134(3) (f) of the Companies Act, 2013 provides- Financial Statement, Board's Report, etc.

(3)There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include

(f) 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

A show cause notice was issued, and one of the director Mr. Chennai Loganathan Nanthakumar, in his reply letter has stated that he acknowledges receipt of the show cause notice dated 30.04.2025 under Section 134(8) but denied liability for the alleged defaults. He stated that he resigned from Mylapore Hindu Permanent Fund Nidhi Limited on 12.06.2017, with the resignation duly recorded through DIR-12, and that he neither signed nor approved the financial statements for FY 2016-17 onwards. He asserts that he was not associated with the company during FY 2017-18 and therefore cannot be held liable for those years.

But the MCA penalised all the 3 directors, including Mr Chennai Loganathan Nanthakumar, with an amount of Rs 50,000 and imposed a penalty on the company of Rs 3 lakhs.

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