Unpaid MSME Dues Need Not Be Separately Disclosed Pre-2021: ICAI holds CA Not Guilty of Misconduct [Read Order]

The Institute of Chartered Accountants of India ( ICAI ) has held that there was no statutory requirement prior to 1 April 2021 to separately disclose disputed unpaid Micro, Small and Medium Enterprises of India (MSME) dues in financial statements. The disciplinary committee holds the Chartered Accountant not guilty of misconduct.

Disciplinary proceedings were initiated against CA. Neeraj Goel by Mr. Gagan Parasher, Managing Director of M/s. Shanivi Construction Pvt. Ltd, a MSME entity. The company supplied services to M/s lndraprastha Gas Ltd. during FYs 2012-13 and 2013-14.

The complainant alleged that the amounts totalling to ₹2.52 crore towards principal and over ₹5.64 crore towards interest were outstanding and ought to have been disclosed in IGL’s financial statements under Section 22 of the MSMED Act, 2006.

It was submitted that the auditor had intentionally failed to insist on such disclosure by suppressing material information from the investors and the stakeholders.

At the time of audit for FY 2016-17, IGL had not recognised the disputed amount as a trade payable in its books, asserting that deductions were made due to poor workmanship and non-compliance with contractual obligations.

The matter was already under litigation before the Micro and Small Enterprises Facilitation Council (MSEFC), the Delhi International Arbitration Centre, and the Delhi High Court, including a challenge to the MSME status of the complainant itself.

The matter came up before the disciplinary committee.

The respondent-auditor submitted that since the liability was neither admitted nor recognised, and was assessed as remote based on legal opinion, there was no requirement to disclose it either as an MSME payable or as a contingent liability.

The committee observed that Section 22 of the MSMED Act mandates disclosure only of “amounts remaining unpaid” to MSME suppliers, along with interest.

In the present case, IGL had never accepted the disputed amount as payable, nor recognised it in its books since 2014. Consequently, there was no “unpaid amount” triggering Section 22 disclosure.

The Committee also noted that in preceding years, audited by other firms, similar disclosures reflected “Nil” MSME dues, without any qualification by auditors.

Additionally, the committee noted the notification of the Ministry of Corporate Affairs (MCA) dated 24th March 2021. It amended the Schedule III to the Companies Act, 2013 to specifically require disclosure of disputed MSME dues in the ageing schedule of trade payables with effect from 1 April 2021.

The Committee held that this amendment was prospective and that prior to this date. Therefore there was no legal requirement to separately disclose disputed unpaid MSME dues.

Since the audit in question related to FY 2016-17 and the audit report was signed in May 2017, the later disclosure regime could not be retrospectively imposed on the auditor.

Accordingly, the Disciplinary Committee concluded that CA was not guilty of professional misconduct and ordered closure of the case.

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