MCA imposes penalty on statutory auditor for failure to report non-compliance with Accounting Standards and Section 143(2)
Background and context
The Registrar of Companies, Coimbatore, acting as Adjudicating Officer under Section 454 of the Companies Act, 2013, has passed an order imposing monetary penalty on the statutory auditor of RIGHT TIME COMMERCIALS PRIVATE LIMITED for violation of Section 450 arising from non-compliance with the reporting obligations under Section 143(2) of the Act.
The proceedings stemmed from the discovery that related party transactions had not been disclosed in accordance with Accounting Standard (AS)-18, even though such transactions existed in the financial years 2016-17 and 2017-18. Despite this, the statutory auditor certified that the financial statements complied with the applicable Accounting Standards.
Since Section 147 of the Companies Act, 2013 does not prescribe a specific penalty for this kind of contravention by the auditor under Section 143, the Adjudicating Officer invoked the residuary penalty provision under Section 450 and levied a total penalty of ₹20,000 on the auditor, to be borne personally.
Legal framework
Appointment and authority of Adjudicating Officer
The Ministry of Corporate Affairs, through Gazette Notification No. S.O. 831(E) dated 24/03/2015, appointed the Registrar of Companies, Coimbatore, as Adjudicating Officer under Section 454 of the Companies Act, 2013. This appointment empowers the Adjudicating Officer to adjudicate penalties under the Act in line with the Companies (Adjudication of Penalties) Rules, 2014.
Company and individual involved
Company: RIGHT TIME COMMERCIALS PRIVATE LIMITED
- CIN: U51109TZ2014PTC020701
- Registered office: DOOR NO.6F ST . 1 VIDYA MANDIR SCHOOL, NEAR CHINNAGOUNDAPURAM AYODHIYAPATTINAM SALEM SALEM TAMIL NADU INDIA 636103
Individual:
- Statutory Auditor: K. RAMACHANDRAN, Chartered Accountant (PAN: ADCPR7457H)
Relevant statutory provisions
Section 450 – Residuary penalty
Section 450 provides that where any provision of the Companies Act, 2013, or rules made thereunder, or any condition, limitation or restriction attached to an approval, sanction, consent, confirmation, recognition, direction or exemption is violated, and no specific penalty is otherwise prescribed, the defaulting company, officer in default, or other concerned person is:
- liable to a penalty of ten thousand rupees, and
- in case of a continuing contravention, liable to an additional penalty of one thousand rupees per day after the first day of contravention,
- subject to a maximum of two lakh rupees in the case of a company, and fifty thousand rupees in the case of an officer in default or any other person.
Section 143(2) – Auditor’s reporting responsibility
Section 143(2) mandates the statutory auditor to make a report to the members of the company on the financial statements examined by him, after carrying out such audit as is necessary. The report must state whether the financial statements present a true and fair view and whether they comply with the applicable Accounting Standards.
In effect, if financial statements do not comply with requirements such as AS-18 – Related Party Disclosures, the auditor is required to highlight such non-compliance in his report.
Section 147 – Penal provision for auditors
Section 147 of the Companies Act, 2013 prescribes penalties for contravention of stated provisions relating to auditors. However, in this matter, the Adjudicating Officer noted that Section 147 does not specifically set out a penalty mechanism for contravention of Section 143 by the statutory auditor in the nature examined. Hence, Section 450 was invoked as the residuary penal provision.