NCLT Chennai Permits Voluntary Revision of Financial Statements for ICD Misclassification

Overview of the Decision

The National Company Law Tribunal, Chennai Bench, in the matter of Cameron Manufacturing (India) Private Limited Vs Regional Director (NCLT Chennai), considered an application under Section 131 of the Companies Act, 2013 seeking permission to revise the company’s financial statements for the Financial Year 2019-2020. The assessee-company claimed that certain entries relating to an Inter Corporate Deposit (ICD) given to a related party had been wrongly classified and that such errors were discovered only after the financial statements were adopted by the shareholders but before filing with the Registrar of Companies (RoC).

The Tribunal ultimately allowed the revision, holding that:

  • The misclassifications were inadvertent and clerical,
  • The corrections were necessary to ensure a true and fair view as required by Section 129,
  • The reclassification did not materially change the company’s overall financial position,
  • Section 131 is specifically designed to permit such voluntary revisions, independently of any penal or compounding proceedings.

At the same time, the Tribunal clarified that its order would not shield the company or its officers from any independent proceedings that may be initiated by the RoC, Income Tax authorities, or other statutory bodies.

Factual Background

During FY 2019-2020, Cameron Manufacturing (India) Private Limited advanced an Inter Corporate Deposit (ICD) of Rs. 30,00,00,000 to its related party Schlumberger Solutions Private Limited (SSPL). Out of this:

  • SSPL repaid Rs. 16,00,12,514, and
  • The outstanding balance as on 31.03.2020 stood at Rs. 13,99,87,486.

The assessee asserted that it had complied with the requirements of the Companies Act, 2013 relating to grant of ICDs, and placed on record the extract of Board minutes dated 01.03.2019 evidencing due approval for the transaction.

Approval of Financial Statements

The sequence of events was as follows:

  1. 25.12.2020 – Notice was issued to the Board for approval of the financial statements for FY 2019-2020.
  2. 31.12.2020 (Board Meeting) – The Board of Directors approved the financial statements.
  3. 31.12.2020 (Shareholders’ Meeting) – A general meeting of members was held at Tidel Park, III Floor, Villankurichi Road, Coimbatore, where the financial statements for FY 2019-2020 were unanimously adopted.
  4. The accounts had been audited by Price Waterhouse & Company Chartered Accountants LLP.

Only after the adoption by the shareholders, but before filing under Section 137 with the RoC, the management noticed the classification issues.

Nature of the Errors in the Original Financial Statements

Misclassification of ICD and Interest

The assessee-company identified the following errors in its audited financial statements for FY 2019-2020:

  1. ICD Outstanding Classified as Trade Receivables

    • The outstanding ICD amount of Rs. 13,99,87,486 (unsecured) given to SSPL was wrongly shown as “Trade Receivables”.
    • As per Schedule III under Section 129, it should have been classified under “Short-Term Loans and Advances”.

  2. Interest Income Shown Under Wrong Head

    • Interest income of Rs. 1,48,17,808 arising from the ICD was:
      • Incorrectly grouped under “Interest Income on Bank Deposits” in Note 17 (“Other income”) in the Balance Sheet.
      • However, in the Statement of Profit and Loss, it was correctly included in “Other income”, though the narration/category within that note was not aligned with the true nature of income.

  3. Cash Flow Statement Misclassification

    • The ICD balance was included under Cash Flow from Operating Activities instead of Cash Flow from Investing Activities.
    • Interest income was correctly classified in the cash flow as arising from investing activities.

Further discrepancies noted were:

  • Related Party Disclosures: The notes on related party transactions did not include:
    • ICDs given/repaid during FY 2019-2020, and
    • Interest income earned on those ICDs.
  • Section 186(4) Disclosure: Because the ICD was wrongly parked under Trade Receivables, the specific disclosure mandated under Section 186(4) for loans and investments was inadvertently not given in the financial statements, though other aspects of Section 186 compliance were stated to have been met.

The assessee emphasized that all these errors were clerical and unintentional, discovered only after the accounts had been signed and adopted. The management promptly informed the auditors of these discrepancies through an e-mail dated 22.03.2021, enclosing a letter dated 01.03.2021.

Relief Sought and Proposed Corrections

The assessee moved the Tribunal under Section 131 read with Rule 11, Rule 14 and Rule 77 of the National Company Law Tribunal Rules, 2016, seeking permission to revise the financial statements for FY 2019-2020.

The specific corrections proposed were:

  1. Reclassification of ICD Outstanding

    • Reclassify Rs. 13,99,87,486 from “Trade Receivables” to “Short-Term Loans and Advances” under Schedule III (Current Assets).

  2. Reclassification of Interest Income in Note 17

    • Reduce Rs. 1,48,17,808 from “Interest Income on Bank deposits” and correctly show it as interest on loan (while still being part of “Other income” under Note 17).
    • After this adjustment, “Other income” under Note 17 would total Rs. 1,52,96,008 (4,78,200 + 1,48,17,808).