Non-Disclosure of Auditor’s Audit Trail Remarks in Board’s Report: ROC Ahmedabad Imposes Penalty Under Section 134(8)
The Registrar of Companies, Ahmedabad, has passed an adjudication order under Section 454 of the Companies Act, 2013, holding that failure to provide the Board’s comments or explanations on statutory auditor’s observations about the audit trail feature in the accounting software amounts to a violation of Section 134(3)(f), attracting penal consequences under Section 134(8).
This order, issued in the case of ARJUN JEWELLERS LIMITED, serves as a clear reminder that even an “inadvertent oversight” in the Board’s Report will not shield a company or its officers from monetary penalties.
Background of the Adjudication Proceedings
Appointment of Adjudicating Officer
The Ministry of Corporate Affairs, through Gazette Notification No. S.O. 698(E) dated 10/02/2026, appointed the Registrar of Companies, Ahmedabad, as the Adjudicating Officer empowered to impose penalties under Section 454 of the Companies Act, 2013. This appointment is aligned with the Companies (Adjudication of Penalties) Rules, 2014, which govern the adjudication mechanism for defaults under the Act.
Company and Officers Involved
The proceedings involved ARJUN JEWELLERS LIMITED, a company registered under the Companies Act, 2013/1956 with CIN U36100GJ2020PLC111829 and registered office at:
OFFICE NO. 401, 4TH FLOOR, PRIDE CAPITAL JALARAM 1, STREET NO. 2, UNIVERSITY ROAD RAJKOT SAU UNI AREA RAJKOT RAJKOT GUJARAT INDIA 360005
The following individuals were identified as officers in default for the relevant period pertaining to the Financial Year 2024-25:
- Mr. Manishbhai Nathubhai Ghadiya (DIN 08656446)
- Mr. Hitesh Bhagvanjibhai Vasoya (DIN 11192927)
- Ms. Raswanti Manish Ghadiya (DIN 10846353)
- Mr. Pradip Mansukhbhai Limbasiya (Whole-time Company Secretary, PAN AGDPL8390H)
These persons held positions as Directors and Key Managerial Personnel (KMP) and were therefore treated as “officers who are in default” for the purpose of Section 134(8).
Statutory Framework: Section 134 and the Board’s Reporting Obligations
Core Obligation Under Section 134(3)(f)
Section 134(3)(f) of the Companies Act, 2013 mandates that the Board’s Report must 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;”
This provision effectively requires the Board of Directors to respond in the Board’s Report to each significant negative or qualifying observation made by the statutory auditor. Silence or omission is not permitted where the auditor has recorded an adverse remark, reservation or qualification.
Penalty Provision Under Section 134(8)
Section 134(8) prescribes the penal consequences for non-compliance with Section 134:
“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.”
Thus, both the company and its officers personally face fixed monetary penalties for default, without any requirement to prove mens rea (intention) for imposition of penalty in such adjudication proceedings.
Auditor’s Audit Trail Remarks and the Trigger for Default
Audit Trail Requirement Under Rule 11(g)
The adjudication application filed in Form GNL-1 (SRN AC3856896) referred to Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014. This rule obligates the statutory auditor to comment in the audit report on whether:
- The company has used accounting software having an audit trail (edit log) feature, and