MCA Impose penalty on Auditor for Violation of Section 143 of the Companies Act 2013

MCA Impose penalty on Auditor for Violation of Section 143 of the Companies Act 2013. Section 143 of the Companies Act, 2013, defines the powers and duties of auditors, ensuring transparency and accuracy in financial reporting. It grants auditors unrestricted access to a company’s books of account, records, and financial statements, including those of its subsidiaries and branch offices. The auditor is required to prepare an independent audit report, commenting on whether proper books of accounts are maintained, whether financial statements comply with accounting standards, and whether related party transactions are conducted at arm’s length.
Applicable Provisions
The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the MCA adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (ER), Kolkata, for consideration.
Facts of the Case with ROC and RD
In Transmission & Distribution (India) Limited, an auditor, was found to be in default of Section 143 of the Companies Act 2013. The appellants have filed the appeal under section 454 (4) of the Companies Act, 2013 against the adjudication order dated 31/10/2023 passes by the ROC for violation of section 143 of the companies Act 2013.
The concerned ROC had issued adjudication notice for violation of section 143 of the Act to the Auditor. In this regard, no adequate reply was received by the concerned ROC from the auditor.
The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD to appellants on 18/09/2024.

The authorised representative was asked to make submissions regarding the infirmity if any in the order of Registrar of Companies. The authorised representative had no valid submissions in this regard.
Hence the order of ROC get confirmed, and no cogent ground was made out by the authorised representative.

Imposed Penalty
The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the auditor’s failure to comply with the relevant legal requirements. The details of the penalty, are as follows:

Contravention of section and AS

No. of years

Total maximum penalty

Section 143 r/w AS 18

2019-20

10,000

Section 143 (3)

2019-20

10,000

Section 143 (3)

2019-20

10,000

Reduction in Penalty
Upon hearing the appeal, the RD reviewed the circumstances surrounding the non-compliance and did not get any valid submissions from the authorised representative thus confirm the order of ROC. RD directed the auditor of the company to pay the amount the imposed penalty from out of his own pockets within a period of 90 days. Further if he fails to deposit the penalty amount within the prescribed period, action will be taken under section 454(8)(i) and (ii)of the companies act 2013. 
Any Benefit of Section 446B of Companies Act
Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. However, in the adjudication matter of Transmission & Distribution (India) Limited company did not fall under the criteria of small company.
Summary:
In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director, considering the submission made by the auditor and the circumstances surrounding its non-compliance with Section143 confirm the order of ROC. This case signifies the importances of strict adherence to corporate compliance requirements while also recognizing the need for a balanced approach in adjudicating penalties, considering the financial and operational realities of the company.
Download MCA Adjudication Order

Section 143 of the Companies Act, 2013, defines the powers and duties of auditors, ensuring transparency and accuracy in financial reporting. It grants auditors unrestricted access to a company’s books of account, records, and financial statements, including those of its subsidiaries and branch offices. The auditor is required to prepare an independent audit report, commenting on whether proper books of accounts are maintained, whether financial statements comply with accounting standards, and whether related party transactions are conducted at arm’s length.

Applicable Provisions

The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the MCA adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (ER), Kolkata, for consideration.

Facts of the Case with ROC and RD

In Transmission & Distribution (India) Limited, an auditor, was found to be in default of Section 143 of the Companies Act 2013. The appellants have filed the appeal under section 454 (4) of the Companies Act, 2013 against the adjudication order dated 31/10/2023 passes by the ROC for violation of section 143 of the companies Act 2013.

The concerned ROC had issued adjudication notice for violation of section 143 of the Act to the Auditor. In this regard, no adequate reply was received by the concerned ROC from the auditor.

The Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD to appellants on 18/09/2024.

The authorised representative was asked to make submissions regarding the infirmity if any in the order of Registrar of Companies. The authorised representative had no valid submissions in this regard.
Hence the order of ROC get confirmed, and no cogent ground was made out by the authorised representative.

Imposed Penalty

The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the auditor’s failure to comply with the relevant legal requirements. The details of the penalty, are as follows:

Contravention of section and AS	No. of years	Total maximum penalty
Section 143 r/w AS 18	2019-20	10,000
Section 143 (3)	2019-20	10,000
Section 143 (3)	2019-20	10,000

Reduction in Penalty

Upon hearing the appeal, the RD reviewed the circumstances surrounding the non-compliance and did not get any valid submissions from the authorised representative thus confirm the order of ROC. RD directed the auditor of the company to pay the amount the imposed penalty from out of his own pockets within a period of 90 days. Further if he fails to deposit the penalty amount within the prescribed period, action will be taken under section 454(8)(i) and (ii)of the companies act 2013.

Any Benefit of Section 446B of Companies Act

Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. However, in the adjudication matter of Transmission & Distribution (India) Limited company did not fall under the criteria of small company.

Summary:

In conclusion, the appeal under Section 454(5) of the Companies Act, 2013, was carefully examined by the Regional Director, considering the submission made by the auditor and the circumstances surrounding its non-compliance with Section143 confirm the order of ROC. This case signifies the importances of strict adherence to corporate compliance requirements while also recognizing the need for a balanced approach in adjudicating penalties, considering the financial and operational realities of the company.