Violation of Section 129 & 143 (powers and duties of auditors) of the companies Act 2013

Violation of Section 129 & 143 (powers and duties of auditors) of the companies Act 2013. In this article we will take you through the Section 143 of the Companies Act, 2013, which 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 Mars Mercentiles Pvt Ltd, 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 15/02/2024 passes by the ROC for violation of section 143 of the companies Act 2013. 
The concerned ROC had issued adjudication notice dated 01/05/2023 for violation of section 143 of the Act to the Auditor. In this regard, a reply dated 24.01.2024 was received by the ROC from the auditor for aforesaid adjudication notice which was not found satisfactory by the adjudicating authority.
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 30/08/2024. 
• The authorised representative was asked to make submissions regarding the infirmity if any in the order of Registrar of Companies. The authorised representative had referred the order in the above mentioned company for violation of section 158 of companies Act 2013 wherin the penalty has been upheld as per section 446B of the companies Act 2013 and on the basis of this authorised representative requested to concerned RD to impose penalty as per section 446B for the violation of section 143 of the companies Act 2013. 
• Based on the submission made by the authorised representative, the appellant authority is of view that company fall under the definition of a small company u/s 2(85) of the Act and thus the auditor of the said company liable for penalty under section 446B of the Act for the violation of section 143 of the Act
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 section 129 r/w schedule III
4 Years

40,000

Section 143 r/w section 129 r/w schedule III
5 Years
50, 000

Section 143 r/w section 129 r/w schedule III
1 Years 
10,000

Section 143 r/w section 129 r/w schedule III
5 Years 
50,000

Reduction in Penalty
Upon hearing the appeal, the RD reviewed the circumstances and the submission made by the authorised representative with respect to the non-compliance. RD impose the penalty on auditor as per section 446B of the companies Act and revise the penalty as ROC as follows:

Contravention of section and AS
No. of years

Total maximum penalty

Section 143 r/w section 129 r/w schedule III
 4 Years
40,000

Section 143 r/w section 129 r/w schedule III
5 Years

50, 000

Section 143 r/w section 129 r/w schedule III 
1 Years

10,000

Section 143 r/w section 129 r/w schedule III 
5 Years

50,000

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. In the adjudication matter of CA Phalgunee Banerjee RD consider the submission made by the authorised representative on the behalf of the auditor and impose the penalty as per section 446B of the companies Act 2013. 
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:

In this article we will take you through the Section 143 of the Companies Act, 2013, which 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 Mars Mercentiles Pvt Ltd, 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 15/02/2024 passes by the ROC for violation of section 143 of the companies Act 2013.

The concerned ROC had issued adjudication notice dated 01/05/2023 for violation of section 143 of the Act to the Auditor. In this regard, a reply dated 24.01.2024 was received by the ROC from the auditor for aforesaid adjudication notice which was not found satisfactory by the adjudicating authority.

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 30/08/2024.

• The authorised representative was asked to make submissions regarding the infirmity if any in the order of Registrar of Companies. The authorised representative had referred the order in the above mentioned company for violation of section 158 of companies Act 2013 wherin the penalty has been upheld as per section 446B of the companies Act 2013 and on the basis of this authorised representative requested to concerned RD to impose penalty as per section 446B for the violation of section 143 of the companies Act 2013.

• Based on the submission made by the authorised representative, the appellant authority is of view that company fall under the definition of a small company u/s 2(85) of the Act and thus the auditor of the said company liable for penalty under section 446B of the Act for the violation of section 143 of the Act

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 section 129 r/w schedule III	4 Years	40,000
Section 143 r/w section 129 r/w schedule III	5 Years	50, 000
Section 143 r/w section 129 r/w schedule III	1 Years	10,000
Section 143 r/w section 129 r/w schedule III	5 Years	50,000

Reduction in Penalty

Upon hearing the appeal, the RD reviewed the circumstances and the submission made by the authorised representative with respect to the non-compliance. RD impose the penalty on auditor as per section 446B of the companies Act and revise the penalty as ROC as follows:

Contravention of section and AS	No. of years	Total maximum penalty
Section 143 r/w section 129 r/w schedule III	4 Years	40,000
Section 143 r/w section 129 r/w schedule III	5 Years	50, 000
Section 143 r/w section 129 r/w schedule III	1 Years	10,000
Section 143 r/w section 129 r/w schedule III	5 Years	50,000

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. In the adjudication matter of CA Phalgunee Banerjee RD consider the submission made by the authorised representative on the behalf of the auditor and impose the penalty as per section 446B of the companies Act 2013.

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.