What if there is False disclosure in Board's Report

What if there is False disclosure in Board's Report. If there is any default in providing any required disclosure in the board report of the company, then company along with the officers in default will get penalised under this Act.
Section 134 of the companies Act outlines the approval, signing, and reporting requirements for financial statements and Board reports in companies. It mandates that financial statements, including consolidated financial statements, must be approved by the Board of Directors before being signed by the chairperson (if authorized) or at least two directors, including the managing director, where applicable. The auditor's report must be attached to every financial statement.
Furthermore, the Board's report, which accompanies the financial statements in general meetings, must include various disclosures such as the annual return extract, number of Board meetings, Directors' Responsibility Statement, details of auditor-reported frauds, risk management policies, corporate social responsibility initiatives, and other prescribed matters. It also emphasizes the Directors’ Responsibility Statement regarding accounting policies, fraud prevention, and internal financial controls. The report must be signed by the chairperson if authorized or at least two directors. Non-compliance with these provisions attracts penalties for the company and its officers.
Applicable Provisions
The MCA adjudication order involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (WR), Mumbai, for consideration.
Facts of the Case with ROC and RD
In Saptastaij Industries Private Limited & ORS, ROC vide adjudication order dated 22/112023 held that the company and its officers who have defaulted liable for penalty under section 134(8) of the Act for failing to make necessary disclosure in the Board Report and not taking  due care for the maintenance of the auditing records at the premises of the company for preventing irregularities.
Considering the fact and circumstances of the case, 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 04/06/2024. The authorised representative has admitted the contravention of section 92 of the Act. Further stated that the:

Company is a small company within the meaning of Section 2(85) read with Section 446B of the companies Act, 2013 and have submitted requisite documents in support of her claim which has been taken on record.

Imposed Penalty
Considering all the facts, circumstances and all the submission made by the company, the adjudicating authority had imposed penalty as follows:

Penalty Imposed on Company/Directors (s)

Total/Maximum Penalty

On Company

3,00,000

On 1st director

50,000

On 2nd director

50,000

Reduction in Penalties, If any
Taking into account the adjudication order of the ROC, submission made by the appellant in their application as well as oral submissions of the authorised representative during the hearing concerned RD is of view the company falls under the definition of small company within the meaning of Section 2(85) read with section 446B of the companies Act 2013 and therefore the penalty amount imposed by ROC order dated 22/11/2023 is modified and reduced by 50% by giving the effect of Section 446B Of the Act as follows:

Penalty Imposed on Company/Directors (s)

Total/Maximum Penalty

Penalty modified by RD

On Company

3,00,000

1,50,000

On 1st director

50,000

25,000

On 2nd director

50,000

25,000

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 adjudication matter Saptastaij Industries Private Limited & ORS, claim the benefit as per section 446B of the Act after providing signed and audited financial statements of the relevant period.
Findings: -
From the above case, it is apparent that Saptastaij Industries Private Limited & ORS failed to comply with the provisions of Section 134 of the Companies Act, 2013, leading to adjudication by the Registrar of Companies (ROC). After getting order from the concerned ROC, an appeal filled by the company admitting their default and claiming the benefit of small company as per section 446B of the Act.
This adjudication order signifies that how important it is to file an appeal to the concerned RD, taking into account authentic grounds.
 
 
 
Download MCA Adjudication Order

If there is any default in providing any required disclosure in the board report of the company, then company along with the officers in default will get penalised under this Act.

Section 134 of the companies Act outlines the approval, signing, and reporting requirements for financial statements and Board reports in companies. It mandates that financial statements, including consolidated financial statements, must be approved by the Board of Directors before being signed by the chairperson (if authorized) or at least two directors, including the managing director, where applicable. The auditor's report must be attached to every financial statement.

Furthermore, the Board's report, which accompanies the financial statements in general meetings, must include various disclosures such as the annual return extract, number of Board meetings, Directors' Responsibility Statement, details of auditor-reported frauds, risk management policies, corporate social responsibility initiatives, and other prescribed matters. It also emphasizes the Directors’ Responsibility Statement regarding accounting policies, fraud prevention, and internal financial controls. The report must be signed by the chairperson if authorized or at least two directors. Non-compliance with these provisions attracts penalties for the company and its officers.

Applicable Provisions

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

Facts of the Case with ROC and RD

In Saptastaij Industries Private Limited & ORS, ROC vide adjudication order dated 22/112023 held that the company and its officers who have defaulted liable for penalty under section 134(8) of the Act for failing to make necessary disclosure in the Board Report and not taking due care for the maintenance of the auditing records at the premises of the company for preventing irregularities.

Considering the fact and circumstances of the case, 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 04/06/2024. The authorised representative has admitted the contravention of section 92 of the Act. Further stated that the:

Company is a small company within the meaning of Section 2(85) read with Section 446B of the companies Act, 2013 and have submitted requisite documents in support of her claim which has been taken on record.

Imposed Penalty

Considering all the facts, circumstances and all the submission made by the company, the adjudicating authority had imposed penalty as follows:

Penalty Imposed on Company/Directors (s)	Total/Maximum Penalty
On Company	3,00,000
On 1^st director	50,000
On 2^nd director	50,000

Reduction in Penalties, If any

Taking into account the adjudication order of the ROC, submission made by the appellant in their application as well as oral submissions of the authorised representative during the hearing concerned RD is of view the company falls under the definition of small company within the meaning of Section 2(85) read with section 446B of the companies Act 2013 and therefore the penalty amount imposed by ROC order dated 22/11/2023 is modified and reduced by 50% by giving the effect of Section 446B Of the Act as follows:

Penalty Imposed on Company/Directors (s)	Total/Maximum Penalty	Penalty modified by RD
On Company	3,00,000	1,50,000
On 1^st director	50,000	25,000
On 2^nd director	50,000	25,000

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 adjudication matter Saptastaij Industries Private Limited & ORS, claim the benefit as per section 446B of the Act after providing signed and audited financial statements of the relevant period.

Findings: -

From the above case, it is apparent that Saptastaij Industries Private Limited & ORS failed to comply with the provisions of Section 134 of the Companies Act, 2013, leading to adjudication by the Registrar of Companies (ROC). After getting order from the concerned ROC, an appeal filled by the company admitting their default and claiming the benefit of small company as per section 446B of the Act.

This adjudication order signifies that how important it is to file an appeal to the concerned RD, taking into account authentic grounds.

Download MCA Adjudication Order