What is Section 143 of the Companies Act, 2013 for duties of auditors and auditing standards

What is Section 143 of the Companies Act, 2013 for duties of auditors and auditing standards. 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
Redemption Bungalow Hospitality Private 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 submitted the certified true copy of the Financial Statements and Profit & Loss Account since 2017 to 2020 for claiming the company as a “Small Company”

Based on the submission made by the authorised Representative and financial statements of the above-mentioned year, the appellant authority is of the opinion that company is falling under the definition of a small company u/s 2(85) of the companies Act. Thus, being a small company auditor of the company is liable for penalty u/s 446B of the companies 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 (Rs.)

Section 143

2017-182018-19

Rs.20,000

Section 143

2017-182018-192019-20

Rs.30,000

Section 143

2017-182018-192019-20

Rs.30,000

Section 143

2017-18

Rs.10,000

Section 143

2019-20

Rs.10,000

Reduction in Penalty
Upon hearing the appeal, the RD reviewed the circumstances surrounding the non-compliance. The company’s arguments, including mitigating factors and potential rectifications under section 446B, were considered. Consequently, the RD reduce the penalty amount as follows:

Contravention of section and AS

No. of years

Total maximum penalty (Rs.)

Section 143

2017-182018-19

Rs.10,000

Section 143

2017-182018-192019-20

Rs.15,000

Section 143

2017-182018-192019-20

Rs.15,000

Section 143

2017-18

Rs.5,000

Section 143

2019-20

Rs.5,000

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. However, Redemption Bungalow Hospitality Private Limited being a public company does not fall under the criteria of 446B.
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 other circumstances surrounding its non-compliance with Section 204. While the initial penalties imposed by the ROC were significant, the RD provided partial relief by reducing the penalties based on mitigating factors. However, since the company does not qualify as a small company or start-up, the benefit of Section 446B could not be extended. This case underscores the importance 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

Redemption Bungalow Hospitality Private 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 submitted the certified true copy of the Financial Statements and Profit & Loss Account since 2017 to 2020 for claiming the company as a “Small Company”
Based on the submission made by the authorised Representative and financial statements of the above-mentioned year, the appellant authority is of the opinion that company is falling under the definition of a small company u/s 2(85) of the companies Act. Thus, being a small company auditor of the company is liable for penalty u/s 446B of the companies 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 (Rs.)
Section 143	2017-182018-19	Rs.20,000
Section 143	2017-182018-192019-20	Rs.30,000
Section 143	2017-182018-192019-20	Rs.30,000
Section 143	2017-18	Rs.10,000
Section 143	2019-20	Rs.10,000

Reduction in Penalty

Upon hearing the appeal, the RD reviewed the circumstances surrounding the non-compliance. The company’s arguments, including mitigating factors and potential rectifications under section 446B, were considered. Consequently, the RD reduce the penalty amount as follows:

Contravention of section and AS	No. of years	Total maximum penalty (Rs.)
Section 143	2017-182018-19	Rs.10,000
Section 143	2017-182018-192019-20	Rs.15,000
Section 143	2017-182018-192019-20	Rs.15,000
Section 143	2017-18	Rs.5,000
Section 143	2019-20	Rs.5,000

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. However, Redemption Bungalow Hospitality Private Limited being a public company does not fall under the criteria of 446B.

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 other circumstances surrounding its non-compliance with Section 204. While the initial penalties imposed by the ROC were significant, the RD provided partial relief by reducing the penalties based on mitigating factors. However, since the company does not qualify as a small company or start-up, the benefit of Section 446B could not be extended. This case underscores the importance 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.