MCA Upheld Penalty for Incorrect Audit Report on Accounting Standards

The Registrar of Companies, Coimbatore, acting under Section 454 of the Companies Act, 2013, adjudicated a penalty for violation of Section 450 arising from non-compliance with Section 143(2) of the Act. Upon scrutiny of the company’s financial statements and auditor’s reports for FY 2016-17 and 2017-18, it was found that related party transactions existed but were not disclosed in accordance with Accounting Standard (AS)-18. Despite this omission, the statutory auditor incorrectly reported that the financial statements complied with applicable accounting standards. The Adjudicating Officer held that the auditor failed to obtain and document adequate audit evidence on related party transactions, contrary to the mandatory requirements of SA-550 issued by ICAI. As Section 147 did not prescribe a specific penalty for this contravention, action was taken under the residuary penalty provision in Section 450. A penalty of ₹10,000 for each of the two financial years, aggregating to ₹20,000, was imposed on the auditor, payable personally, with directions for rectification and appeal rights outlined under Section 454.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
ROC Coimbatore
Registrar Of Companies, No.7, AGT Business Park, I Floor, Phase II, Avinashi Road, Civil Aerodrome Post, Coimbatore,
Tamil Nadu, India, 641014
Phone: (0422) -2629640,2628170
Fax: 0422-2628089
E-mail: roc.coimbatore@mca.gov.in

Order ID: PO/ADJ/01-2026/CB/01458 Dated: 22/01/2026

ORDER FOR ADJUDICATION OF PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 (‘THE ACT’) FOR VIOLATION OF SECTION 450 OF THE COMPANIES ACT, 2013.

A. Appointment of Adjudicating Officer:

Ministry of Corporate Affairs vide its Gazette notification number S.O. 831(E) dated 24/03/2015 appointed undersigned as Adjudicating Officer in exercise of the powers conferred by section 454 of the Companies Act, 2013 [herein after known as Act] read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

B. Company details:

In the matter relating to RIGHT TIME COMMERCIALS PRIVATE LIMITED [herein after known as Company] bearing CIN U51109TZ2014PTC020701, is a company registered with this office under the Provisions of the Companies Act, 2013/1956 having its registered office situated at DOOR NO.6F ST . 1 VIDYA MANDIR SCHOOL,NEAR CHINNAGOUNDAPURAM AYODHIYAPATTINAM SALEM SALEM TAMIL NADU INDIA 636103

Individual details:

In the matter relating to K.RAMACHANDRAN——

C. Provisions of the Act:

If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be 1[liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person]

D. Facts about the case:

1. Default committed by the officers in default/noticee – The auditor has not reported the non-compliance of AS-18 by the company for the years 2016-17 and 2017-18 which is contravention of provisions of section 143 of Companies Act, 2013.

2. While scrutinizing the financial statements and Auditor Report of the company for the financial years 2016-17 and 2017­18, it was observed that there were related party transactions held by the Company with few enterprises over which Mr T S Kumaraswamy was exercising control. However the same was not reflected in the financial statements as prescribed under AS-18. The Auditor Report which is supposed to report the non-compliance has failed to do so and has stated that “the financial statements were in compliance with the Accounting Standards”, which is incorrect. Adjudication notice was sent to the Statutory Auditor Mr K.RAMACHANDRAN CA. Since section 147 of Companies Act 2013 does not contain any penal provisions for contravention of section 143 by the Statutory Auditor, notice was sent under section 450 of the Companies Act 2013. He has submitted his reply and has authorized Mr Santhanakrishnan to appear before the Adjudicating Officer. Physical hearing was conducted and orders were passed.

E. Order:

1. The contravention was established based on the financial statements and auditor’s report filed by the Company for the Financial Years 2016-17 and 2017-18. The Auditor’s reply was scrutinized. The reply was not satisfactory. Also SA 550 has given clear instructions/guidelines with reference to handling Audit Evidences pertaining to Related Parties. Under “Objectives of the auditor” it is stated in para I “To obtain and understanding of related party transactions to : 1. recognize fraud risk factors…, II. To obtain audit evidence as to whether the related party transactions are properly identified, accounted for and disclosed in the financial statements”. Under “Documentation”, it is clearly stated that “The auditor shall include in audit documentation names of the related parties and the nature of the related party transactions”.

The SA550 is unequivocally clear about gathering audit evidence on related party transactions and to document the same. Despite all the instructions, the statutory auditor has failed to disclose the same in his report. This is not just contravening section 143(2) of Companies Act 2013, but also the guidelines prescribed by ICAI in SA 550. Since the contravention under section 143(2) of the Companies Act 2013 is clearly established, a penalty of Rs. 10,000/- for the Financial Year 2016-17 and Rs. 10,000/- for the Financial Year 2017-18 is imposed on the contravener Mr. K.RAMACHANDRAN, CA.

2. The details of penalty imposed on the company, officers in default and others are shown in the table below:

3. The notified officers in default/noticee shall rectify the default mentioned above and pay the penalty, so applicable within 90 days of receipt of the order.

4. The notified officers in default/noticee shall pay the penalty amount via ‘e-Adjudication’ facility which can be accessed through the respective login IDs on the website of Ministry of Corporate Affairs and upload the copy of paid challan / SRN of e-filing (if applicable) on the ‘e-Adjudication’ portal itself. It is also directed that the penalty so imposed upon the officers in default shall be paid from their personal sources/income.

5. Appeal against this order may be filed in writing with the Regional Director, RD Chennai within a period of sixty days from the date of receipt of this order, in Form ADJ setting for the grounds of appeal and shall be accompanied by a certified copy of this order [Section 454 (5) & 454 (6) of the Act, read with Companies (Adjudication of Penalties) Rules, 2014].

6. For penal consequences of non-payment of penalty within the prescribed time limit, please refer Section 454(8) of the Companies Act, 2013.

Vairamuthu Nagarajan,
Registrar of Companies
ROC Coimbatore