ROC Karnataka imposes penalty upon statutory auditor for not qualifying audit report on non-provision of terminal benefits under AS-15
Summary: SDU Holdings Private Limited engaged M/s Sundaresha & Associates as statutory auditors for FY 2017-18 and 2018-19, with Mr. Pradeepa Chandra C, Partner, signing the audit reports. During an inspection under section 206(5) of the Companies Act, 2013, the Registrar of Companies, Karnataka observed that the company had not made provision for terminal benefits as at 31.03.2018. The position was treated as a violation of Accounting Standard 15 read with section 129, requiring reporting by the auditor under section 143(3)(h). The auditor contended that the amount was immaterial and therefore the audit report was not qualified, but the explanation was not accepted. Following the amendment to section 147 with effect from 21.12.2020, section 143 was removed from its penal ambit, and the matter proceeded under section 450. By order dated 16.07.2026, the Registrar of Companies, Karnataka, acting as Adjudicating Officer, imposed a penalty of Rs. 10,000 upon Mr. Pradeepa Chandra C for FY 2017-18. The order required payment within 90 days from receipt, filing of Form INC-28 with the order and payment challan, and permitted an appeal before the Regional Director (South West Region), Bangalore, within 60 days in Form ADJ. The article also sets out practical suggestions concerning contemporaneous materiality documentation, AS-15 or Ind AS 19 audit checkpoints, responses to Registrar findings, tracking section 450 exposure, and procedural compliance.
- Background of this case
- Provisions relating to this case under the Companies Act 2013
- Consequences of default/violation: action from the Regulator
- Details of the company
- Facts of the case
- Directions from the Competent Authority
- Shift of the penal provision from section 147 to section 450
- Action taken by ROC: issue of show cause notice
- Response from the auditor
- Hearing on this case
- ROC decided to proceed
- Conclusion of the ROC/Adjudicating Officer
- The order passed by the ROC/Adjudicating Officer
- Despatch of the order
- The complete order for reading
- Conclusion
- Practical Suggestions to Avoid Recurrence
- References
Background of this case
SDU Holdings Private Limited, a Karnataka jurisdiction company, had engaged M/s Sundaresha & Associates, Chartered Accountants, as its statutory auditors for the financial years 2017-18 and 2018-19, the audit report for both years having been signed by Mr. Pradeepa Chandra C, Partner, holding Membership No. 216133. During an inspection conducted under section 206(5) of the Companies Act, 2013, the Registrar of Companies, Karnataka observed that the company had not made provision for terminal benefits in its financial statements as at 31.03.2018, a position the Registrar treated as a violation of Accounting Standard 15 read with section 129 of the Act that ought to have been flagged by the auditor under section 143(3)(h) of the Act. The auditor’s explanation that the amount involved was immaterial and therefore did not call for a qualification was not accepted. Since section 147 of the Act stood amended with effect from 21.12.2020 to remove section 143 from its penal sweep, the default was proceeded against under the residuary penal provision of section 450 of the Act. By an order dated 16.07.2026, the Registrar of Companies, Karnataka, in his capacity as Adjudicating Officer, imposed a penalty of Rs. 10,000 upon Mr. Pradeepa Chandra C, the signing partner of the statutory auditor firm, for the financial year 2017-18.
Provisions relating to this case under the Companies Act 2013
The order draws upon the following provisions of the Companies Act, 2013, namely the auditor’s reporting duty under section 143, the penal provision under section 147 as it stood at the relevant time, and the residuary penalty provision under section 450 that was ultimately applied:
| Section | Provision |
|---|---|
| Section 143(3)(h) | The auditor’s report shall also state any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith. |
| Section 147(2) (as it stood prior to 21.12.2020) |
If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees or four times the remuneration of the auditor, whichever is less. |
| Section 450 | 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 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. |
Consequences of default/violation: action from the Regulator
The matter culminated in an Order of Adjudication of Penalty dated 16.07.2026, bearing F.No. ROCB/Adj.454-143/SDU Holdings/(Sundaresha & Associates)/Co.No.0552455/2026, passed by the Registrar of Companies, Karnataka under section 454 of the Companies Act, 2013 read with rule 3 of the Companies (Adjudication of Penalties) Rules, 2014, for violation of the provisions of section 143 of the Act.
Details of the company
SDU Holdings Private Limited (CIN U70100KA2010PTC055245) was incorporated on 21.09.2010 under the jurisdiction of the Registrar of Companies, Karnataka. Its registered office as per MCA records is situated at No. 1/23, Raja Mansion, 12th Cross, Swimming Pool Extension, Malleswaram, Bangalore-560003, Karnataka.
Facts of the case
(a) During the course of inspection under section 206(5) of the Companies Act, 2013, it was noticed that, as per notes to the financial statements as at 31.03.2018, the company had not made provision for any terminal benefits. This was viewed as a violation of Accounting Standard 15 read with section 129 of the Companies Act, 2013.
(b) A reasonable opportunity was given to the statutory auditor vide preliminary findings letter No. ROCV/Insp/Sec206(5)/Co.No.055245/DROC(VA)/2019/1560 dated 21.10.2020.
(c) The statutory auditor replied vide letter dated 04.11.2020, taking the position that Accounting Standard 15 applies only to items which are material, that the amount involved was not material, and that the audit report had accordingly not been qualified. On this basis, the auditor contended there was no violation of Accounting Standard 15 read with section 129 of the Act.
Directions from the Competent Authority
The auditor’s reply was not accepted. The Inquiry Officer identified a violation, which finding was accepted by the Competent Authority, who directed the Registrar of Companies to initiate necessary penal action.
Shift of the penal provision from section 147 to section 450
Under the pre-amended provision of section 147 of the Companies Act, 2013, an auditor who contravened any of the provisions of section 139, section 143, section 144 or section 145 was punishable with fine not less than twenty five thousand rupees but extending up to five lakh rupees or four times the remuneration of the auditor, whichever was less. Section 147 was amended with effect from 21.12.2020, removing section 143 from its penal ambit. As a result, violations committed by an auditor under section 143 came to be dealt with under the general residuary penalty provision of section 450 of the Act, which was accordingly invoked in this matter.
Action taken by ROC: issue of show cause notice
A notice vide No. ROCB/INSP/S.143/SDU Holdings/2021/3101 & 3102 dated 04.10.2021 was issued to the statutory auditor.
Response from the auditor
The statutory auditor replied vide letter dated 12.10.2021 to the above notice.
Hearing on this case
An adjudication hearing notice was issued to M/s Sundaresha & Associates on 14.07.2025, and a physical hearing was held on 21.07.2025. Mr. Pradeepa Chandra C, Chartered Accountant of M/s Sundaresha & Associates, appeared before the Adjudicating Officer and made his submissions.
ROC decided to proceed
The order was passed after affording the statutory auditor an opportunity of hearing, at which the auditor’s representative appeared and made submissions before the Adjudicating Officer.
Conclusion of the ROC/Adjudicating Officer
In exercise of the powers conferred under section 450 of the Companies Act, 2013, the Registrar of Companies, Karnataka, as Adjudicating Officer, imposed a penalty on the statutory auditor under section 450 of the Act for the violation of section 143.
The order passed by the ROC/Adjudicating Officer
| Sr. No. | Penalty imposed upon | Rectification of default required | Period of violation | Penalty amount (Rs.) |
|---|---|---|---|---|
| 1 | Mr. Pradeepa Chandra C, Chartered Accountant, Partner, M/s Sundaresha & Associates, Statutory Auditors (M.No. 216133, FRN 008012S) | Payment of penalty and filing of Form INC-28 with a copy of the order and payment challan | 2017-18 | 10,000 |
Mr. Pradeepa Chandra C, Chartered Accountant and Partner of M/s Sundaresha & Associates, Statutory Auditors for the financial years 2017-18 and 2018-19, was directed to pay the penalty as tabulated above within 90 days from the date of receipt of the order and to file Form INC-28 attaching a copy of the order and the payment challan, the amount of penalty being payable online through www.mca.gov.in under the Miscellaneous head, specifying the details of the order and the noticee paying the penalty.
An appeal, if any, against the order may be filed with the Regional Director (South West Region), Bangalore, within a period of 60 days from the date of receipt of the order, in Form ADJ, setting forth the grounds of appeal and accompanied by a certified copy of the order. Attention was also drawn to section 454(8) of the Companies Act, 2013, under which non-compliance with the order would invite necessary penal action without further notice in the matter.
Despatch of the order
The order was addressed and sent to Mr. Pradeepa Chandra C, Partner (M. No. 216133), M/s Sundaresha & Associates, Statutory Auditor (FRN 008012S), for the financial years 2017-18 and 2018-19, at 27/7, Professional Court, 1st Floor, 15th Cross, 3rd Block, Jayanagar, Bengaluru-560011.
The complete order for reading
The readers may like to read the complete adjudication order dated 16.07.2026, bearing F.No. ROCB/Adj.454-143/SDU Holdings/(Sundaresha & Associates)/Co.No.0552455/2026, passed by the Registrar of Companies, Karnataka, at the MCA website at https://www.mca.gov.in/content/mca/global/en/data-and-reports/rd-roc-info/roc-adjudication-orders.html
Conclusion
This order is a reminder that an auditor’s reporting duty under section 143(3)(h) is not discharged merely by forming a private view on materiality and moving on without documentation. Where an inspecting authority later takes a different view of what is material, the auditor is left defending a judgment call made years earlier, often without a contemporaneous working paper to support it. Since the 2020 amendment took section 143 out of the penal sweep of section 147, defaults of this kind now fall to the residuary provision of section 450, which, while carrying a comparatively modest ceiling, still exposes the signing partner personally and by name.
Practical Suggestions to Avoid Recurrence
1. Document materiality assessments contemporaneously: where a qualification is considered and dropped on materiality grounds, record the quantum, the benchmark applied, and the basis for the conclusion in the audit working papers, not merely in a later reply to the Registrar.
2. Build an AS-15 (or Ind AS 19, as applicable) checkpoint into the audit programme for every engagement, specifically verifying whether a provision for terminal/retirement benefits exists and, if absent, whether that absence has been examined and reasoned rather than assumed.
3. Treat a preliminary findings letter from the Registrar as an opportunity to place the full working-paper trail on record, not merely a restated legal position, since a bare assertion of immateriality without supporting computation is unlikely to satisfy an inspecting authority.
4. Track section 450 exposure separately for each signing partner once a section 143 default is alleged, since the amended framework proceeds against the individual auditor rather than only the audit firm.
5. Where a notice or preliminary finding is received, respond within the firm’s own compliance calendar and retain proof of the date and manner of reply, since procedural timelines in adjudication proceedings run from the date of receipt, not the date of despatch.
References
The Companies Act, 2013, sections 129, 143, 147, 450 and 454.
The Companies (Adjudication of Penalties) Rules, 2014, rule 3.
The Companies (Amendment) Act, 2020, section 31, amending section 147 of the Companies Act, 2013 with effect from 21.12.2020.
Order of Adjudication of Penalty dated 16.07.2026, F.No. ROCB/Adj.454-143/SDU Holdings/(Sundaresha & Associates)/Co.No.0552455/2026, passed by the Registrar of Companies, Karnataka in the matter of SDU Holdings Private Limited.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
