GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF THE REGISTRAR OF COMPANIES.
GUJARAT. DADRA 8 NAGAR HAVELI
ROC Shaun. Opp. Rupal Park.
Nr. Mkur Bus Stand. Narangura. Ahmedabad (Gujarat) – 380013.
Tot No.: 079-27438531, Fax : 079-27438371
Website : www.mca.goc.in E-mail : [email protected]
BEFORE THE ADJUDICATING OFFICER
REGISTRAR OF COMPANIES, GUJARAT, DADRA & NAGAR HAVELI
Order No. ROC-GI/ADJ. ORDER/ SUN PHARMA/ Sec.454/ 203-24/457 Dated: 28 APR 2023
ORDER FOR PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICTION OF PENALTIES) RULES, 2014 AND COMPANIES (ADJUDICATION OF PENALTIES) AMENDMENT RULES, 2019 FOR VIOLATION OF SECTION 143(14) R/W SECTION 188 AND 204 OF THE COMPANIES ACT, 2013 READ WITH RULES MADE THEREUNDER.
IN THE MATTER OF
M/s. SUN PHARMACEUTICAL INDUSTRIES LIMITED
(L24230GJ1993PLC019050)
Date of Hearing: 28/03/2023
Present:
1. Shri R.C. Mishra, ICLS (ROC), Adjudicating Officer
2. Shri. Neelambuj, ICLS (AROC), Presenting Officer
3. Ms. Mansi Gokhle, ICLS (Trainee Officer)
4. Shri Prince Kumar, ICLS (Trainee Officer)
Company/ Officers/ Authorised Representative etc.:
1. Mr. Chintan J. Goswami, Proprietor of M/s C. j. Goswami & Associates, Practicing Company Secretaries appeared.
Appointment of Adjudication Authority:-
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred under section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.
Company/any other Person in default;
2. M/s C. J. Goswami & Associates, Practicing Company Secretaries, was appointed as Secretarial Auditors for FY 2014-15, FY 2015-16, FY 2016-17 and FY 2017-18 vide SRN: C36179687, C71647507, G06031009 and G46166765 respectively by the Board of Directors of M/s. SUN PHARMACEUTICAL INDUSTRIES LIMITED (SPIL), which is a company registered under the provisions of the Companies Act, 2013 in the State of Gujarat, having ON: L24230GJ1993PLC019050 and presently having its registered office situated at “SPARC, Tandalja, Vadodara-390012, India”.
Fact about of the case and Show Cause Notice;
3. The Inquiry of M/s. SUN PHARMACEUTICAL INDUSTRIES LIMITED under Section 206(4) of the Companies Act, 2013 ordered by Ministry of Corporate Affairs in the affair of the company covering Financial Year 2014-15, 2015-16, 2016-17 and 201718. In connection to the Inquiry, the Inquiry Officer has issued Show Cause Notice vide office letter No. ROC-GJ/ADJ/U/S 454/SUN PHARMA/2022-23/5472 TO 5474, dated 10.11.2022 to the Secretarial Auditor of the company for FY 2014-15, FY 201516 and FY 2016-17 to M/s C. J. Goswami & Associates, Practicing Company Secretaries in respect of not reporting Aditya Medisales Ltd as related parties as per the requirement of IND-AS-24/AS-18 in Financial Statement of the company of FY 2014-15, 2015-16 and 2016-17.
Reply of Secretarial Auditor and Physical Hearing:- 28/03/2023
4. In respect of the aforesaid notice, M/s C. J. Goswami & Associates, Practicing Company Secretaries submitted their written reply on 22/12/2022, which is taken on record. In respect of the Adjudication notice, they had present before Adjudication Authority on 28th March, 2023 for physical hearing. Mr Chintan Goswami, Proprietor of M/s C. J. Goswami & Associates, Practicing Company Secretaries has submitted that;
a. The Ministry of Corporate affairs has already prescribed the format for secretarial audit report in Form No. MR-3 under the provision of section 204 of the Companies Act, 2013
b. As per the scope of secretarial audit as decided by the council of ICSI at its 226th meeting held on November 21, 2014 decided that, the provisions relating to audit of accounts and financial statement of the company is dealt in the statutory audit and the Secretarial Auditor may rely on the reports given by Statutory Auditors or other designated professionals.
c. Based on the reports given by the statutory auditors for the Reporting Period, we believed that, the Company is in compliance with the provisions of section 133 of the Companies Act, 2013 regarding the accounting standards.
d. Further, we would like to bring to attention of your office that none of our secretarial audit reports issued for the Reporting Period stated that the financial statements comply with the accounting standards.
e. We have expressly mentioned in our secretarial audit reports issued for the Reporting Period at sr. no. 2 of Annexure 1 of the said reports that, “We have not verified the correctness and appropriateness of financial records and Books of Account of the Company”.
f. As per the section 143(12) of the Companies Act, 2013, “Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his duties as auditor, bas reason to believe that an offence fraud involving such amount or amounts as may be prescribed, js being or has been committed in the company by its officers or employees. the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed.”
g. Therefore, we hereby submit that, during the performance of our duty as a secretarial auditor during the Reporting Period, we did not find any fraud element based on our review based on information / documents received during audit. Hence it could not be said that we, the secretarial auditor had not complied with section 143(12) of the Companies Act, 2013 and therefore no penalty should be levied as per Show Cause Notice.
h. Further, the Institute of Company Secretaries of India (“ICSI”) has issued a guidance note from time to time for help their members to undertake the secretarial audit assignments (“Guidance Note”).
i. Further, ICSI has constituted the Auditing Standards Board to lay down the principles for evaluation of statutory compliances and corporate conduct in relation to secretarial audit and to inculcate best auditing practices amongst the members of ICSI.
j. Upon issuance of these Standards by ICSI, it would become generally accepted principle relating to the secretarial practices to be followed while conducting secretarial audit by a practicing member and developing a unified manner for Reporting by the auditors.
k. The few extracts of the said Guidance Note (Release 14, May 2018) are as below:
l. As per Chapter 1- Secretarial Audit of the Guidance Note, “The term “Secretarial Audit” is a mechanism which is connected with the audit of the non-financial aspects of the company.”
m. The object of the Secretarial Audit is evaluation and form an opinion and to report to the shareholders as to whether, the company has complied with the applicable laws comprising various statutes, rules, regulations, guidelines, followed the board processes and to also report on the existence of compliance management system.
n. Third party support and evidences: It would always be helpful to cross verification of the filing made by the company at MCA, SEW & other authorities independently. Verification of record and enquiries can also be made with the other statutory and internal auditors and consultants and Independent Directors of the Company.
o. Further, we would like to bring to attention of your good office that, while undertaking the secretarial audit during the Reporting Period, we have provided the observations / views in the secretarial audit reports for financial year ended March 31, 2016 and March 31, 2017.
p. With regard to the SEBI Documents as referred to in the Show Cause Notice, we would like to request you to provide us the access to all those documents on the basis on which your office has alleged us for the referred contravention as per Show Cause Notice.
q. Further, as per our limited understanding basis on the documents available in public domain in relation to the non-disclosure of transactions with M/s. Aditya Medisales Limited, the Company has settled as per the settlement terms set out in the Settlement Order(s) without admitting or denying the findings of the fact and conclusions of law in accordance with the terms of SEBI (Settlement of Administrative and Civil Proceedings) Regulations 2018. Hence, we would like to know the grounds on which the present Show Cause Notice has been issued by your good office.
r. Without prejudice to our submissions made above, the Show Cause Notice received by us seems to be in general as the same is addressed to secretarial auditor as well as statutory auditors without stating the specific provisions contravened by which addressee to the Show Cause Notice.
In light of the above, it is submitted that the duty cast upon Secretarial Auditor under the relevant Standards of Auditing and Reporting Framework has been duly and fully complied by them. Consequently, it is prayed that the allegation of non-compliance/ violation of the provision of the Act levelled against them be dismissed and no penalty ought to be levied against them.
Submission of the Presenting Officer:-
5. The Presenting Officer submitted that the inquiry of the subject company is based on Whistle Blower Complaint in respect of Related Party Transactions, Money Diversion from Sun Pharmaceutical Industries Ltd to Aditya Medisales Ltd and other group companies. In the said matter, the Serious Fraud Investigation Office (SF10), Ministry of Corporate Affairs also made research and shared a Market Research and Analysis Report (MRAU) to this office in year 2019. Accordingly, the Inquiry into affairs of the company is independently directed by the Ministry of Corporate Affair to this office to investigate the Related Party Transaction matter of the Sun Pharmaceutical Industries Ltd. with Aditya Medisales Ltd covering the FY 2014-15 to 2017-18 and the omission of reporting of Related Parties Transaction (RPTs) and violation of the provisions the Companies Act, 2013.
6. The Presenting Officer submitted that as per the provision of section 204 of the Companies Act, 2013, the Secretarial Auditor plays crucial role in laws for effective compliances. The object of the Secretarial Audit is evaluation and form an opinion and to report to the shareholders as to whether, the company has complied with the applicable laws comprising various statutes, rules, regulations, guidelines, followed the board processes and to also report on the existence of compliance management system.
7. The Presenting officer further submitted that the power and duty of the Secretarial Auditor while submitting its report to ensure the compliance provision of the Companies Act, 2013 and rules made thereunder.
A Company Secretary in practice has the professional duty to provide an unbiased view on the compliance status of the Company. A Company Secretary in Practice should be independent from the company being audited.
The Secretarial Auditor is expected to ensure that activities of the client company are in accordance with the applicable procedure and that supporting evidence maintained by the company is genuine.
The Practicing Company Secretary has to examine the transactions during the period of audit to identify whether any fraud element is present in the transaction. In the past “Fraud” has been noticed in many cases of scams in the following kinds of transactions:-
- Related Party Transactions
- Excessive managerial remuneration – Insider Trading
- Inter Company transactions
- Mergers/demergers/acquisitions
- IPO frauds
- Ponzy schemes
- Public Deposit
- Transfer of Shares
8. The ICSI has issued the Guidance Note for Secretarial Audit. As per the Guidance Notes the Secretarial Auditor is need to adhered the following checklist to review the Related Party Transaction, which is as under;
Checklist for related Party Transactions as per the ICSI Guidance Notes;
- Check whether the company has prepared a list of related parties as per section 2(76) of the Act and there exists a system to check whether any contracts / arrangements are being entered into with any of those Parties. Also any suitable mechanism is derived to intimate the same to the secretarial department.
- Check whether the company has maintained the register of contract/ arrangement entered by the company along with the details of contract and arrangement in Form MBP-4.
- If the company is claiming exemption from the applicability of the section on the grounds that the transactions are in the ordinary course of business and are on arms length basis Check whether the Board has taken an informed decision about the nature of transaction based on criteria given in Rule 15
- Check whether the company has entered into a contract/ arrangement with any related party through a hoard resolution at a meeting of the board.
- The company has obtained prior approval of the shareholders by a resolution in case of a company having paid up share capital of not less than such amount, or transactions not exceeding such sums as specified in Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014.
- Check whether a member of the company who is a related party and with whom the transaction is being entered into has not voted on such resolution for approving the same. In case of companies in which 90 percent. or more members in number are relatives and related parties the above condition will not apply.
- The company has annexed explanatory statement to the notice of the board or general meeting as may be applicable disclosing the details required under rule 15.
- Check whether any director or related party is appointed as an office or place of profit in the company. its subsidiary or associate company and complied with applicable provisions of Section 188.
- Check whether omnibus approval for the related party transactions has been given by the Audit committee and is in accordance with Rule 6A of the Companies (Meeting of Board and its powers) Rules, 2014
- Whether any contract has been entered by the company without the approval of the board/ approval of the company; If Yes, Whether such contract or Arrangement has been ratified by the board/ Company as the case may be
- Check that the listed entity has formulated a policy on materiality of related party transactions and dealing with related party transactions (RPTs).
- Check that the listed entity has formulated a policy on materiality of related party transartions and dealing with related party transactions (RPTs).
- Ail material RPTs have taken prior approval of shareholders through resolution, and all the related parties irrespective of whether they are a party to the transaction have abstained from voting on such resolutions
- All existing related party contracts entered into prior to the date of notification of these regulations and which continue beyond such date were placed for approval of the shareholders in the first AGM subsequent to notification of these regulations.
- Board approved policy on Related Party Transactions and compliance.
- In case of listed company, Check that all material transactions with related parties have been placed before the Audit committee and disclosed quarterly along with the Corporate Governance report filed with the Stock Exchanges
- Check that the company has formulated a policy on materiality of Related Party disclosed on its website and also in the Annual Report
- In case of listed company check that the all Related Party Transactions had prior approval of the Audit Committer
9. The Presenting Officer further stated that although the shareholder of the Aditya Medisales Ltd is Body Corporates, but the main control person of all the said body corporates is Managing Director of SPIL that is Shri Dilip Sanghvi and their family members as under;
