Introduction: The Ministry of Corporate Affairs (MCA) recently handed down a significant penalty of Rs. 180,000 on M/S Mukund M Chitale & Co., the auditors of The Peerless General Finance & Investment Co Ltd. This penalty stems from violations under Section 143(3) of the Companies Act, 2013. The adjudication order, dated December 22, 2023, sheds light on the details and implications of this action.
Detailed Analysis:
1. Background: The MCA, through its Registrar of Companies in West Bengal, issued an adjudication order (No. ROC/ADJ/15/007490/2023/9711-9717) dated December 22, 2023, under Section 454(3) of the Companies Act, 2013.
2. Case Details:
- The auditors in question, M/S Mukund M Chitale & Co., were associated with The Peerless General Finance & Investment Co Ltd.
- Violations under Section 143(3) of the Companies Act, 2013, were identified through an inspection report, leading to the imposition of penalties.
3. Specific Violations:
- The inspection report highlighted multiple instances of non-compliance with Section 143(3), revealing discrepancies in the company’s financial statements for the years ending March 31, 2016, 2017, and 2018.
- Violations included failure to disclose liabilities, assets, advances, investment properties, and other crucial financial details, as required by the Companies Act.
4. Auditors’ Responsibilities: Section 143(3) of the Companies Act outlines the auditors’ responsibilities, including obtaining necessary information, ensuring proper books of account, and reporting on various aspects, such as accounting standards and adverse effects on the company’s functioning.
5. Adjudication Process:
- The adjudicating officer, in this case, issued notices to the auditors, providing an opportunity to respond to the alleged violations.
- Despite the hearing, no adequate reply was received from the auditors.
6. Penalty Imposition:
- The adjudication officer, A. K. Sethi, imposed a total penalty of Rs. 180,000 on the auditors, with specific amounts allocated for different contraventions.
- The auditors, CA Manohar Mukund Chitale and CA Saurabh Mukund Chitale, were held responsible for their roles in the financial years 2015-16, 2016-17, and 2017-18.
7. Payment and Appeal:
- The auditors are instructed to pay the penalty via e-payment within 90 days of the order.
- The option to appeal the order is provided, with a specific process outlined for filing appeals with the Regional Director within sixty days.
Conclusion: This penalty imposition by the MCA underscores the importance of auditors’ adherence to Section 143(3) of the Companies Act, emphasizing the need for accurate financial disclosures. The detailed adjudication order serves as a significant development in corporate governance and accountability, signaling the authorities’ commitment to upholding financial reporting standards. Auditors and companies alike should take note of this case as a reminder of the regulatory scrutiny surrounding financial disclosures and the potential consequences for non-compliance
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GOVERNMENT OF INDIA
Ministry of Corporate Affairs
Office of the Registrar of Companies (West Bengal)
Nizam Palace, 2nd M. S. O. Building, 2nd Floor
Acharya Jagadish Chandra Bose Road
KOLKATA – 700 020
No. ROC/ADJ/15/007490/2023/9711-9717
Dated: 22.12.2023
ADJUDICATION ORDER FOR PENALTY U/S 454(3) OF THE COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 AS AMENDED BY THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2019 IN MATTER OF NON-COMPLIANCE OF THE PROVISIONS OF SECTION 143 OF THE COMPANIES ACT, 2013
In respect of: AUDITOR:
M/S MUKUND M CHITALE & Co.
(CA Mukund Manohar Chitale & CA Saurabh Mukund Chitale)
of company namely THE PEERLESS GENERAL FINANCE & INVESTMENT CO LTD
(CIN: U64990WB1932PLC007490)
1. Appointment of Adjudicating Officer
1. Ministry of Corporate Affairs vide its Gazette Notification No A‑42011/112/2014-Ad.II dated 24.03.2015 appointed undersigned as Adjudicating Officer in exercise of the rowers conferred by section 454(1) of the Companies Act, 2013 [herein after known as Act] read with Companies (Adjudication of Penalties) Rules. 2014 for adjudicating penalties under the provisions of this Act. The undersigned is entrusted to adjudicate penalties under section 450 of the Companies Act, 2013.
2. Company: –
THE PEERLESS GENERAL FINANCE & INVESTMENT CO LTD [herein after known as the company] was a registered company incorporated on 25.10.1932 under the provisions of the Companies Act, 2013 having its registered office as per MCA21 Registry at PEERLESS BHAVAN,3 ESPALANDE EAST, KOLKATA. West Bengal, India, 700069
Facts about the Case:-
1) On the basis of inspection carried out under Section 206 of the Companies Act, 2013 the following instances or violations as pointed out in the Inspection report:
i. CONTRAVENTION OF SECTION 143(3) OF COMPANIES ACT 2013
“In Inspection Report, on the basis of books and Papers of the Company under Section 206(5) of the Companies Act 2013. Inspector has reported that-
-“As per requirement of Schedule III (Part 1), in the matter of preparation of Balance Sheet, the Company is required to disclose the nature of Other Liabilities under the heading ‘Other Current Liabilities”. However, during the course of inspection of the books and accounts of the company. it is observed that the company in its Financial Statements for the years ending 31.03,201 6. 31.03.2017 and 31.03.2018 under the head Other Current Liabilities has shown Other Liabilities amounting to Rs. 14,54 million. Rs. 26,66 million and Rs. 10.50 million respectively but it has failed to give disclosure as required by Schedule lil of the Companies Act. 2013, The Auditor for the financial years 31.03.2016, 31.03.2017 and 31.03.2018, in his report, failed to point out above stated deficiency which requires under Section 143(3) of the Companies Act. 2013.Hence, the Auditor has violated Section 143(3) of the Companies Act, 2013.”
ii. CONTRAVENTION OF SECTION 143(3) OF THE COMPANIES ACT, 2013
“As per requirement of Section 129 of the Companies Act, 2013, the financial statement shall give a true and fair view of the state of affairs of the Company. However, during the course of inspection of the books and accounts of the company, it is observed that the company in its Financial accounts statements year ending 31.03,2016, 31.03.2017 and 31.03.2018 under the head Other Current Assets has shown Amount Receivable amounting to Rs, 197.27 million, Ps, 182,53 million and Rs, 26.54 million respectively but it has failed to give disclosure as required by Schedule III of the Companies Act, 2013. Further, the company has not specified the nature of the Other Current Assets in its financial statements for the year ending 31.03.2016, 31.03.2017 and 31.03.2018. The Auditor for the financial years 31.03.2016, 31.03.2017 and 31,03.2018, in his report, failed to point out above stated deficiency which requires under Section 143(3) of the Companies Act, 2013. Hence, the Auditor has violated Section 143(3) of the Companies Act, 2013.”
iii. CONTRAVENTION OF SECTION 143(3) OF THE COMPANIES ACT, 2013
“As per requirement of Section 129 of the Companies Act, 2013, the financial statement shall give a true and fair view of the state of affairs of the Company. However, during the course of inspection of the books and accounts of the company, it is observed that the company in its Financial Statements for the year ending 31.03.2016, 31.03.2017 and 31.03.2018 under the head Short Term Advances, advance recoverable in cash or in kind or for value to be received shown advances amounting to Rs. 42.72 million, Rs, 7.73 million and Rs. 53,18 million respectively but no proper disclosure has been provided by the Company in relation to such advances as required by Schedule III of the Companies Act. 2013. Further, the company has not specified the nature of such advances in its financial statements for the year ending 31.03.2016, 31.03.2017 and 31.03.2018. The Auditor for the financial years 31.03.2016, 31.03.2017 and 31.03.2018, in his report, failed to point out above stated deficiency which requires under Section 143(3) of the Companies Act, 2013. Hence. the Auditor has violated Section 143(3) of the Companies Act. 2013.”
iv. CONTRAVENTION OF SECTION 143(3) OF THE COMPANIES ACT, 2013
“As per Section 129 of the Companies Act, 2013, the financial statement shall give a true and fair view of the state of affairs of the Company. During the course of inspection of the books and accounts of the company, it is observed that the company in its Financial Statements for the year ending 31.03.2016, 31.03.2017 and 31.03.2018 under the head Long Term Advances, advance recoverable in cash or in kind or for value to be received shown advances amounting to Rs. 3.31 million, Rs. 2.74 million and Rs, 36.31 million respectively but no proper disclosure has been provided by the Company in relation to such advances as required by Schedule Ill of the Companies Act, 2013. Further, the company has not specified the nature of such advances in its financial statements for the year ending 31.03.2016, 31.03.2017 and 31.03.2016. The Auditor for the financial years 31.03.2016, 31.03.2017 and 31.03.2018, in his report, failed to point out above stated deficiency which requires under Section 143(3) of the Companies Act, 2013. Hence. the Auditor has violated Section 143(3) of the Companies Act, 2013.
v. CONTRAVENTION OF SECT/ON 143(3) OF THE COMPANIES ACT, 2013
In the Balance Sheet for the financial year 2017-18. investment in properties was Rs. 107.23 million and Company charged a sum of Rs. 5.36 million as depreciation for that year. However. the Company fails to disclose the method of charging depreciation as per the Schedule II in accounting policies adopted by the Company. The Auditor for the financial year 2017-18 in his report, fails to point out above stated deficiency which requires under Section 143(3) of the Companies Act, 2013. Hence, the Auditor has violated Section 143(3) of the Companies Act. 2013.
vi. CONTRAVENTION OF SECTION 143(3) OF THE COMPANIES ACT 2013
It is observed from the Financial Statement for the year 2017-18 that the Company has invested Rs. 24.20 Crores as Right to Property and the same is shown as Current Investment. As per AS-13, accounting for investment states that investment in Right to Property shall be non-current investment. The said amount is not realizable within a period of twelve months as it is evident that the Company is classified the same as Current investment since 31.03.2015 to 31.03.2018. Hence, the Balance Sheet as at 31.03.2018 is not showing true and Fair view. The Auditor for the financial year 2017-18, in his report, failed to point .pave stated deficiency which requires under Section 143(3) of the Companies Act, 203. Hence, the Auditor has violated Section 143(3) of the Companies Act. 2013.
vii. CONTRAVENTION OF SECTION 143(3) OF THE COMPANIES ACT 2013
It appears from the Balance Sheet for the financial year 2077-18 that the Company has given Long Term Advance of R5. 36.31 million to M/s. Bengal Peerless Housing Development Company Ltd. The said advance has been given for purchase of flat from the associate company. As per the requirement of schedule 111, the long-term loan and advances under head Related Party Transaction are to be mentioned separately. However, the Auditor for the financial year 2017-18. in his report, fails to comment regarding such discrepancy which requires under Section 143(3) of the Companies Act, 2013. Hence, the Auditor has violated Section 143(3) of the Companies Act, 2013.
viii. CONTRAVENTION OF SECTION 143(3) OF THE COMPANIES ACT, 2013
As per requirement of Schedule Ii.. payment to Auditor shall be disclosed as per the Clause 5(i) of Genera: instructions in preparation of Profit & Loss accounts. During the financial year 2017-18. the Company has paid a sum of Rs. 25,28.750/- to M/s. Mukund M. Chitale & Co. as fee for monthly services which was not disclosed in the Balance Sheet under the head payment to Auditor, MA. Mukund M. Chitale & Co. is the statutory Auditor of the Company. However. the Auditor for the financial year 2017-18, in his report, fails to comment upon such deficiencies which requires under Section 143(3) of the Companies Act. 20;3. Hence, the Auditor has violated Section 143(3) of the Companies Act. 2013.
ix. CONTRAVENTION OF SECTION 143(3) OF THE COMPANIES ACT 2013
it is observed Mat the Company did not disclose the basis of allocation of expenditure and not disclosing the fact that expenditure incurred for advertisement and publicity for the benefit of the subsidiaries are not allocated among the Company and its subsidiaries during the financial year 2017-18. However, the Auditor for the financial year 2017-18, in his report fails to comment upon such discrepancies which requires under Section 143(3) of the Companies Act, 2013. Hence, the Auditor has violated Section 143(3) of the Companies Act. 2013.
x. CONTRAVENTION OF SECTION 143(11) OF THE COMPANIES ACT, 2013
During the financial year 2017-18, a case is pending at IT Appellate Tribunal. Kolkata Bench-“B”- ITA No. 937/Kol/2018 for the Assessment year 2010-11 and ITA No. 938/Kol/2018 for the Assessment year 2010-11 regarding appeal against Order dated 14.03.2018 and 28.03.2018 of CIT (Appeals), which has not been reported by the Auditor in his CARO’2016 Report. Hence, the Auditor for the financial year 2017-18 has violated the provisions of Section 143(11) of the Companies act, 2013 by not disclosing the fact of pending Appeals in CARO’2016 Report.
2) (i)The provisions of Section 143(3) of the Companies Act 2013 requires that the auditors report shall also state
(a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;
(b) whether, in his opinion, proper books of account as required by law have been kept by the company so tar as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
(c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company’s auditor has been sent to him under the proviso 7o that sub-section and the manner in which he has dealt with it in preparing his report;
(d) whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
(e) whether, in his opinion, the financial statements comply with the accounting standards;
(f) the observations or comments of the auditors on financial transactions or matters, which have any adverse effect on the functioning of the company.
(g) whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected there with;
(i) whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;
(j) such other matters as may be prescribed.
(ii) The provisions of Section 143(11) of the Companies Act, 2013, provides inter-Gila:
(11) the Central Government may, in consultation with the National Financial Reporting Authority, by genera/ or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein.
“Provided that until the National Financial Reporting Authority is constituted under section 132, the Central Government may hold consultation required under this sub- section with the Committee chaired by on officer of the rank of Joint Secretary or equivalent in the Ministry of corporate Affairs and the committee shall have the representatives from the institute of Chartered Accountants of India and Industry Chambers and also special invitees from the National Advisory Committee on Accounting Standards aria the office of the Comptroller and Auditor-General”.
Section 450 of the Act provides inter alia that: if a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rule.; made thereunder, or arty condition. limitation or restriction subject to which arty 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 short 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, Thus, the Auditor has violated Section 143 of the Companies Act, 2013. Accordingly, Penalty under Section 450 will be applicable on the Auditor.
3) Accordingly, the adjudication officer has issued adjudication notice vide No. ROC/ADJ/t 5/007490/2023 dated 08.12.2023 herein after referred as Adjudication Notice) under Section 454(4) read with Section 143 of the Companies Act, 2013 read with Rule 3(2) of Companies ;Adjudication of Penalties), 201 4 as amended in Amendment Rules, 2019, to the auditors in default for the violation of the provisions of the Act as mentioned above giving an opportunity to submit a reply as to why the penalty should not be imposed under the provisions of 450 of the Act against the auditors in default for the above stated violations, followed by a notice of hearing scheduled on 12.2023 at 4:00 P,M vide letter no. ROC/ADJ/15/007490/2023 dated 08.12.2023 and the same hearing was adjourned to 19.12.2023 at 2:30 P.M on the request of the authorized representative.
4) No adequate reply to the Adjudication notice. as mentioned above, have been received from the auditors as to why penalty shalt not be imposed.
5) Mr, Manoj Kumar Banthia represented CA Manohar Mukund Chitale par the FY 2015-16 and 2016-17) and CA Saurabh Mukund Chitale (for the FY 2017-18) the auditors of the company and attended the hearing held on 19.12.2023 and appraised for adjudication of the offence as per the notice issued by this office and imposed the penalty as per the provision of the Companies Act, 2013, considering the leniency in the matter. The matter was heard and ordered as under:
ORDER
1. The Auditors who have defaulted the provisions of section 143 the Companies Act. 2013 are liable for penalties under section 450 of the Companies Act. 2013
2. In exercise of the powers conferred, the undersigned is entrusted to adjudicate penalties under section 450 of the Companies Act. 2013. “therefore, I do hereby impose the penalty of Total Rs, 1,80,000/- (Rupees One lakh and Eighty Thousand only) on the concerned auditors-in-default i.e.. CA Manohar Mukund Chitale (for the FY 2015-16 and 2016-17) of Rs. 80,000 and CA Saurabh Mukund Chitale (for the FY 2018) of Rs. 1,00,000 pursuant to Rule 3(12) of Companies (Adjudication Of Penalties) Rules. 2014 and the proviso of the said Rule and Rule 3(13) of Companies (Adjudication Of Penalties) Rules, 2014 for the above violations as under:
|
Name of the Auditors |
Instants of contraventions of Sections | No. of years | Default (in Rs.) | Total maximum Penalty (in Rs.) |
| Covering Period for FY 2015-16 to 2016-17 | ||||
| CA Manohar Mukund Chitale (M. NO: 14054) | (i) Sec 143(3) | 2015-16 2016-17 | 10,000*2 years | 20,000 |
| (ii) Sec 143(3) | 2015-16 2016-17 | 10,000*2 years | 20,000 | |
| (iii) Sec 143(3) | 2015-16 2016-17 | 10,000*2 years | 20,000 | |
| (iv) Sec 143(3) | 2015-16 2016-17 | 10,000*2 years | 20,000 | |
| Covering Period for FY 2017-18 | ||||
| CA Saurabh Mukund Chitale (M. NO: 111383) | (i) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 |
| (ii) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 | |
| (iii) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 | |
| (iv) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 | |
| (v) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 | |
| (vi) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 | |
| (vii) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 | |
| (viii) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 | |
| (ix) Sec 143(3) | 2017-18 | 10,000*1 years | 10,000 | |
| (x) Sec 143(11) | 2017-18 | 10,000*1 years | 10,000 | |
3. The noticee shall pay the said amount of penalty (out of own pocket) by way of e-payment [available on Ministry website www.mca.gov.in] under “Pay miscellaneous fees” category in MCA fee and payment Services within 90 days of receipt of this order. The Challan/SRN generated after payment of penalty through online mode shalt be forwarded to this Office Address.
4. Appeal against this order may be filed in writing with the Regional Director (ER). Ministry of Corporate Affairs, Kolkata located at Nizam Palace, 2nd M. S. Building, 3rd Floor, 234/4. A.J.C. Bose Road, Kolkata-700020, West Bengal within a period of sixty days from the date of receipt of this order. in Form ADJ [available on Ministry website www.mca.gov.in]setting forth the grounds of appeal and shall be accompanied by a certified copy of the this order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].
5. Your attention is also invited to section 454(8) of the Act regarding consequences of non-payment of penalty within the prescribed time limit of 90 days from the date of the receipt of copy of this order.
6. In terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules. 2019, copy of this order is being sent to the auditors in default mentioned herein above and also to Office of the Regional Director (Eastern Region) and Ministry of Corporate Affairs at New Delhi.
Date: 22nd December 2023
(A. K. Sethi, ILLS)
Adjudicating Officer & Registrar of Companies,
West Bengal
