Summary: The Office of the Registrar of Companies, Guwahati, issued an adjudication order concerning M/s Sagar Industries Limited for violations under Section 454(3) of the Companies Act, 2013. The company’s statutory auditor, CA Ashok Kumar Agarwal of Saraswati & Co, failed to include necessary qualifications in the audit report for FY 2020-21. Specifically, there was non-disclosure of Earnings Per Share (EPS) and improper classification of other income as per Sections 129(1) and 143(3)(h) of the Act. A hearing was conducted on June 13, 2024, where the auditor’s representative, CA Ankit Agarwala, presented additional information. The adjudicating officer will consider factors such as gain or loss caused by the default and the recurrence of such violations before imposing a penalty. The order reflects the seriousness of compliance and audit standards adherence in corporate governance.
GOVERNMENT OF INDIA
Ministry of Corporate Affairs
Office of the Registrar of Companies, North Eastern Region
1st Floor, BSNL Bhawan, Pan Bazar
781001/ Guwahati- 781001
No. ROC-Guwahati/ADJ-Order/Sec 454/2024-25/
Dated: 06/08/2024
BEFORE THE ADUDICATING OFFICER
REGISTRAR OF COMPANIES, GUWAHATI
ORDER IN THE MATTER OF ADJUDICATION OF PENALTY UNDER SECTION 454(3) OF THE COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 FOR VIOLATION OF SECTION 143(3)(h) OF THE COMPANIES ACT, 2013.
IN THE MATTER OF M/S SAGAR INDUSTRIES LIMITED
(CIN — U51909AS1985PLC002322)
DATE OF HEARING —13-06-2024
PRESENT:
1. Shri Dip Narayan Chowdhury (ROC), Adjudicating Officer
2. Shri PFokriu (STA), Presenting Officer
Authorized representative of Statutory Auditor i.e., CA Ashok Kumar Agarwal, Partner of Saraswati & Co: CA Ankit Agarwala, Chartered Accountant in Practice
Appointment of Adjudication Authority: –
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A42011/112/2014-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 the Companies Act, 2013.
Company:
2. M/S SAGAR INDUSTRIES LIMITED (herein referred to as ‘the company’) is a company having its registered office at “H No. 20, W/No. 28, Krishna Nagar Lane, Chatribari Road, Guwahati-781001, Kamrup, Assam” and is registered under the provisions of the Companies Act, 1956 on 26.03.1985. The CIN of the Company is U51909AS1985PLC002322.
Facts About the Case
3. That the Ministry of corporate vide Directorate’s letter no. RD(NER)/21(S.14/20-21/399 dated 05.01.2021, in exercise of its power under Section 206(1) of the Companies Act, 2013, directed the inquiry of books and papers of M/s SAGAR INDUSTRIES LIMITED. During the course of inquiry, it was observed that the statutory Auditor of the company has made following violation:
The Statutory Auditor i.e., CA Ashok Kumar Agarwal, Partner of Saraswati & Co has not made qualification remarks in the audit report of the company for nondisclosure of EPS in compliance of Section 129 (1) of the companies Act, 2013 read with AS-20 for the FY 2020-21 and also failed to qualify the non-compliance of classification of other income as per Part II of Schedule III of the Companies Act, 2013 in audit report of the company for the F.Y 2020-21. Hence, the statutory Auditor of the company has made default under section 143(3)(h) of the companies Act, 2013, for the FY 2020-21.
4. The Registrar of companies, Guwahati, Adjudicating officer vide letter ROC/ADJ/454/SAGAR/220 dated 02.05.2024 issued notice in respect of hearing at 1s` floor, BSNL Bhawan, Pan Bazar, Guwahati-781001, Assam on 22-05-2024 at 11:30AM.
Relevant Provisions of the Companies Act, 2013
Section 143(1) of the Companies Act, 2013
Every auditor of a company shall have a right of access at all times to the books of account and vouchers of the company, whether kept at the registered office of the company or at any other place and shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor and amongst other matters inquire into the following matters, namely:—
(a) whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members:
(b) whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company;
(c) where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company;
(d) whether loans and advances made by the company have been shown as deposits;
(e) whether personal expenses have been charged to revenue account;
(f) where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading:
Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all [its subsidiaries and associate companies] in so far as it relates to the consolidation of its financial statements with that of [its subsidiaries and associate companies]
Section 143(3) of the Companies Act, 2013
The auditor’s 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 far 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 to 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 subsection (2) of section 164;
(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
[(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.
Section 129 (1) of the Companies Act, 2013
The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III:
Provided that the items contained in such .financial statements shall be in accordance with the accounting standards:
Provided further that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply qf electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:
Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose–
(a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938, or the Insurance Regulatory and Development Authority Act, 1999;
(b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949;
(c) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003;
(d) in the case of a company governed by any other law for the tme being in force, any matters which are not required to be disclosed by tharlaw…
Accounting Standard (AS)-20
Disclosure
Paragraph 48 of Accounting Standard (AS)-20 provides that
In addition to disclosures as required by paragraphs 8, 9 and 44 of this Standard, an enterprise should disclose the following:
(i) where the statement of profit and loss includes extraordinary items (within the meaning of AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies), the enterprise should disclose basic and diluted earnings per share computed on the basis qf earnings excluding extraordinary items (net of tax expense); and
(ii) (a) the amounts used as the numerators in calculating basic and diluted earnings per share, and a reconciliation of those amounts to the net profit or loss for the period;
(b) the weighted average number of equity shares used as the denominator in calculating basic and diluted earnings per share, and a reconciliation of these denominatorsto each other; and
(c) the nominal value of shares along with the earnings per share figures.
49. Contracts generating potential equity shares may incorporate terms and conditions which affect the measurement of basic and diluted earnings per share. These terms and conditions may determine whether or not any potential equity shares are dilutive and, if so, the effect on the weighted average number of shares outstanding and any consequent adjustments to the net profit attributable to equity shareholders. Disclosure of the terms and conditions of such contracts is encouraged by this Standard.
50. If an enterprise discloses, in addition to basic and diluted earnings per share, per share amounts using a reported component of net profit other than net profit or loss for the period attributable to equity shareholders, such amounts should be calculated using the weighted average number of equity shares determined in accordance with this Standard. If a component of net profit is used which is not reported as a line item in the statement of profit and loss, a reconciliation should be provided between the component used and a line item which is reported in the statement of profit and loss. Basic and diluted per share amounts should be disclosed with equal prominence.
51. An enterprise may wish to disclose more information than this Standard requires. Such information may help the users to evaluate the performance of the enterprise and may take the form of per share amounts for various components of net profit. Such disclosures are encouraged However, when such amounts are disclosed, the denominators need to be calculated in accordance with this Standard in order to ensure the comparability of the per share amounts disclosed
Paragraph 44 Accounting Standard (AS)-20 provides that
If the number of equity or potential equity shares outstanding increases as a result of a bonus issue or share split or decreases as a result of a reverse share split (consolidation of shares), the calculation of basic and diluted earnings per share should be adjusted for all the periods presented. If these changes occur after the balance sheet date but before the date on which the financial statements are approved by the board of directors, the per share calculations for those financial statements and any prior period financial statements presented should be based on the new number of shares. When per share calculations reflect such changes in the number of share that fact should be disclosed
Presentation
Paragraph 8 Accounting Standard (AS)-20 provides that
An enterprise should present basic and diluted earnings per share on the face of the statement of profit and loss for each class of equity shares that has a different right to share in the net profit for the period. An enterprise should present basic and diluted 208 earnings per share with equal prominence for all periods presented.
Paragraph 9 Accounting Standard (AS)-20 provides that
This Standard requires an enterprise to present basic and diluted earnings per share, even if the amounts disclosed are negative (a loss per shard).
Section 450 of the Companies Act, 2013
Punishment Where No Specific Penalty or Punishment is Provided.
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]
Section 454(3) of the Companies Act, 2013\
The adjudicating officer may, by an order-
(a) impose the penalty on the company, the officer who is in default, or any other person, as the case may be, stating therein any non-compliance or default under the relevant provisions of this Act; and
(b) direct such company, or officer who is in default, or any other person, as the case may be, to rectify the default, wherever he considers fit.
Provided that in case the default relates to non-compliance of sub-section (4) of section 92 or sub-section (1) or sub-section (2) of section 137 and such default has been rectified either prior to, or within thirty days of,’ the issue of the notice by the adjudicating officer, no penalty shall be imposed in this regard and all proceedings under this section in respect of such default shall be deemed to be concluded.
Adjudication
During the course of inquiry, it was observed the Statutory Auditor i.e., CA Ashok Kumar Agarwal, Partner of Saraswati & Co has not made qualification remarks in the audit report of the company for non-disclosure of EPS in compliance of Section 129 (1) of the companies Act, 2013 read with AS-20 for the FY 2020-21 and also failed to qualify the non-compliance of classification of other income as per Part II of Schedule III of the Companies Act, 2013 in the audit report of the company for F.Y 2020-21. Hence, the statutory Auditor of the company has made default under section 143(3)(h) of the companies Act, 2013, for the FY 2020-21.
The Statutory Auditor i.e., CA Ashok Kumar Agarwal, Partner of Saraswati & Co of the company further authorized CA. Ankit Agarwala, Practicing, Chartered Accountant to appear before the adjudicating authority and submit further information, papers and made statements as may be deemed appropriate in the matter.
Show Cause Notice reply and Personal Hearing
5. The provisions of section 454(3) of the Act and rules made thereunder inter alia stipulate the manner for adjudging penalties for non-compliance of the relevant provisions of this Act. Accordingly, in the interest of natural justice, before imposing the penalty on the company, the officer who is in default; or any other person, as the case may be, a reasonable opportunity of being heard was given to them by issuing a Notice dated 02.05.2024, for hearing under sub-section 4 of Section 454 the Act. On considering the request of the applicant the matter was adjourned and the final date of hearing was fixed on 13.06.2024.
6. The authorized representative of the Statutory Auditor of the company, CA. Ankit Agarwala, Practicing Chartered Accountant appeared and attended the hearing on 06.2024 and submitted the information paper and made statement as may be deemed appropriate in the matter. Ld. Authorized representative prayed for adjudicating the penalty for such violation of section 143(3)(h) of the Companies Act, 2013.
7. Under the above-mentioned circumstances, Presenting Officer submitted that for not qualifying remarks in the audit report of the company for non-disclosure of EPS in compliance of Section 129 (1) of the companies Act, 2013 read with AS-20 for the FY 2020-21 and also failed to qualify the non-compliance of .classification of other income as per Part II of Schedule III of the Companies Act, 2013 in the audit report of the company for F.Y 2020-21 is adjudicable under the provisions of the companies Act under the provision of section 450 of the companies Act, 2013.
8. Under the above circumstances it is admittedly clear that the statutory Auditor of the company namely CA Ashok Kumar Agarwal, Partner of Saraswati & Co has made default under section 143(3)(h) of the Companies Act, 2013 by not providing remarks in audit report for non-disclosure of EPS in compliance of Section 129 (1) of the companies Act, 2013 read with AS-20 and failed to qualify the non-compliance of classification of other income as per Part II of Schedule III of the Companies Act, 2013 in the audit report of the company for F.Y 2020-21.
9. While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely: –
(a) The amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default.
(b) The amount of loss caused to an investor or group of investors or creditors as a result of the default
(c) The repetition of the default.
10. The Presenting Officer regarding para 9 above, has further submitted that the disproportionate gain or unfair advantage made by the noticee or loss caused to the investor as a result of the delay on the part of the noticee to redress the investor grievance are not available on the record.
ORDER
1. Having considered the facts and circumstances of the case and submissions made by the Presenting Officer and submission made by Ld. Practicing Chartered Accountant, the authorized representative of the Statutory Auditor of the company and after taking into accounts the factors above, I hereby imposed following penalty on Statutory Auditor of the company as prescribed under Section 450 of the Companies Act, 2013 for violation of Section 143(3)(h) of the Companies Act, 2013, which is commensurate with the aforesaid failure committed by the Noticee
A:-
| Nature of default | Violation of Section of the Companies Act 2013 | Company/ Officers to whom penalty imposed |
No. of delays in default |
Total Penalty (Maximum) | Penalty imposed |
| 1 | 2 | 3 | 4 | 5 | 7 |
| Default in providing remarks in audit report for FY 2020-21 by the Statutory Auditor of the Company. | Section 143(3)(h) of the Companies Act, 2013 | Statutory Auditor namely CA Ashok Kumar Agarwal, Partner of Saraswati & Co | NA | Rs.10,000 | Rs. 10,000 |
- Default made under section 143(3)(h) of the companies Act, 2013 by the Statutory Auditor of the company for the FY 2020-21
2. The noticee shall pay the amount of penalty individually for the company and its officers from their personal sources/income by way of e-payment available on Ministry website www.mca.gov.in under “Pay Miscellaneous Fees” category in MCA fees and Payment Services under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 within 60 days from the date of receipt of this order and copy of this Adjudication order and Challan/SRN generated after payment of penalty through online mode shall be filed in INC-28 under the MCA portal without further reference.
3. On deposit of penalty through online and filing of INC-28 unCor MCA21 Portal, all proceedings under this section in respect of such default shall be deemed to be concluded in terms of first proviso of Sub-section 3 of Section 454 of the Companies Act, 2013 as the case may be.
4. However, Appeal against this order may be filed in writing with the Regional Director, North Eastern Region, Ministry of Corporate Affairs, 1St floor, BSNL Bhawan, Pan Bazar, Guwahati-781001, Assam within a period of sixty days from the date of receipt of this order in Form ADJ setting forth the grounds of appeal and shall be accompanied by the certified copy of this order. [Section 454(5) & 454(6) of the Companies Act, 2013 read with the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies (Adjudicating of Penalties) Amendment Rules, 2019].
5. Your attention is also invited to Section 454(8) (i) and 454(8) (ii) of the Companies Act, 2013, which state that in case of non-payment of penalty, the company shall be punishable with fine which shall not be less than Twenty five thousand rupees but which may extend to Five lakh rupees, and officer in default shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
The adjudication proceeding stands disposed of with this order.
(DIP NARAYAN CHOWDHURY)
REGISTRAR OF COMPANIES &
ADJUDICATING OFFICER
MINISTRY OF CORPORATE AFFAIRS
GUWAHATI
