Introduction: The Government of India, through the Registrar of Companies (West Bengal), has issued an adjudication order under Section 454(3) of the Companies Act, 2013, penalizing B.K. SAHOO & COMPANY for non-compliance in the audit of TRANSMISSION & DISTRIBUTION (INDIA) LIMITED. This article provides an in-depth analysis of the adjudication process, violations found, and the penalties imposed.
Detailed Analysis:
1. Appointment of Adjudicating Officer: The Ministry of Corporate Affairs appointed the undersigned as the Adjudicating Officer to adjudicate penalties under Section 450 of the Companies Act, 2013. The authority was vested to address violations related to Section 143 of the Act.
2. Company Background: TRANSMISSION & DISTRIBUTION (INDIA) LIMITED, incorporated in 1998, faced scrutiny due to violations observed during an inspection under Section 208 of the Companies Act, 2013. The registered office is located at 53, JUSTICE CHANDRA MADHAV ROAD, KOLKATA-700020.
3. Facts about the Case: The detailed analysis reveals five instances of violations in the audit report by B.K. SAHOO & COMPANY for the financial years 2017-18, 2018-19, and 2019-20. These violations include contraventions of Section 143(3), Section 143(11), and Section 143(3) read with Section 129 of the Companies Act, 2013.
4. Penalties Imposed: The violations led to the issuance of an adjudication notice, providing an opportunity for auditors to explain why penalties should not be imposed. The response from one auditor, SN KHETAN & ASSOCIATES, was received, while CA B.K. SAHOO defended the actions during the audit. The adjudicating officer imposed a penalty of Rs. 50,000 on CA B.K. SAHOO, considering the gravity of the violations.
5. Appeal Process: The article outlines the appeal process available to auditors in default, including filing a written appeal with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata. The grounds of appeal and a certified copy of the adjudication order are required for this process.
Conclusion: The adjudication order by the Registrar of Companies, West Bengal, serves as a stern reminder of the importance of auditors complying with the Companies Act, 2013. The penalties imposed on B.K. SAHOO & COMPANY highlight the consequences of non-compliance and emphasize the need for diligence in the audit process. Companies and auditors are urged to adhere to regulatory requirements to avoid legal consequences and financial penalties.
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GOVERNMENT OF INDIA
Ministry of Corporate Affairs
Office of the Registrar of Companies (West Bengal)
Nizam Palace, 2ndM. S. 0. Building, 2nd Floor
Acharya Jagadish Chandra Bose Road
KOLKATA – 700 020
Order No. ROC/ADJ/21-086693/163/2023/7962,7963,7963A-7963C Dated: 31.10.2023
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: B.K. SAHOO & COMPANY of company namely
TRANSMISSION & DISTRIBUTION (INDIA) LIMITED (CIN: U51909WB1998PLC086693)
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 powers 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:-
TRANSMISSION 8 DISTRIBUTION (INDIA) LIMITED [herein after known as the company] was a registered company incorporated on 03.03.1998 under the provisions of the Companies Act, 1956 having its registered office as per MCA21 Registry at address 53, JUSTICE CHANDRA MADHAV ROAD, KOLKATA- 700020, WEST BENGAL, INDIA.
Facts about the Case:-
1) On the basis of Inspection carried out under Section 208 of the Companies Act, 2013 the following 5 instances or violations as pointed out in the Inquiry report:
i. CONTRAVENTION OF SECTION 143(3) READ WITH SECTION 129 OF THE COMPANIES ACT, 2013 READ WITH AS-18
“During inspection, it is observed that the company during the financial year 2017-18, 2018-19 and 2019-20 has received a rent of Rs. 9,00,000/– from the associate company “M/s. Supreme & Company Pvt. Ltd” but failed to disclose the details of the same as per AS-18.
As per Para 21 of AS-I8, name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the related parties. For this purpose, parties are considered to be ‘related’ if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions.
Further, As per Para 23 of AS-18, “If there have been transactions between related parties, during the existence of a related party relationship, the reporting enterprise should disclose the following:
(i) the name of the transacting related party;
(ii) a description of the relationship between the parties;
(iii) a description of the nature of transactions;
(iv) volume of the transactions either as an amount or as an appropriate proportion;
(v) any other elements of the related party transactions necessary for an understanding of the financial statements;
(vi) the amounts or appropriate proportions of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date, And
(vii) amounts written off or written back in the period in respect of debts due from or to related parties.
However, the Auditor, in his Audit Report for the financial year 2017-18, 2018-19 & 2019-20 has failed to comment upon such discrepancies and hence, the Auditor has violated Section 143(3) of the Companies Act, 2013. Kindly explain why not action be initiated under Section 147 of the Companies Act, 2013.”
The auditor of the company, CA B.K. SAHOO, who was the auditor of the company for the financial year 2017-18, 2018-19, has not performed the duties of auditors and hence are liable to Penalty under Section 450 of the Companies Act, 2013.
ii. CONTRAVENTION OF SECTION 143(11) OF THE COMPANIES ACT, 2013
“As per section 143 (11) of the Act stipulates that the Central Government may order for the inclusion of statement on specified matter in the auditor’s report for specified class or description of companies. Accordingly, CARO 2016 is issued in pursuance of Section 143 (I I) of Companies Act 2013 for inclusion of the matters specified therein in auditors’ report. Hence, CARO 2016 should be complied by the statutory auditor of every company on which it applies.
CARO 2016 applicable to every company including a foreign company as defined in clause (42) of Section 2 of the Companies Act 2013.
During the course of inspection, it is observed that, the statutory auditor of the company in its audit report vide point no. 7 made a statement “The provision of the Companies (Auditors Report) Order, 2016, issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013 is not applicable to the Company” in the financial statement for financial year 2018-19.
However, the company is a public limited company defined under section 2(71) of the Companies Act, 2013, therefore CARO, 2016 is applicable on this company.
Thus, the auditor has violated section 143(11) of the Companies Act 2013, by stating in the Audit Report that the financial statements ore giving true and fair view of the state of affairs of the Company. Kindly explain why not action be initiated under section 147 of the Companies Act, 2013.”
The auditor of the company, CA B.K. SAHOO, who was the auditor of the company for the financial year 2017-18, 2018-19, has not performed the duties of auditors and hence are liable to Penalty under Section 450 of the Companies Act, 2013.
iii. CONTRAVENTION OF SECTION 143(3) READ WITH SECTION 129 OF THE COMPANIES ACT, 2013
“During the course of inspection, it is observed that in the Balance Sheet for the year ended 31st March, 2018 & 31st March, 2019, the company has not provided the details of Cash Flow Statement as per section 2(40) of the Companies Act, 2013. Hence, the company has violated the provisions of Section 129 read with section 2(40) of the Companies Act, 2013.
In view of the above, the Financial Statements of the Company has not reflected a true and fair picture of its state of affairs as the disclosures required in terms of the provisions of Section 2(40) has not been made in the Financial Statements. Thus the Auditor of the company Mr. B. K. Sahoo (Membership No-056688), of Mis. B.K. Sahoo& Co. Chartered Accountants, for the financial year ended on 31st March, 2018 & 31st March, 2019 has violated Section 143 of the Companies Act 2013, by stating in the Audit Report that the financial statements are giving true and fair view of the state of affairs of the Company and explain why not action be initiated under Section 147 of the Companies Act, 2013.”
The auditor of the company, CA B.K. SAHOO, who was the auditor of the company for the financial year 2017-18, 2018-19, has not performed the duties of auditors and hence are liable to Penalty under Section 450 of the Companies Act, 2013.
2) The provisions of Section 143(3) of the Companies Act, 2013 requires that the auditor’s report shall also state—
(a) whether he hos 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 sub-section (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 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 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. 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/163/086693/2023/3757,3758 dated: 26.07.2023 (herein after referred as Adjudication Notice) under Section 454 read with Section 143 of the Companies Act, 2013 read with Rule 3(2) of Companies (Adjudication of Penalties), 2014 as amended in Amendment Rules, 2019, to the auditors in default for the violation of the provisions of the Act as mentioned in paragraphs 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 scheduling a physical hearing on 21.09.2023 vide notice No. ROC/ADJ/086693/2023/4750-4751 dated 24.08.2023
4) Reply to the Adjudication notice, as mentioned above, has been received from one of the auditors namely SN KHETAN & ASSOCIATES vide letter dated 23.08.2023 as to why penalty shall not be imposed and whereas no adequate reply was submitted as to why the penalty should not be imposed.
5) The Auditor Shri BK Sahoo appeared for financial year 2017-18, 2018-19 attended the hearing held on 21.09.2023 and submitted that he has taken a due diligence during the time of audit during the period 2017-18, 2018-19, based information provided by the company on the reported violations. Thus, the reply furnished during the time of Inspection notice which the 10 has not taken into due consideration for taking lenient view in the matter. He submitted written submissions again and again to consider and drop the proceeding on the reported violations. Accordingly, the matter many be considered leniently and drop the consequences. Matter was heard and the following order was reserved.
ORDER
1. The Auditor(s) who have defaulted the provisions of section 143 of 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. 50,000/- (Rupees Fifty Thousand only) on CA B.K. SAHOO (M. NO: 056688) the concerned auditors-in-default for the financial year 2017-18, 2018-19 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 of the five mistakes.
|
Name of the Applicant Company/ Director |
Contravention of Section and AS | No. of years | Default (in Rs.) | Total maximum Penalty(in Rs.) |
| CA B.K. SAHOO (M. NO: 056688) | (i) Sec 143 Read with AS-18 | 2017-18 2018-19 | 10,000/year *2 | 20,000/- |
| (ii) Section 143(11) | 2018-19 | 10,000/year *1 | 10,000/- | |
| (iii) Sec 143(3) r/w sec 129 | 2017-18 2018-19 | 10,000/year *2 | 20,000/- |
3. The noticee shall pay the said amount of penalty (out of own pocket) by way of e-payment [available on Ministry website 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 shall 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. 0. 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.govin] 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: 31st October, 2023
[A.K. Sethi, ICLS]
Adjudicating Officer & Registrar of Companies
