Financial statements not signed by directors & auditors before submission: MCA imposes Penalty

On May 8, 2024, the Registrar of Companies, Chennai issued an adjudication order against Cethar Energy Limited for non-compliance with Section 134(1) of the Companies Act, 2013. The company failed to ensure that its financial statements for fiscal years 2014-15 to 2017-18 were signed by directors and auditors before submission. This oversight resulted in penalties totaling Rs. 6 lakh: Rs. 3 lakh for the company and Rs. 50,000 each for the seven officers involved. The penalties were imposed after an inquiry revealed that the financial statements, although filed in XBRL format, lacked the necessary signatures. The company was directed to pay the penalties online within 90 days and informed about the appeal process and consequences of non-compliance.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES, TAMIL NADU, ANDAMAN & NICOBAR ISLANDS, CHENNAI
II FLOOR, C- WING, SHASTRI BHAVAN, 26, HADDOWS ROAD, NUNGAMBAKKAM, CHENNAI- 6

F.NO.ROC/CHN/CETHAR /ADJ/S.134 (1)/2024 DATE: 8 MAY 2024

ADJUDICATION ORDER UNDER SECTION 134 (1)OF THE COMPANIES ACT, 2013
IN THE MATTER OF WS CETHAR ENERGY LIMITED

1.  Appointment of Adjudicating Officer:‑

Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 has appointed Registrar of Companies, Chennai as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter referred as Act or Companies Act, 2013) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2.  Company: ‑

Whereas the company viz M/s. Cethar Energy Limited with CIN U40109TN2006PLCO59441 (herein after referred as ‘ company’ or ‘ subject company’) is a registered company with this office under the Companies Act, 2013 having its registered office as per MCA21 Registry at New No. A45, Old No. A29 VOC Road, First floor, Anna Nagar, tennur Trichy, Tiruchirappalli, Tamil Nadu 620017. The financial & other details of the subject company as available on MCA-21 portal is stated as under:

3. Directors/ KMPs during the period of violation:

4.  Section and Penal Provision as per Companies Act, 2013

Section 134. Financial Statement, Board’s Report, etc.

(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two Directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.

(8) If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of thilt^. lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

5.  Issue of Adjudication Notice:

An Inquiry was conducted on the affairs Ws. Cethar Energy Limited U/s 206(4) of the Companies Act, 2013 by an Officer authorized by the Central Government wherein the observations of the Inspecting Officer are as follows:

It is observed from the financial statement for the FYs 2014-15, 2015-16, 2016-17 and 2017-18 that the submitted certified true copies of financial statement was not signed by the Company’s directors and auditors. However, the financial statement, including consolidated financial statement if any,shall be approved by the Board of Directors before they are signed on behalf of the Board by the Chairperson of the company where he is authorized by the Board or by two directors out of which one shall be Managing Director, if any and the Chief Executive Officer, the Chief Financial Officer and the Company Secretary of the company. This in violation of Section 134(1) of the Companies Act, 2013.Hence, the company and every officer of the company who is in default are liable for penal action under Section 134(8) of the Companies Act, 2013.

After that the Adjudicating Authority has issued Adjudication Notice to the company and its directors/Officers vide Notice No. ROC/CHN/059441/S.134(1)/P.6/INQUIRY FOLLOW UP/2022 dt 05.01.2023.

6. Reply of Company and Directors/ Officers for Adjudication Notice issued:

• Ms. Chellaiah Thamarai Selvi,MD vide letter dated 13.02.2023 informed that we will file compounding application U/s. 441 of the Companies Act, 2013 for the noncompliance of this Section.

Further, vide letter dated 11.10.2023 informed that M/s. Cethar Energy Limited was the subsidiary of Ms/. Cethar Vessels Limited holding 99.94 of the shares, the parent company M/s. Cethar Vessels Limited had become Bankrupt in the year 2014-15. Further, Ws. Cethar Energy Limited, the subsidiary company was put under e-auction on 22.02.2019. Mrs. Buvanweshavari Rajasehar was the successful bidder in the Auction held on 22.02.2019 and taken over M/s. Cethar Energy Limited through E- Auction from the liquidator with shareholding of 99.94%. Mrs. Buvanseshavari Rajasehar and Mr.T P.Pradep Raj have been running the company since March 2019.After that M/s. Cethar Energy Limited has become an Independent Public Limited company without any relationship to the parent since 27.03.2019 (Date of transfer of shares). The present management of the company as follows:

On the basis of effective date of appointment of directors in the board, the company only it the party to make the compounding application U/s. 621A/441 of CA 2013 and adjudication application U/s. 454 of CA 2013 for the non-compliances mentioned in the Show Cause Notices issued by your good office.

• Shri. Pasupathy Mani, Ex-director of the company vide letter dated 18.01.2023 informed that “New promoters acquired control of the company through the acquisition of shares through the Liquidator of Cethar Limited (the Holding company) on 26th March 2019, I have been appointed as Independent Director in the board of directors of the company, and subsequently resigned from the company w.e.f 30.05.2022. Further, informed that new promoters cannot be held responsible for the actions committed by the erstwhile suspended directors and promoters. Hence, kindly drop the notice issued against me.

7.  Adjudication Hearing:

The Adjudicating Authority had issued notice of hearing dated 12.02.2024 to the company, directors/ officers by fixing the hearing on 19.02.2024 at 12:15 PM. Pursuant to the notice Mr.K. Janakiraman, PCS of M Damodaran &Associates LLP appeared before the Adjudicating Authority on 19.02.2024 on behalf of the company. Shri. K Sankaran Subramanian, CS appeared in person and on behalf of Subburaj Srisharanya, erst while CFO on 19.03.2024 and submitted that the financial statements during my term as the CS of Cethar Energy Limited (from 19..01.2011 to 20.01.2016) were duly approved in the Board Meetings and the physical copes were dule signed in accordance of the provisions of the -Act. The’AOC-4 XBRL instruction does not explicitly mention the requirement to attach signed financial and the annual reports to the eform AOC 4 XBRL. As per the Guidance note issued by the ICSI, page No. 28 states as follows: In case of the companies covered under XBRL requirement under the Companies (filing of documents & forms in Extensible Business Reporting Language), Rule, 2015, the financial statements to be uploaded on MCA portal have to be XBRL format. In this case the requirement of signing under hand is not a requisite.

• Srikanth Pothiraaj vide letter dated 16.022024 submitted that Cethar Energy Limited’s paid-up capital as on 01.04.2014 was Rs.12573.19 lakhs, therefor the company needed to file financial statements in AOC-4 XBRL format from 2014-15 onwards. The Companies (filing, of documents and forms in Extensible Business Reporting Language), Rules 2015 dated 09th September 2015 does not stipulate filing of directors and auditor signed Certified true copies of financial statements along with filing of Annual Returns in XBRL format. ICSI Guidance not on e-form AOC­4 states that signing financial statements in hand is not prerequisite. Under this background the company had not submitted Directors and Auditor signed financial statements for the financial years 2014-15,2015-16 and 2016-17. However, the company had kept directors and Auditor signed financial statements for these years and records authorizing to sign financial statements by directors and auditors in its registered office then.
• Srisharanya Subburaj vide letter dated 17.02.2024 submitted that I was not responsible for the reported violation since I had joined as CFO in the beginning of FY 2015 -16 and resigned from the position on 20.01.2016.
• Shri. Muraharinaidu Durgaramu Muralidharan, CS, Smt. Viswanathan Radhika and  Shri.Chokkalingam Mathivanan did not appear on thesaid date.
• The company is having paid up capital of Rs.125 Crores does not fall under the definition of small company as per provision of section 2(85) of the companies Act, 2013. Therefore, of imposing the provision lesser penalty as per section 446(b) shall not be applicable in this case.

8.  Decision

It is noticed that the company has filed financial statements for the FYs 2014-15 to 2017­18 in XBRL format. However, during the period of Inspection, the submitted certified true copies of financial statements for the said periods were not signed by the directors and the signed copy of financial statements were not attached as pdf along with XBRL format for the said years.

Having considered the facts and circumstances of the case and after taking into account the factors above, I am inclined to impose penalty for violation of Section 134(1) of the Companies Act, 2013.

Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.3,00,000/- (Rupees Three ‘Ochs) is imposed on the Company and Rs.50,000/- (Rupees Fifty Thousand) is imposed on each Officers in default. Totally Rs. 6,00,000/- (Rupees Six lakh) as penalty amount for violation of Section 134(1) of the Companies Act, 2013.

9. The said amount of penalty shall be paid through online by using the website mca.gov.in (Misc. head) within 90 days of receipt of this order, and intimate this office with proof of penalty paid:

10. Whereas Appeal against this order may be filed with the Regional Director (SR), Ministry of Corporate Affairs, 5th Floor, Shastri Bhavan, 26 Haddows Road, Chennai­600006, Tamil Nadu within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of this order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].

11. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order, “(8)(i) Where company fails to comply with the order made under sub­section (3) or sub-section (7), as the case may be within a period of ninety days from the date of the receipt of the copy of the order, 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.

(ii) Where an officer of a company or any other person who is in default fails to comply with the order made under sub-section (3) or sub-section (7), as the case may be within a period of ninety days from the date of the receipt of the copy of the order, such officer 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.”

(B. SRIKIJMAR,ICLS)
REGISTRAR OF COMPANIES
TAMILNADU, CHENNAI.
ADJUDICATING OFFICER