The Ministry of Corporate Affairs (MCA) has penalized the auditor of PPS Export and Import Private Limited for not reporting company violations in its audit report. The penalty was imposed by the Office of the Registrar of Companies, Bihar, under the provisions of Section 143 of the Companies Act, 2013. The case revolves around several instances where the company’s financial statements did not comply with mandatory disclosure requirements, and the auditor failed to report these discrepancies.
Key Violations and Auditor’s Responses
1. Failure to Disclose Related Party Information (AS-18): The company’s financial statements for the year ending 31.03.2020 did not disclose the names and nature of relationships with related parties, as mandated by Accounting Standard-18 (AS-18) and Section 129 of the Companies Act, 2013. The auditor failed to report this omission. Although the auditor claimed that disclosures were made in a separate sheet, no such evidence was found in the records reviewed by the MCA.
2. Misclassification of Financial Items:
i. The company showed unsecured loans under short-term borrowings but failed to categorize these loans as required by Schedule III of the Companies Act, 2013.
ii. Advances to Unicon Global Adventure amounting to Rs. 5,00,000 were recorded without proper classification or sub-classification under Schedule III. The auditor did not highlight this misclassification, stating that the advance was correctly reported, which was not supported by evidence.
3. Incorrect Reporting of Fixed Assets: The company listed an amount of Rs. 5,90,000 under “Other Fixed Assets,” instead of “Capital Work in Progress,” as required by Item No. I of Schedule III. The auditor acknowledged this in the audit but failed to make the correction, leading to a violation of Section 129.
4. Non-Disclosure of Long-Term Loans and Advances: Long-term loans and advances totaling Rs. 1,75,000 were not correctly classified, with no sub-classification as Secured/Unsecured, breaching the requirements of Section 129. The auditor’s justification did not align with the documents available on the MCA portal.
Legal Consequences
Due to these non-compliances, the MCA concluded that the auditor, Shri Amresh Kumar (Membership No. 429477), violated Sections 143(3)(d) and 143(3)(e) of the Companies Act, 2013. As per the provisions of Section 450 of the Act, the auditor is liable for a penalty of Rs. 5,000 for the financial year 2019-2020. The decision takes into account the company’s classification as a small company, which allows for reduced penalties under Section 446B.
Order and Next Steps
The penalty must be paid within 90 days via the Ministry’s online payment portal. Failure to comply with the payment terms could result in further legal actions, including imprisonment or additional fines. The auditor also has the option to appeal this decision within 60 days by submitting Form ADJ to the Regional Director, Ministry of Corporate Affairs, Kolkata.
Government of India
Ministry of Corporate Affairs
Office of the Registrar of Companies, Bihar
4th Floor, ‘A’ Wing, Maurya Lok Complex
Dakbunglow Road, Patna-800001
(0612)- 2216150/2950121
Order No: ROC/PAT/Sec. 143/37744/ 808 Date: 02.09.2024
Order for penalty for violation of section 143 of the Companies Act, 2013
In the matter of
PPS EXPORT AND IMPORT PRIVATE LIMITED
CIN- U74999BR2018PTC037744
Appointment of Adjudication Officer:-
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014- 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 (herein after known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.
Company:-
2. As per the record of MCA Portal and AOC-4 filed by the company- PPS Export And Import Private Limited, CIN- U74999BR2018PTC037744, (hereinafter referred to as the company) for the financial years ending on 31.03.2020, Shri Amresh Kumar, (Membership no. 429477) is the Auditor of the company.
Facts about the case:-
3. Whereas, this office has issued show cause notice for default under section 143 of the Companies Act, 2013 vide this office letter no. ROC/PAT/SCN/sec.143/37744/512 dated 30.07.2024.
4. However, this office is in receipt of a reply from the abovesaid auditor vide its letter dated 27.08.2024 and a letter dated nil is attached with it which was submitted to this office on 10.05.2022 w.r.t order issued u/s. 206(4) of the Companies Act, 2013. He has inter alia mentioned in its letter dated 27.08.2024 that I would like to say that, I have properly report/complied all the true material facts, detail, analysis, opinion in audit report of PPS Export & Import Pvt. Ltd. having CIN: U74999BR2018PTC037744 in FY 2018-19 and FY 2020- 21 as per Audit requirement under the provision of company standard and also detail reply were submitted to ROC office on 09/05/2022 itself. Therefore, adjudication of penalty u/s. 454(3) of the Companies Act, 2013 read with the companies (Adjudication of penalties) Rules, 2014 for violation of section 143 of the Companies Act, 2013 is not applicable on me. .
5. Nature of Non-compliance: Failure of reporting violations/non-compliance made by the company in audit report as required u/s. 143 of the Companies Act, 2013:
5.1 Contravention of section 129 of the Companies Act, 2013 read with Accounting Standard-18: Description of Violation: As per Section 129(1) of the Companies Act, 2013 the Financial Statements shall give true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in form as provided in Schedule III.
According to AS -18 nature of related party shall be disclosed irrespective of any transaction and 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.
Upon observation of the filed financial statement for the financial year ended on 31.03.2020, it is found that the Company has not disclosed the name of the related party and nature of the related party relationship where control exists irrespective whether there have been transactions between the related parties and has contravened the provisions of AS-18 read with Section 129 read with Schedule III of the Companies Act, 2013, thereby affecting the true and fair view of the state of affairs of the Company.
However, the auditor has failed to comment on the same in the audit report for the aforesaid financial years.
Reply of the Auditor: The Auditor in its reply has inter alia mentioned as “During the audit the financial statement we have disclose the requirement as prescribed in AS-18 read with sec 129 of schedule III of the Companies Act, 2013. All related party transactions has been disclosed in the separate sheet at the time of giving the report. Find the attachment of separate sheet available with us”.
Conclusion: As per MCA portal, it is found that the related party transactions have not been disclosed in the financial statements nor any separate attachment is found. Thus, the reply of the auditor is not backed by any evidence. Hence, it is concluded that the auditor has violated the provisions of section 143(3)(e) of the Companies Act, 2013, w.r.t. failure of reporting violations/non-compliance made by the company in audit report.
5.2 Contravention of section 129 read with Schedule III of the Companies Act, 2013:
Description of Violation: As per Section 129(1) of the Companies Act, 2013 the Financial Statements shall give true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in form as provided in Schedule III.
Upon perusal of the filed financial statements for the F.Y. 2019-2020, it is observed that the Company has shown unsecured loan under the head of short-term borrowings amounting to Rs. 1,24,000/ -, however such short-term borrowings have not been classified as (a) Loans repayable on demand; (A) from banks. (B) from other parties. (b) Loans and advances from related parties; (c) Deposits; (d) Other loans and advances (specify nature) as per Schedule III of the Companies Act, 2013.
Hence it is observed that the Company has contravened the provisions of the Section 129 read with Schedule III of the Companies Act, 2013 thereby affecting the true and fair view of the state of affairs of the Company from the financial year 2019-2020. However, the auditor has failed to comment on the same in the audit report for the aforesaid financial years.
Reply of the Auditor: The Auditor in its reply has inter alia mentioned as “as per record maintained in office, true and correct reporting has been made in respect of unsecured loan reflected in the financial statement in the head of short-term borrowing. Total amount as reflected in the short-term borrowing has been taken from director of the company during such financial year. Such disclosure has been made in the separate sheet taken in the record from books of account of the company maintained in tally data.”.
Conclusion: As per MCA portal, no such disclosure is available in the financial statements filed for the Financial Years 2019-2020. Thus, the reply of the auditor is totally unsatisfactory. Hence, it is concluded that the auditor has violated the provisions of section 143(3)(d) of the Companies Act, 2013, w.r.t. failure of reporting violations/non-compliance made by the company in audit report.
5.3 Contravention of with section 129 r/w Schedule III of the Companies Act, 2013:
Description of Violation: As per Section 129(1) of the Companies Act, 2013, the Financial Statements shall give true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in form as provided in Schedule III.
On examination of the filed financial statement for the period ended on 31.03.2020, it is observed that the Company has shown advances to Unicon Global Adventure amounting to Rs. 5,00,000/- under the head of short-term loans and advances, however failed to classify such short-term loans and advances as (a) (a) Loans and advances to related parties (giving details thereof); (b) Others (specify nature). Further the same has not been sub-classified as Secured/ Unsecured as per Schedule III of the Companies Act, 2013. Hence it is observed that the Company has contravened the provisions of the Section 129 read with Schedule III of the Companies Act, 2013 thereby affecting the true and fair view of the state of affairs of the Company from the financial year 2019-2020. However, the auditor has failed to comment on the same in the audit report for the aforesaid financial year.
Reply of the Auditor: The Auditor in its reply has inter alia mentioned as “amount of Rs. 5 Lac has been given to unicorn global adventures for the purpose of purchase of plant of machinery specially use in business purpose. At the time of audit, we have observed the same transaction dated 14.08.2019 of rupees 5 lac an obtained comments from the management advance has been given to unicorn globe adventure for purchase of plant and machinery. And this party is not related to the company.”
Conclusion: The reply of the auditor is unsatisfactory. Hence, it is concluded that the auditor has violated the provisions of section 143(3)(d) of the Companies Act, 2013, w.r.t. failure of reporting violations/non-compliance made by the company in audit report.
3.4 Contravention of section 129 riw Schedule III of the Companies Act, 2013:
Description of Violation: As per Section 129(1) of the Companies Act, 2013, the Financial Statements shall give true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in form as provided in Schedule III.
It is observed that Statement of Fixed Assets specified in the Balance Sheet as on 31.03.2020 is shown as “Other Fixed Assets”. It has not been shown as prescribed in Item No. I of Schedule-III which leads to the violation of Section 129 read with the Schedule-III- General Instructions for preparation of Balance Sheet. However, the auditor has failed to comment on the same in the audit report for the aforesaid financial years.
Reply of the Auditor: The Auditor in its reply has inter alia mentioned as “the head of other fixed assets amounting of Rs. 5,90,000.00 has been incurred in creation of fishing pound since same has not been completed in end of the financial year therefore it has been classified under the head of other fixed assets. Opinion annexure in the audit report has been given that the head should be capital work in progress with specific disclosure the nature of fixed assets “capital work in progress.”
Conclusion: The reply of the auditor is unsatisfactory. Hence, it is concluded that the auditor has violated the provisions of section 143(3)(d) of the Companies Act, 2013, w.r.t. failure of reporting violations/non-compliance made by the company in audit report.
5.5 Contravention of section 129 r/w Schedule III of the Companies Act, 2013:
Description of Violation: As per Section 129(1) of the Companies Act, 2013, the Financial Statements shall give true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in form as provided in Schedule III.
On observation of the financial statement filed for F.Y. 2019-20, it is found that the Company has shown long term loans and advances amounting to Rs. 1,75,000/- but the Company has failed to classify such loans as (a)Capital Advances; (b)[Omittedj; (c) Loans and advances to related parties (giving details thereof); (d) Other loans and advances (specify nature). Further the Company has also not sub-classified such loans as Secured/Unsecured according to the Schedule III of the Companies Act, 2013. Hence it is observed that the Company has contravened the provisions of the Section 129 read with Schedule III of the Companies Act, 2013 thereby affecting the true and fair view of the state of affairs of the Company from the financial year 2019-2020. However, the auditor has failed to comment on the same in the audit report for the aforesaid financial years.
Reply of the Auditor: The Auditor in its reply has inter alia mentioned as “At the time of audit we are found of Rs. 1,75,000 in the record in the books of account maintained in tally software. We have given the separate sheet for disclosure of Rs. 1,75,000 given to director Mr. Prem Sagar.
Conclusion: The reply of the auditor is unsatisfactory as from the MCA portal, it is observed that no such disclosure is made, and no separate attachment is found. Hence, it is concluded that the auditor has violated the provisions of section 143(3)(e) of the Companies Act, 2013, w.r.t. failure of reporting violations/non-compliance made by the company in audit report.
Hence, the auditor viz., Shri Amresh Kumar, (Membership no. 429477) has violated the provisions of section 143(3)(d), 143(3)(e) of the Companies Act, 2013.
6. Hence, from above the facts, it is concluded that the provisions of Section 143 of the Companies Act, 2013 have been contravened by the auditor and therefore he is liable for penalty u/ s. 450 of the Companies Act, 2013 for the Financial Year 2019-2020.
Section 450 states 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”.
7. Further Section 446B states that “if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be”.
8. As per clause 85 of section 2 of the Companies Act, 2013, small company means a company whose paid up capital and turnover shall not exceed rupees four crore and rupees forty crore respectively. As per MCA portal, paid up capital of the company- PPS Export And Import Private Limited is Rs. 1,00,000/- and the turnover of the company is Rs. 312,500 as per Financial Year 2018-19. Therefore, the benefits of small company are extended to this noticee while adjudicating penalty.
ORDER
9. Having considered the facts and circumstances of the case and after taking into account the provisions of Rule-11 of Companies (Adjudication of Penalties) Rules, 2014 (as amended), I hereby impose a penalty of Rs. 5,000 (Five Thousand) on Shri Amresh Kumar, (Membership no. 429477) as per Table Below for violation of Section 143 of the Companies Act, 2013 for the financial year 2019-2020:
Nature of default |
Violation of Section of the Companies Act, 2013 |
Company/ 0fficers to whom penalty imposed |
No. of days in default |
Penalty for defaults (Rs.) as per Section 450 of the Act |
Total Penalty (Rs.) |
Penalty Imposed (Rs.) As per Sec. 446B of the
|
Non-reporting of violations/non- compliance made by the company in audit report |
Section 143 |
CA Amresh Kumar, (Membership no. 429477) |
FY 2019- 2020 |
Rs.10000 |
Rs.10000* 1 no. of year = Rs. 10,000/- |
5,000 |
10. The noticee shall pay the amount of penalty individually 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 (ninety) days of this order. The Challan/SRN generated after payment of penalty through online mode shall be forwarded to this office.
11. Appeal against this order may be filled in writing with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata, within a period of 60 (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 this order (Section 454(5) and 454(6) of the Act read with Companies (Adjudication of Penalties) Rules, 2014).
12. Please note that if the noticee does not pay the penalty amount imposed herein within a period of ninety days from the date of receipt of the copy of the order, he 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 in terms of section 454(8)(ii) of the Companies Act, 2013; apart from the liability to pay the penalty amount in compliance to this order, and for which prosecution will be filed without further notice in this regard.
(Aparajit Barua)
Adjudicating Officer &
Registrar of Companies-Cum-
Official Liquidator, Patna
