Introduction: The Ministry of Corporate Affairs (MCA), under the Government of India, recently issued an order penalizing an auditor for the violation of Section 143 of the Companies Act, 2013. The case involves Syndrome Pharmaceuticals Private Limited and its auditor, CA Manish M. Maheshwari, for non-disclosure of specified bank notes in the audit report for the financial year ending on March 31, 2017.
Background: On January 24, 2024, the Registrar of Companies, Bihar, issued an order (ROC/PAT/Sec. 143/14515/1371) appointing an Adjudication Officer to address the violation. The violation relates to the non-disclosure of holdings and dealings in Specified Bank Notes (SBN) during the period from November 8, 2016, to December 30, 2016, as mandated by the Companies (Audit and Auditors) Rules, 2014.
Factual Overview:
The Companies (Audit and Auditors) Rules, 2014, were amended on March 30, 2017, introducing Rule 11(d). This rule required companies to disclose in their financial statements the holdings and dealings in Specified Bank Notes during the specified period. However, the audit report for the financial year 2016-2017 of Syndrome Pharmaceuticals Private Limited, prepared by CA Manish M. Maheshwari, did not include the required disclosure.
Violation and Response: Section 143(3)(j) of the Companies Act, 2013, mandates auditors to include in their reports matters as prescribed. The absence of the required disclosure in the auditor’s report led to a violation of Section 143(3)(j) read with Rule 11(d) of the Companies (Audit and Auditors) Rules, 2014.
The Adjudication Officer issued a show-cause notice to CA Manish M. Maheshwari, who admitted to the error in a response dated December 25, 2023, stating it was an inadvertent mistake during the audit of Syndrome Pharmaceuticals Pvt. Ltd. The admission of default led to the conclusion that the provisions of Section 143 of the Companies Act, 2013, were contravened, making the auditor liable for penalties.
Penalties Imposed: The order imposed a penalty of Rs. 5,000 (Five Thousand) on CA Manish M. Maheshwari, considering the nature of the default, the number of days in default, and the relevant provisions of the Companies Act. The penalty was imposed under both Section 450 and Section 446B of the Companies Act, 2013.
Payment and Appeal: CA Manish M. Maheshwari was instructed to pay the penalty individually through e-payment within 90 days of the order. The noticee has the right to appeal against this order within 60 days from the date of receipt, and the appeal should be filed with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata.
Conclusion: This case serves as a reminder of the strict adherence required by auditors to the reporting obligations specified by the Companies Act. The penalty imposed underscores the importance of transparency and compliance in financial reporting, with the MCA taking proactive measures to enforce accountability within the corporate sector. The adjudication process emphasizes the need for auditors to exercise diligence in fulfilling their responsibilities to maintain the integrity and transparency of financial disclosures.
****
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. 143/14515/1371 Date: 24/01/2024
Order for penalty for violation of section 143 of the Companies Act, 2013
In the matter of
SYNDROME PHARMACEUTICALS PRIVATE LIMITED
CIN- U24230BR2009PTC014515
Appointment of Adjudication Officer:-
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014- 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 (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- Syndrome Pharmaceuticals Private Limited, CIN- U24230BR2009PTC014515, (hereinafter referred to as the company) for the financial year ending on 31.03.2017, CA Manish M. Maheshwari (Membership no. 511085) is the Auditor of the company.
Facts about the case:-
3. As per Ministry’s Notification No. G.S.R. 307(E) dated 30.03.2017, in the Companies (Audit and Auditors) Rules, 2014 in rule 11, after clause (c), the following clause shall be inserted, namely:-
“(d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.”
As per section 143(3)(j) of the Companies Act, 2013, “The auditor’s report shall also state such other matters as may he prescribed.”
Whereas, in Auditor’s report for the Financial Year 2016-2017, nothing has been mentioned in respect of Rule 11(d) of the Companies (Audit and Auditors) Rules, 2014.
Hence, the auditor viz., CA Manish M. Maheshwari has violated the provisions of section 143(3)(j) of the Companies Act, 2013 r.w. rule 11(d) of the Companies (Audit and Auditors) Rules, 2014 regarding disclosure of Specified Bank Notes (SBN) held and transacted during the period from 8th November, 2016 to 30th December, 2016 in audit report.
4. 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.143/14515/1270 dated 22.12.2023.
5. However, this office has received a reply dated 25.12.2023 on 05.01.2024 from the abovesaid auditor inter alia stating that “this is inadvertently error committed by me during the audit of M/s. Syndrome Pharmaceuticals Pvt. Ltd. For the FY 2016-17”. The auditor has accepted his default in its reply dated 25.12.2023. Hence, 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 Years 2016-2017.
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”.
6. 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 he, shall he 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”.
7. 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- Syndrome Pharmaceuticals Private Limited is Rs. 300,000/- and the turnover of the company is Rs. 1,29,98,570/- as per Financial Year 2022-23. Therefore, the benefits of small company are extended to this noticee while adjudicating penalty.
ORDER
8. 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 CA Manish M. Maheshwari, Chartered Accountants-Membership no. 511085 as per Table Below for violation of Section 143 of the Companies Act, 2013 for the financial year 2016-2017:
|
Nature of default
|
Violation of Section of the Companies Act, 2013 |
Company/ Officers 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 Act |
| Nonreporting of violations /non-compliance made by the company in audit report | Section 143 | CA Manish M. Maheshwari, Chartered Accountants Membership no.511085 | FY 2016- 2017 | Rs. 10000 | Rs. 10000 | Rs. 5,000 |
9. 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.
10. 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 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}.
11. 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
