The Ministry of Corporate Affairs has issued an adjudication order penalizing M/S R.K. Patnia & Co., the auditor of Pre-Stressed Udyog (India) Pvt Ltd, for various violations under the Companies Act, 2013. The order, dated 13th December 2023, sheds light on the instances of non-compliance identified during an inquiry.
Detailed Analysis:
Appointment of Adjudicating Officer:
The Ministry of Corporate Affairs appointed the adjudicating officer, A.K. Sethi, to handle penalties under section 450 of the Companies Act, 2013. The adjudication pertains to violations by the auditor, CA Rabindra Kumar Patnia.
Company Profile:
Pre-Stressed Udyog (India) Pvt Ltd, incorporated on 17th June 1981, faced allegations of contravening Section 143 of the Companies Act in multiple instances during various financial years.
Violations Identified:
The violations include contraventions related to Section 143, with specific instances such as non-disclosure of related party transactions, misclassification of loans, and insufficient details in financial statements.
Adjudication Process:
The adjudication officer issued a notice under Section 454(4) and Section 143, providing an opportunity for the auditors to respond. A hearing was scheduled, and a detailed reply was submitted by the auditors, emphasizing compliance with Accounting Standards.
Adjudication Order:
The adjudication officer, after considering the auditors’ response, imposed a penalty of Rs. 2,40,000 on CA Rabindra Kumar Patnia for violations in the financial years 2016-17 to 2019-20.
Conclusion:
The adjudication order emphasizes the importance of adherence to the Companies Act, highlighting the penalties imposed on auditors for lapses in disclosure and compliance. The auditor has been given a 90-day window for penalty payment, with provisions for appeal against the order.
This detailed analysis provides insights into the adjudication order against the auditor, underscoring the significance of regulatory compliance in the corporate sector.
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GOVERNMENT OF INDIA
Ministry of Corporate Affairs
Offices of the Registrar of Companies (West Bengal)
Nizam Palace, 2nd M. S. O. Building, 2nd Floor
234/4, Acharya Jagadish Chandra Bose Road
Kolkata – 700 020
No. ROC/ADJ/104/033783/2023/9424-9423
Dated: 13.12.2023
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
1. In respect of: AUDITOR:
M/S R.K. PATNIA & CO. (M. No: 071376)
of company namely PRE-STRESSED UDYOG (INDIA)PVT LTD
(CIN: U45201WB1981PTC033783)
1. Appointment of Adjudicating Officer :-
1. Ministry of Corporate Affairs vide its Gazette Notification No A-42W 1/112/2014-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: –
PRE-STRESSED UDYOG (INDIA) PVT LTD [herein after known as the company] was a registered company incorporated on 17/06/1981 under the provisions of the Companies Ad, 1956 having its registered office as per MCA21 Registry at address KARNANI ESTATE FLAT-176 209 A J C BOSE RD, 5TH FLOOR, Kolkata, West Bengal, India, 700017
Facts about the Case: –
1) On the basis of Inquiry Report carried out under Section 206 of the Companies Act. 2013 the following instances or violations as pointed out in the Inquiry report:
i. CONTRAVENTION OF SECTION 143 OF COMPANIES ACT. 2013
“During the course of inquiry, Shri Dinesh Pradhan and Shri Mahesh Pradhan, shareholders of the subject Company have the ability to control the Company since they are holding 50% each of the shares of the company which is more than 20% of the voting powers of the Company during the financial year 201617, 2017-18, 2018-19 and 2019-20 and therefore are related parties. However, no such disclosure as required as per Accounting Standard 18 is made in the Financial Statements for the said financial years. The some has not been commented by the Auditor in his Audit Report for the said financial years thereby leading to violation of Section 143 read with Section 129 of the Companies Act, 2013 read with Accounting Standard 18.
No reply has been submitted by the Auditor of the company.
ii. CONTRAVENTION OF SECTION 143 OF THE COMPANIES ACE 2013
“During the course of inspection, the subject company in its Financial Statements for the financial year 2015-16, 2016-17, 2017-18, 2018-19 has shown Rs.9.79 Crores, Rs.2.04 Crores, Rs. 4.60 Crores, Rs. 1.83 Crores respectively as ‘Unsecured Loan form Directors and Shareholders’ under the head ‘Short-Term Borrowings’.
However, the company has foiled to give the aggregate amount of such loans under each head as required under the provisions of Schedule Ill of the Companies Act, 2013 thereby affecting the true and fair view of the state of affairs of the company. The same has not been commented by the Auditor in his Audit Report for the said financial years thereby leading to violation of Section 143 read with Section 129 read with Schedule Ill of the Companies Act, 2013.
No reply hos been submitted by the Auditor of the company.
iii. CONTRAVENTION OF SECTION 143 OF THE COMPANIES ACT, 2013
“During the course of inspection, it is observed that in the Financial Statements for the year ended 31.03.2016, 31.03.2017, 31.03.2018, 31.03.2019 and 31.03.2020, the Company has shown Rs. 2.28 Crores, Rs. 3.63 Crores, Rs. 2.77 Crores, Rs.6.83 Crores and Rs. 4.90 Crores respectively as ‘Sundry Creditors for Goods’ under the head ‘Current Liabilities without stating whether they are dues of micro enterprises and small enterprises or otherwise thereby affecting the true and fair view of the state of affairs of the Company. The same has not been commented by the Auditor in his Audit Report for the said financial years thereby leading to violation of Section 143 read with Section 129 read with Schedule ill of the Companies Act, 2013.
No reply has been submitted by the Auditor of the company.
iv. CONTRAVENTION OF SECTION 143 OF THE COMPANIES ACT. 2013
“During the course of inspection, it is observed that the subject company in its Financial Statements for the year ended 31.03.2016, 31.03.2017, 31.03.2018. 31.03.2019 and 31.03.2020 hos shown Rs.I.76 Crores and Rs.1.77 Crores, Rs.1.70 Crores, Rs. 1.07 Crores, Rs.7.82 Crores respectively as ‘Sundry Debtors (considered good) ‘ without sub-classifying whether they are secured. unsecured or doubtful thereby affecting the true and fair view of the state of affairs of the Company. The same has not been commented by the Auditor in his Audit Report for the said financial years thereby leading to violation of Section 143 read with Section 129 read with Schedule Ill of the Companies Act, 2013.
No reply has been submitted by the Auditor of the company.
v. CONTRAVENTION OF SECTION 143 OF THE COMPANIES ACT, 2013
During the course of inquiry, it is observed that the subject Company during the financial year 2016-17, 2017-18, 2018-19 and 2019-20 has shown Rs.58.80 Lacs for each financial year as ‘Investments in various body corporates’ but has failed to mention whether such investments are made in subsidiaries, associates etc, whether they are partly paid or fully paid and also the company has not mentioned the full name of the body corporates in which the investments have been made. The same has not been commented by the Auditor in his Audit Report for the said financial years thereby leading to violation of Section 143 read with Section 129 read with Schedule Ill of the Companies Act, 2013.
No reply has been submitted by the Auditor of the company.
vi. CONTRAVENTION OF SECTION 143 OF THE COMPANIES ACT, 2013
During the course of inquiry, it is observed Whereas the subject Company in its Financial Statements for the financial years 31.03.2019 and 31.03.2020 has shown Rs. 2.44 Crores and Rs. 2.44 Crores respectively as ‘Other Payables’ under the sub-head ‘Other Liabilities’ under the head ‘Current Liabilities’. Hence, it is clear that specification of nature of ‘Other Payables’ as required under the provisions of Schedule Ill has not been provided in the Financial Statements for the said financial years. The same has not been commented by the Auditor in his Audit Report for the said financial years thereby leading to violation of Section 143 read with Section 129 read with Schedule III of the Companies Act 2013.
No reply has been submitted by the Auditor of the company.
2) The provisions of Section 143(3) of the Companies Act, 2013 requires that 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 ore 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 there with.
(i) whether the company hos 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 alio 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/2023/033783/1119 dated 01.05.2023 (herein after referred as Adjudication Notice) under Section 454(4) 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 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 14.09.2023 vide letter no. ROC/ADJ/2023/033783/5594 dated 30.08.2023.
4) An adequate reply to the Adjudication notice, as mentioned above. have been received dated 14.09.2023 from the auditors as to why penalty shall not be imposed.
5) The auditor R. K Patnia along with Authorized Representative appeared for the hearing today and appraised of the detailed reply of each point of observations/ instances vide letter dated 20.05.2023, wherein each point regarding the factual position of disclosure has been duly followed in respect to the Accounting Standards along with the supporting document already available in the public domain under Financial Statements of the respective period of the company. It was also admitted by the auditor that there was no intimation received by him during the period of inquiry which could enable him to submit the same fact to appraise to the I.O. It is an unfortunate moment during which Pandemic period was prevailing that the company also did not inform the auditors about the issue, which lacking the true and fair view on the part of the company u/s 129 read with Schedule III of the Companies Act, 2013. If company, admits of such violations of true and fair view as regards to instances under Section 129 read with Schedule III of the Companies Act,2013, it would probably be the lapse on the part of auditor. However, the auditor undoubtedly, appraised of them that sufficient disclosure has been given against each of the notes and schedules, respectively. And submitted further in written submission along with relevant period of Balance Sheet wherein it can be concluded that there is no lapse on the part of auditor in qualifying the Audit Report, based on the records of information furnished by them. Therefore, it is requested to condone the observations of the relevant sections as regards to the violations pointed out leniently and dropped the proceedings.
The matter was heard, and the order was reserved.
ORDER
1. The Auditors who have defaulted the provisions of section 143 of the Companies Act, 2013 stated above for the relevant periods 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. 2,40,000/- (Rupees Two lakhs and Forty Thousand only) on the concerned auditors-in-default i.e., on CA Rabindra Kumar Patnia for the FY 2016-17-2019-20 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 two mistakes.
|
Name of the Applicant Company/ Director |
Contravention of section and As | Default (in Rs.) | Total maximum Penalty (in Rs.) |
| CA. R. K. Patnia ( M. NO. 0471376) | i) Sec 143 r/w AS 18 | 10,000*4 | 40,000 |
| ii) Sec 143 r/w Schedule III | 10,000*4 | 40,000 | |
| iii) Sec 143 r/w Schedule III | 10,000*5 | 50,000 | |
| iv) Sec 143 r/w Schedule III | 10,000*5 | 50,000 | |
| Sec 143 r/w u/s Schedule III | 10,000*4 | 40,000 | |
| Sec 143 r/w u/s Schedule III | 10,000*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 www.mca.govin] 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 mca.gov.in] 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: 13th December, 2023
(A.K. Sethi, ICLS)
Adjudicating Officer & Registrar of Companies,
west Bengal
