CA Penalized by MCA for Violations in Audit Report [Read Order]

The Ministry of Corporate Affairs (MCA) in the matter of MITHLANCHAL PROFICIENT NIDHI LIMITED has penalized a Chartered Accountant for Violations in Audit Report.

Facts about the case:

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:

3.1 Contravention of section 129 and Section 2(40) of the Companies Act, 2013 read with Accounting Standard-3:

As per Section 129(1) of the Companies Act, 2013 the Financial Statements shall give a true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in a form as provided in Schedule III.

Upon perusal of the Financial Statements for the financial years ending as on 31.03.2017, 31.03.2018 and 31.03.2019, it is observed that the Company, has not attached Cash Flow Statement along with the Financial Statements as required by the Companies Act, 2013, hence the financial statements are not reflecting the true and fair view of the state of affairs of the company. Therefore, the company has contravened the provisions of Section 129 and Section 2(40) of the Companies Act, 2013 read with Accounting Standard-3.

The same has not been commented upon by the auditor in audit reports, thereby leading to a violation of Section 143 read with Section 129 and Section 2(40) of the Companies Act, 2013 read with Accounting Standard-3.

3.2 Contravention of section 129 of the Companies Act, 2013 read with AS-18:

As per Section 129(1) of the Companies Act, 2013, the Financial Statements shall give tn,e and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in the form ns provided in Schedule III.

Upon observation of the filed financial statements for the financial years ended on 31.03.2017, 31.03.2018 and 31.03.2019, 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 of whether there have been transactions between the related parties. According to AS-18, the nature of the 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: (1) 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.

Hence it is observed that the Company has contravened the 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 in the aforesaid financial year.

The same has not been commented upon by the auditor in audit reports, thereby leading to a violation of Section 143 read with Section 129 read with AS-18.

3.3 Contravention of section 129 r/w Schedule III of the Companies Act, 2013:

As per Section 129(1) of the Companies Act, 2013 the Financial Statements shall give a 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 ns provided in Schedule III.

On examination of the financial statements filed from the F.Y 31.03.2017, 31.03.2018 and 31.03.2019, it is observed that the Company has shown short term borrowings amounting to Rs.2,36,15,116, Rs. 3,08,15,080 and Rs. 45,66,443 respectively, however failed to sub-classify such short-term borrowings as Secured/Unsecured as per Schedule III of the Companies Act, 2013.

Thereby the true and fair view of the state of affairs of the Company has been affected and contravention of section 129 read with Schedule III of the Companies Act, 2013.

The same has not been commented upon by the auditor in audit reports, thereby leading to a violation of Section 143 read with Section 129 r/w Schedule III of the Companies Act, 2013.

3.4 Contravention of section 129 r/w Schedule III of the Companies Act, 2013:

As per Section 129(1) of the Companies Act, 2013 the Financial Statements shall give a true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in the form as provided in Schedule III.

Upon perusal of the financial statements filed for the financial year ended on 31.03.2018 and 31.03.2019, it is found that the Company has shown loan to members under the head of short­term loans and advances amounting to Rs. 2,02,95,743 and Rs. 1,55,95,666.87, however, failed to sub­classify such short-term loans advances as Secured/ Unsecured as per Schedule III of the Companies Act, 2013 leading to the contravention of section 129 read with Schedule III of the Companies Act, 2013.

The same has not been commented upon by the auditor in audit reports, thereby leading to a violation of Section 143 read with Section 129 r/w Schedule III of the Companies Act, 2013.

3.5 Contravention of section 129 read with Schedule-III, Item-6F(ii) of the Companies Act, 2013:

During the course of the Inquiry, it has been noticed from the Balance Sheet as at 31.03.2019 filed with this office that the Schedules Forming Part of the said Balance Sheet shows “Deferred Tax Liability-Schedule-3″ whereas no effect of the said Deferred Tax Liability-Schedule-3 has been shown in the Balance Sheet, hence it appears that the Financial statement has not given a true and fair view of the state of affairs of the company, leading to a clear violation of the provision of Section 129(1) of the Companies Act, 2013 which inter-alia states as under:

As per Section 129(1) of the Companies Act, 2013 the Financial Statements shall give a true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in the form ns provided in Schedule III.

The same has not been commented upon by the auditor in audit reports, thereby leading to a violation of Section 143 read with Section 129 r/w Schedule III of the Companies Act, 2013.

3.6 Contravention of section 129 read with Schedule-III, ltem-6F(ii) of the Companies Act, 2013:

During the course of the Inquiry, it has been noticed that an amount of Rs. 14,566,443/­has been shown as “Short Term Borrowings” in the Balance Sheet as at 31.03.2019 but the said amount has not been sub-classified as secured and unsecured leading to violation of the provision of Schedule-III, Item-F(ii) under Section 129 of the Companies Act, 2013 which inter-alia states as under:

Item-F(ii): Borrowings shall further be sub-classified as secured and unsecured. The nature of security still be specified separately in each case.

The same has not been commented upon by the auditor in audit reports, thereby leading to violation of Section 143 read with Section 129 r/w Schedule III of the Companies Act, 2013.

3.7 Contravention-of section 129 read with Schedule-III, ltem-6R(ii) of the Companies Act, 2013:

During the course of the Inquiry, it has been noticed that an amount of Rs. 1,56,14,108.87 has been shown as “Short Term Loans and Advances” in the Balance Sheet as at 31.03.2019 but the said amount has not been sub-classified as (a) secured, considered good; (b) Unsecured, considered good; (c) Doubtful, leading to violation of the provision of schedule-III, Item-6R(ii) under Section 129 of the Companies Act, 2013.

The same has not been commented upon by you in audit reports, thereby leading to violation of Section 143 read with Section 129 r/w Schedule III, Item-6F(ii) of the Companies Act, 2013.

The same has not been commented upon by the auditor in audit reports, thereby leading to violation of Section 143 read with Section 129 r/w Schedule III of the Companies Act, 2013.

Hence, the auditor viz., CA Vaibhav Paharia has violated the provisions of section 143(3)(e) and 143(3)0) of the Companies Act, 2013.

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.143/19970/1430 dated 02.02.2024.

5. However, this office has not received any reply from the abovesaid auditor. Hence, it is concluded that the provisions of Section 143 of the Companies Act, 2013 have been contravened by the auditor and therefore she is liable for penalty u/s. 450 of the Companies Act, 2013 for the Financial Year 2016-17, 2017-18 and 2018-19.

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”.

Order:

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), hereby a penalty of Rs. 30,000 (Thirty Thousand) imposed on CA Vaibhav Paharia, Chartered Accountants­Membership no. 400984 for violation of Section 143 of the Companies Act, 2013 for the financial year 2016-17, 2017-18 and 2018-19.

The noticee shall pay the amount of penalty individually by way of e-payment (available on the Ministry Website) 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 the penalty through online mode shall be forwarded to this office.

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) 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).

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 a 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.

For Official Order Download PDF Given Below: