Chartered Accountant Penalized by MCA for Non-Reporting of Violations in Audit Report [Read Order]

The Ministry of Corporate Affairs (MCA) in the matter of MITHLANCHAL PROFICIENT NIDHI LIMITED has imposed a penalty on the Chartered Accountant for Non-Reporting of Violations in Audit Report.

Facts about the case:

3. 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 status of affairs of the Company, comply with the accounting standards notified under section 133 and be in form ns provided in Schedule III.

Upon perusal of the Financial Statements for the financial year ended as on 31.03.2020, 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 is not reflecting the h·ue 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 auditor in audit reports, thereby leading to 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 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 observation of the filed financial statements 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 the 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 related parhJ shall be disclosed irrespective of any transaction and if there have been transactions between related parties, during the existence of a related parties relationship, the reporting enterprise should disclose the following: (1) the name of the transacting related parties; (ii) a description of the relations/zip 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 parties 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 the form as provided in Schedule III.

On examination of the financial statement filed from the F.Y 31.03.2020, it is observed that the Company has shown short-term borrowings amounting to Rs. 1,90,32,901 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 ill 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 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 financial statements filed for the financial year ended on 31.03.2020, it is found that the Company has shown loan to members under the head of short-term loans and advances amounting to Rs. 1,32,97,268.26 however failed to sub-classify such short-term loans advances as Secured/ Unsecured as per Schedule III of the Companies Act, 2013 leading to contravention of section 129 read with Schedule III of the Companies Act, 2013.

The same has not been commented upon by 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 Nidhi Agrawal (Membership Number: 441950) 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.143/19970/1431 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 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 even; officer of the company will 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 impose a penalty of Rs. 10,000 on CA Nidhi Agrawal, Chartered Accountants- Membership no. 441950 for violation of Section 143 of the Companies Act, 2013 for the financial year 2019-2020.

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).

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