Company Faces Penalty for Not Addressing Auditor’s Adverse Remarks in Director’s Report

The Registrar of Companies (ROC), Chennai, imposed a penalty on a company, as its director’s report ignored the adverse remarks made by the statutory auditor in their audit report, violating Section 134(3)(f) of the Companies Act, 2013.

The Books and accounts of the company, Mylapore Hindu Permanent Fund Nidhi Ltd,
were inspected under section 206(5) of the Companies Act, 2013, during which the inspecting officer observed that for the financial years 2015-16 to 2017-18, the company’s auditor had given adverse remarks on certain issues, including Non-compliance with Rule 5(d), non-compliance with Rule 14 and Non-compliance with prudential norms as prescribed in Rule 20 of the Nidhi Rules, 2014. The director’s report only commented on the non Non-compliance of Rule 5(d), and the other adverse remarks were ignored, violating Section 134(3)(f) of the Companies Act, 2013.

Section 134(3)(f) of the Companies Act requires the directors’ report to have the explanations or comments, or any qualifications, reservations, adverse remarks, or disclaimers made by the statutory auditor in their audit reports. Failure to provide these explanations can result in penalties for the company and its directors.

Since the company had failed to comply with Section 134(3)(f) of the Companies Act, the ROC held it and its directors liable under Section 134(8) of the Companies Act, 2013. Accordingly, the ROC imposed a penalty of Rs 3 lakh on the company and Rs 50,000 each on its three directors.

The company has been directed to make corrections and pay the penalty amount within 90 days through the ‘e-Adjudication’ facility on the MCA portal.