Company Faces ROC Penalty for Not Explaining Non-Compliances Reported by Auditor in Directors’ Report

The Registrar of Companies (ROC) has imposed a penalty on a company and its directors for not including the auditor’s remarks in the company’s Board of Directors’ Report.

The company, Mountsoft Mutual Benefit India Nidhi Ltd, failed to explain non-compliances reported by the auditor in its Director’s Report. The auditor in its audit report had mentioned several violations under the Nidhi Rules, 2014, including non-compliance with Rule 14, Rule 5(1), Rule 5(4) and Rule 21. However, these were not included or explained in the company’s Director’s Report for FY 2019-20, violating Section 134(3)(f) of the Companies Act, 2013.

The non-compliance was detected during a detailed examination of Nidhi Companies in various regions, including Kanpur, Jaipur, and Patna. The Regional Directors were directed to submit a report on the rising number of Nidhi Companies in the mentioned locations. During this investigation, the Inquiry Officer found that the company’s Directors’ Report had not explained the non-compliances reported by the auditor.

Section 134(3)(f) of the Companies Act, 2013, mandates that the Board of Directors’ Report must have their explanations or comments on the adverse remarks or disclaimers made by the statutory auditor in their report or the Company Secretary in practice in their secretarial audit report.

Since the company violated Section 134(3)(f), the ROC imposed a penalty on the company and its directors under Section 454 of the Companies Act for violation of Section 134(8) of the Companies Act, 2013. The company was fined Rs 3,00,000, and its directors were fined Rs 50,000 each. The ROC directed the company to rectify its default and pay the penalty amount within 90 days via the ‘e-Adjudication‘ on the MCA portal.