Penalty on auditors for non-disclosure 2015-16 to 2019-20

Appointment of Adjudicating Officer:

Through its Gazette Notification No. A-420a / i 12/2014-Ad.II areas 24.03.201, the Ministry of Corporate Affairs To determine penalties under the terms of this Act, S appoints an undersigned officer as an adjudicating officer. This officer will exercise the powers granted by section 454(1) of the Companies Act, 2013 (henceforth referred to as the Act) read in conjunction with the Companies (Adjudication of Penalties) Rules, 2014. Entrusted with deciding fines under section 143 of the Companies Act, 2013, is the undersigned.

Company:

WHEREAS Mars Mercantiles Private Limited (hereinafter referred to as the “Company”) is a registered entity incorporated on 11th June 1993 under the provisions of the Companies Act, 1956, with its registered address at 175, Karnanni Estate, 209, A J C Bose Road, Kolkata, WB 700017, India, as per the MCA website.

Facts about the Case:

    • 1) Based on an Inquiry Report conducted under Section 206 of the Companies Act, 2013, the following instances of violations have been identified:


      1. a) Shareholders, namely Shri Saroj Varma and Shri Man Mohon Varma, collectively holding 62% and 32% of the company’s shares respectively during the financial year 2015-16, are deemed to have the ability to control the Company, exceeding the 20% threshold of voting powers, thus qualifying as related parties. Similarly, Shri Dinesh Pradhan and Shri Manesh Pradhan, each holding 47.96% of the company’s shares, also qualify as related parties due to their ability to control the Company during the financial years 2016-17, 2017-18, 2018-19, and 2019-20. However, no disclosure as required by Accounting Standard 18 has been made in the Financial Statements for the aforementioned financial years. The omission has not been addressed by the Auditor in their Audit Report for the said periods, leading to a violation of Section 43 read with Section 129 of the Companies Act, 2013, in conjunction with Accounting Standard 18.

      1. b) Contravention of Section 143 of the Companies Act, 2013, read with Section 129 and Schedule III: The Company’s Financial Statements for the years ended on 31st March 2016, 31st March 2017, 31st March 2018, 31st March 2019, and 31st March 2020, reflect amounts of Rs. 6.96 Lacs, Rs. 2.68 Crores, Rs. 13 Crores, Rs. 85.97 Lacs, and Rs. 1.19 Crores respectively as ‘Due to Others’ under the head ‘Trade Payables’, without specifying whether these are dues of micro-enterprises, small enterprises, or otherwise, thereby impacting the true and fair representation of the financial statements.

CONTRAVENTION OF SECTION 143 OF THE COMPANIES ACT, 2013 READ WITH SECTION 129 READ WITH SCHEDULE III:

  1. 1.In its Financial Statements for the financial year 2015-16, the company reported Rs. 86.04 Lacs as ‘Other Advances’ under the head “Short-term loans and advances” without providing the necessary details about the nature of such advances, as mandated by Schedule III of the Companies Act, 2013. This lack of specification affects the accurate and fair portrayal of the company’s financial status. Additionally, the Auditor did not address this issue in their Audit Report for the respective financial year, thereby leading to a violation of Section 143 read with Section 129 read with Schedule III of the Companies Act, 2013.

2. Contravention of Section 143 of the Companies Act, 2013 read with Section 129 read with Schedule III:

  1. Schedule III of the Companies Act, 2013 stipulates that a company should disclose additional information regarding aggregate expenditure and income on items exceeding one percent of revenue from operations or Rs. 1,00,000, whichever is higher. This includes interest expense.

    The company’s Financial Statements for the period from the financial year 2015-16 to 2019-20 have recorded the following income or expense: [Please provide specific details of income or expenses for this period.]

Particulars 2015-16 2016-1 7 2017-1 8 2018-19 2019-20
Interest Expense
51 .97 Lacs
50.73 Lacs
49.09 Lacs
46.27 Lacs
44.24 Lacs
    1. 1.The subject company has failed to provide additional information about its interest expenses and any income or expenditure exceeding one percent of the revenue from operations or Rs. 1,00,000, whichever is higher, as required to be disclosed under the provisions of Schedule III of the Companies Act, 2013. The Auditor did not comment on this omission in their Audit Report for the said financial years, thus violating Section 143 read with Section 129 read with Schedule III of the Companies Act, 2013.

     

    1. 2.The provisions of Section 143(3) of the Companies Act, 2013 require that the auditor’s report shall also state:

     

    1. a) Whether they have sought and obtained all the information and explanations which, to the best of their knowledge and belief, were necessary for the purpose of their audit, and if not, the details thereof and the effect of such information on the financial statements.

     

    1. b) Whether, in their opinion, proper books of account as required by law have been kept by the company, to the extent apparent from their examination of those books, and whether proper returns adequate for their audit have been received from branches not visited by them.

     

    1. c) Whether the report on the accounts of any branch office of the company, required under subsection (8) by a person other than the company’s auditor, has been sent to them under the provisions of that subsection, and how they have dealt with it in preparing their report.

     

    1. d) Whether the company’s balance sheet and profit and loss account are in agreement with the books of account and returns.
Owner 0 56.09 Lacs 0 Table Header Table Header
expenses- advances written off
Other Income- U/Loan written off
0
2.97 Crore
0
0
0
      1. 1.It is evident from the provided information that the subject company has neglected to furnish additional details concerning its interest expenses and any income or expenditure surpassing one percent of the revenue from operations or Rs. 1,00,000, whichever is higher, as mandated to be disclosed under Schedule III of the Companies Act, 2013. This oversight has not been addressed by the Auditor in their Audit Report for the respective financial years, thus resulting in a violation of Section 143 read with Section 129 read with Schedule III of the Companies Act, 2013.

      1. According to Section 143(3) of the Companies Act, 2013, the auditor’s report must include:

      1. a) Confirmation of whether they have actively pursued and acquired all the pertinent information and explanations essential for their audit, to the best of their knowledge and belief. If not, they should specify the details of such omissions and the impact of this information on the financial statements.

      1. b) Their opinion on whether the company has maintained proper books of account as required by law, based on their examination of those books, and whether satisfactory returns, adequate for their audit, have been received from branches not visited by them.

      1. c) Confirmation of whether the report on the accounts of any branch office of the company, awaited under subsection (8) by a person other than the company’s auditor, has been forwarded to them as per the provisions of that subsection. They should also detail how they have addressed this in preparing their report.

      1. d) Verification of whether the company’s balance sheet and profit and loss account, as dealt with in the report, are in harmony with the books of account and returns.

      /e/ In the auditor’s opinion, whether the financial statements comply with the accounting standards;

      1. f) The auditor’s observations or comments on financial transactions or matters that have an adverse effect on the functioning of the company;

      (g) Whether any director is disqualified from being appointed as a director under

      (h) Any qualification, reservation, or adverse remark relating to the maintenance

      of accounts and other matters connected therewith.

      1. i) Whether the company has disclosed internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;

      (j) Any other matters as may be prescribed.

ORDER

        1. The auditors who have defaulted on the provisions of Section 143 of the Companies Act, 2013, as stated above for the relevant periods, are liable for penalties under Section 450 of the Companies Act, 2013.

         

        1. In the exercise of the conferred powers, the undersigned is authorized to adjudicate penalties under Section 450 of the Companies Act, 2013. Therefore, I hereby impose a penalty totalling Rs. 1,50,000/- (Rupees One lakh and Fifty Thousand only) on the concerned auditor-in-default, i.e., on CA. Phalgunee Banerjee.

         For all the instances listed in the table above, under Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014, and the proviso of the said Rule, as well as Rule 3(3) of the Companies (Adjudication of Penalties) Rules, 2014, regarding the above violations.

Name of One Auditor Nature of violations instances Default (in Rs.) Total maximum Penalty {in Rs.)
CA.
l. A violation under section 143 read With section 29 Read with Schedule III
l0,000*4 years
40,000
PHALGUNEE
1i.A violation under section 143 read with section 29 Read with Schedule III
10,000*5 years
50,000
BANERJEE
III. A violation under section 43 read with section 129 read with Schedule III
10,000*1year
10.000
(MEMB. NO.: 40P60B]
IV. A violation under section 143 read with section 129 read with Schedule III
10.000*5 years
50.000
  1. 3.The recipient must pay the specified penalty amount (from their own funds) through e-payment available on the Ministry website www.mca.gov.in, under the “Pay miscellaneous fees” category in MCA fee and payment Services, within 90 days of receiving this order. The Challan/SRN generated after payment of the penalty through online mode must be forwarded to this office address.

 

  1. 4.An appeal against this order may be submitted in writing to the Regional Director (ER), Ministry of Corporate Affairs, Kolkata, located at Nizam Palace, 2nd M. S. O. Building, 3rd Floor, 234/4, A.J.C. Bose Road, Kolkata-700020, West Bengal, within sixty days from the date of receiving this order, using Form ADJ [available on the Ministry website www.mca.gov.in], stating the grounds of the appeal and accompanied by a certified copy of this order. (Section 454(6) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014).

 

Your attention is also drawn to section 454(8) of the Act concerning the consequences of non-payment of the penalty within the prescribed time limit of 90 days from the date of receiving a copy of this order.

 

  1. 6.Under the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules, 2014, as amended by the Companies (Adjudication of Penalties) Amendment Rules, 2019, a copy of this order is being sent to the auditor in default mentioned hereinabove and also to the Office of the Regional Director (Eastern Region) and the Ministry of Corporate Affairs in New Delhi.
G Akshay Associates