Case study | Company Law |MCA Penalizes Auditors for Non-Disclosure of Specified Bank Notes in Audit Report Editor

MCA Penalizes Auditors for Non-Disclosure of Specified Bank Notes in Audit Report Editor| Company Law | Case study 

 Introduction: The Ministry of Corporate Affairs (MCA), under the Government of India, recently issued an order penalizing an auditor for the violation of Section 143 of the Companies Act, 2013. The case involves Syndrome Pharmaceuticals Private Limited and its auditor, CA Manish M. Maheshwari, for non-disclosure of specified bank notes in the audit report for the financial year ending on March 31, 2017. Background: On January 24, 2024, the Registrar of Companies, Bihar, issued an order (ROC/PAT/Sec. 143/14515/1371) appointing an Adjudication Officer to address the violation. The violation relates to the non-disclosure of holdings and dealings in Specified Bank Notes (SBN) during the period from November 8, 2016, to December 30, 2016, as mandated by the Companies (Audit and Auditors) Rules, 2014. Factual Overview: The Companies (Audit and Auditors) Rules, 2014, were amended on March 30, 2017, introducing Rule 11(d). This rule required companies to disclose in their financial statements the holdings and dealings in Specified Bank Notes during the specified period. However, the audit report for the financial year 2016-2017 of Syndrome Pharmaceuticals Private Limited, prepared by CA Manish M. Maheshwari, did not include the required disclosure. Violation and Response: Section 143(3)(j) of the Companies Act, 2013, mandates auditors to include in their reports matters as prescribed. The absence of the required disclosure in the auditor’s report led to a violation of Section 143(3)(j) read with Rule 11(d) of the Companies (Audit and Auditors) Rules, 2014. The Adjudication Officer issued a show-cause notice to CA Manish M. Maheshwari, who admitted to the error in a response dated December 25, 2023, stating it was an inadvertent mistake during the audit of Syndrome Pharmaceuticals Pvt. Ltd. The admission of default led to the conclusion that the provisions of Section 143 of the Companies Act, 2013, were contravened, making the auditor liable for penalties. Penalties Imposed: The order imposed a penalty of Rs. 5,000 (Five Thousand) on CA Manish M. Maheshwari, considering the nature of the default, the number of days in default, and the relevant provisions of the Companies Act. The penalty was imposed under both Section 450 and Section 446B of the Companies Act, 2013. 

Payment and Appeal: CA Manish M. Maheshwari was instructed to pay the penalty individually through e-payment within 90 days of the order. The noticee has the right to appeal against this order within 60 days from the date of receipt, and the appeal should be filed with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata. 

Conclusion: This case serves as a reminder of the strict adherence required by auditors to the reporting obligations specified by the Companies Act. The penalty imposed underscores the importance of transparency and compliance in financial reporting, with the MCA taking proactive measures to enforce accountability within the corporate sector. The adjudication process emphasizes the need for auditors to exercise diligence in fulfilling their responsibilities to maintain the integrity and transparency of financial disclosures.