[Opinion] ROC Penalizes Co., WTD, CFO & CS for Failing to Address Audit Objections on Internal Financial Controls in Board Report
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- 3 Min Read
- By Taxmann
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- Last Updated on 29 November, 2024
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Prof R Balakrishnan – [2024] 168 taxmann.com 612 (Article)
1. Background of the Case
The Board’s Report is an important document prepared by the company every year and attached along with the financial statements. It discloses the details of the company’s affairs as to what happened during the financial year that has ended to its stakeholders. As per the provisions of sub-section (3) (f) of section 134 of the Companies Act, 2013, the section states that there shall be attached to statement laid before a company’s annual general meeting, a report by the company’s board of directors, which shall include explanations or comments by the board on every qualification, reservation or adverse remark or disclaimer made
- by the auditor in his report and
- by the company secretary in practice in his secretarial audit report.
In this case, a company named M/s. Spacenet Enterprises India Limited from the state of Telangana Directors failed to address an audit objection regarding internal financial controls in their Board’s Report for the financial year 2020-2021, which was discovered by the inspecting officials from the office of the Registrar of Companies. This being the violation of the Companies Act, the Registrar of Companies, Hyderabad of Telangana, issued an adjudication order against M/s. Spacenet Enterprises India Limited for violating Section 134(3)(f) of the Companies Act, 2013, after following the required procedure on this matter.
2. Relevant Provision Relating to this Case under the Companies Act 2013
| Companies Act 2013 Chapter IX – Accounts of Companies Section 134. Financial statement, Board’s report, etc. |
|
| Section | Provision |
| 134 (3) | There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include, |
| 134 (3)(f) | explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made— |
| 134 (3)(f) (i) | by the auditor in his report and |
| 134 (3) (f) (ii) | by the company secretary in practice in his secretarial audit report |
| Penal section for non-compliance/default if any | |
| 134 (8) | If a company is in default in complying the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer who is in default shall be liable to a penalty of fifty thousand rupees. |
3. Consequences of Default/Violation
To understand the consequences of any default/non-compliance while complying with the
provisions of section 134 (3) (f) of the Companies Act 2013 relating to financial statements, board reports, etc. – especially with reference to offering explanations and comments to be provided by the board of directors in the board report on the qualification made by the statutory auditors in his report, let us go through the decided case law by the Registrar of Companies of
Telangana on this matter on 16th July 2024 relating to M/s. Spacenet Enterprises India Limited.
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