[Opinion] RoC Penalizes Company and its Directors for Non-Compliance of AS 15 in Board’s Report

1. Board report

Board’s report is an important document prepared by the company every year and attached along with the financial statements and discloses the details of the company’s affairs as to what happened during the financial year that has ended, to its stakeholders. Section 134 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, are the governing regulations which spell out the various requirements of the board report.

Sub-section (3) of section 134 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, lists the requirements of various disclosures such as financial highlights of the company relating to transfer to reserve, dividend etc., details of a subsidiary if any, the number of the board meeting held, key managerial personnel and directors details, directors responsibility statement, the composition of the audit committee and adequacy of internal financials controls, particulars relating to a loan, investment, guarantee and securities and contracts or arrangements with related parties, auditor and auditors report (statutory auditor, cost auditor and secretarial auditor), significant events and material orders passed by the regulators or courts, corporate social responsibilities related matters if applicable and such other matters.

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 a 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 (i) by the auditor in his report and (ii) by the company secretary in practice in his secretarial audit report.

2. Provisions under the Companies Act 2013 relating to this case

Pursuant to sub-section (3) (f) of section 134 of the Companies Act 2013, there shall be attached to statements laid before a company in a general meeting, a report by its board of directors, which shall include explanations or comments by the board on every qualification, reservation or adverse remark or disclaimer made (i) by the auditor in his report; and (ii) by the company secretary in practice in his secretarial audit report.

3. Penal Provisions for default (if any) committed by the company

The relevant section for penal action is provided in section 134(8) of the Companies Act 2013 and as per this section, if a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

4. Consequences of any default

To understand the consequences of any default while complying with the provisions of section 134 (3) (f) of the Companies Act 2013 relating to the disclosure requirements in the board report relating to comments made by statutory auditors, let us go through the decided case law by the Registrar of Companies, Chennai vide his order dated 9th February 2023.

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