ROC Penalizes Company & Directors for Discrepancies in Disclosure of Number of Meetings Held in the Board Report
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- Last Updated on 19 January, 2025
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Prof R Balakrishnan – [2025] 170 taxmann.com 455 (Article)
1. Background of the case
This case relates to the company known as M/s. Be Bold & Confident Careers Private Limited is situated at Sangrur in the state of Punjab. The Registrar of Companies of Chandigarh, while conducting an enquiry upon the company based on a complaint lodged by an individual, observed that the company provided incorrect information, breaching the statutory mandatory disclosure in its board report for the financial year 2021-22. The violation committed by the company was pertaining to discrepancies in the board of directors’ report of the company relating to the number of board meetings held by the company in the financial year 2021-22. The annual return filed by the company in form MGT-7 showed the number of board meetings held by the company was six, while the board report disclosed the number of meetings held wrongly as five only. This led to the Companies, after following the due procedure, imposing a penalty of Rs. 2.25 lakh upon the company and its 3 directors for providing incorrect information and breaching the statutory reporting requirements in the board report of the company. Let us go through this case in detail and understand the legal requirements, the default that occurred and the consequences of the default resulting in penal actions.
2. Relevant Provision relating to this case under the Companies Act 2013
The relevant provisions pertaining to this case is that of section 134 of the Companies Act 2013, read with the relevant rules framed thereunder and the extracts of the relevant provisions are as given below.
| Companies Act 2013 Chapter IX – Accounts of Companies Section 134. Financial statement, Board’s report, etc. |
|
| Section | Provision |
| 134 | Financial Statement, Board’s Report, etc. |
| 134 (1) | The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two Directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon. |
| 134 (2) | The auditors’ report shall be attached to every financial statement. |
| 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) (a) | the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed |
| 134 (3) (b) | number of meetings of the Board; |
| 134 (3) (c) | Directors’ Responsibility Statement; |
| 134 (3) (ca) | details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government; |
| 134 (3) (d) | a statement on declaration given by independent Directors under sub¬section (6) of section 149; |
| 134 (3) (e) | in case of a company covered under sub-section (1) of section 178, company’s policy on Directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178; |
| 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; |
| 134 (3) (g) | particulars of loans, guarantees or investments under section 186; |
| 134 (3) (h) | particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form; |
| 134 (3) (i) | the state of the company’s affairs; |
| 134 (3) (j) | the amounts, if any, which it proposes to carry to any reserves; |
| 134 (3) (k) | the amount, if any, which it recommends should be paid by way of dividend; |
| 134 (3) (l) | material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report; |
| 134 (3) (m) | the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed; |
| 134 (3) (n) | a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company; |
| 134 (3) (o) | the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year; |
| 134 (3) (p) | in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation of the performance of the Board, its committees and of individual Directors has been made; |
| 134 (3) (q) | such other matters as may be prescribed. |
| Proviso | Provided that where disclosures referred to in this sub-section have been included in the financial statements, such disclosures shall be referred to instead of being repeated in the Board’s report. |
| Proviso | Provided further that where the policy referred to in clause (e) or clause (o) is made available on company’s website, if any, it shall be sufficient compliance of the requirements under such clauses if the salient features of the policy and any change therein are specified in brief in the Board’s report and the web-address is indicated therein at which the complete policy is available. |
| 134 (3A) | The Central Government may prescribe an abridged Board’s report, for the purpose of compliance with this section by One Person Company or small company. |
| 134 (4) | The report of the Board of Directors to be attached to the financial statement under this section shall, in case of a One Person Company, mean a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report. |
| 134 (5) | The Directors’ Responsibility Statement referred to in clause (c) of sub-section (3) shall state that— |
| 134 (5)(a) | in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; |
| 134 (5)(b) | the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period; |
| 134 (5)(c) | the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; |
| 134 (5)(d) | the Directors had prepared the annual accounts on a going concern basis; and |
| 134 (5)(e) | the Directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. |
| Explanation | Explanation. —For the purposes of this clause, the term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information; |
| 134 (5)(f) | the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. |
| 134 (6) | The Board’s report and any annexures thereto under sub-section (3) shall be signed by its chairperson of the company if he is authorised by the Board and where he is not so authorised, shall be signed by at least two Directors, one of whom shall be a managing director, or by the director where there is one director. |
| 134 (7) | A signed copy of every financial statement, including consolidated financial statement, if any, shall be issued, circulated or published along with a copy each of— |
| 134 (7)(a) | any notes annexed to or forming part of such financial statement; |
| 134 (7)(b) | the auditor’s report; and |
| 134 (7)(c) | the Board’s report referred to in sub-section (3). |
| 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. |
| 446B | “Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be. |
| Explanation | For the purposes of this section- |
| (a) | “Producer Company” means a company as defined in clause (I) of section 378A; |
| (b) | “start-up company” means a private company incorporated under this Act or under the Companies Act, 1956 and recognised as start-up in accordance with the notification issued by the Central Government in the Department for Promotion of Industry and Internal Trade.” |
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