CA penalised for Audit Non-Compliance

The case is regarding an appeal filed under the Companies Act, 2013, by a Chartered Accountant (CA) named Manish Maheshwari on behalf of a firm named Synrome Pharmaceuticals Private Limited. The company is legally registered in Patna, Bihar. The appeal is filed before the Regional Director (RD) of the Ministry of Corporate Affairs, Eastern Region (Kolkata).

What is Matter?

The issue started when the Registrar of Companies (ROC), Patna, imposed a penalty on appellant C.A. Manish Maheshwari, who was earlier working as an auditor for Syndrome Pharmaceuticals in the financial year 2016-17. According to ROC, a penalty was imposed on the appellant because he had violated Section 143 of the Companies Act, 2013, which deals with the duties and responsibilities of an auditor.

The violation took place because the auditor was not able to report about certain non-compliances made by the firm during the period of his audit for that assessment year. In accordance with Section 143, if an auditor discovers a company has not complied with certain rules or has violated certain company laws, then he/she is legally required to mention that violation in his/her audit report. In this case, the auditor did not mention the violation in his report.

ROC Action

As the auditor did not mention the violation in his report, ROC, as a result, issued a notice against the appellant on December 22, 2023, asking for an explanation. In return, the auditor answered the notice on January 5, 2024, accepting that it was an inadvertent error. Meaning, it was just a mistake without any bad intention.

ROC still went ahead and passed an adjudication order on January 24, 2024, against the appellant and imposed a penalty under violation of Section 143 under Section 450 of the Companies Act, which covers general penalties when no specific penalty is prescribed. According to the penalty order, the auditor is penalised for 10 days of default. Normally, the penalty would have been Rs. 10,000, but since it was a first-time default and covered under Section 446B, which permits a lesser penalty for small companies or first-time errors, the final penalty was decreased to Rs. 5,000.

What Did the Auditor Do Next?

When the auditor, i.e., C.A. Manish Maheshwari, received the penalty order passed by the ROC, he filed an appeal against the order under Section 454(5) of the Companies Act. This section permits an individual to raise an objection against the penalty order issued by the ROC by appealing to the Regional Director (RD).

The appeal was filed on March 22, 2024, using Form ADJ, within the specified time limit under law, i.e., 60 days. The court scheduled the hearing regarding the matter for March 26, 2025. Advocate Arani Guha was the legal representative from the site of the appellant.

In short:

• A Chartered Accountant made a reporting error in the audit report of a company for FY 2016-17.
• ROC, Patna, found this to be a violation of the law (Section 143) and fined the auditor Rs. 5,000.
• The auditor accepted it was a mistake, but still appealed against the penalty.
• The appeal was heard by the Regional Director in Kolkata.

This is a case of a procedural error during a company’s audit that resulted in a monetary penalty, which was then challenged legally in the proper forum.