The Registrar of Companies (ROC), New Delhi, has imposed a penalty of ₹6 lakh on a company and its directors for failing to conduct a mandatory secretarial audit. The VakilKaro Brief: ROC Penalises Company for Non-Compliance with Secretarial Audit Requirements The Update The ROC imposed penalties on a company and its directors for failure to conduct a mandatory secretarial audit under Section 204 of the Companies Act.
The Registrar of Companies (ROC), New Delhi, has imposed a penalty of ₹6 lakh on a company and its directors for failing to conduct a mandatory secretarial audit. The action highlights the strict compliance requirements under the Companies Act, 2013, particularly for companies crossing specified financial thresholds.
Key Takeaways
- The Registrar of Companies (ROC), New Delhi, has imposed a penalty of ₹6 lakh on a company and its directors for failing to conduct a mandatory secretarial audit.
- The VakilKaro Brief: ROC Penalises Company for Non-Compliance with Secretarial Audit Requirements The Update The ROC imposed penalties on a company and its directors for failure to conduct a mandatory secretarial audit under Section 204 of the Companies Act.
- Under the Companies Act, once a company crosses certain financial thresholds, it becomes mandatory to conduct a secretarial audit.
- However, the company failed to: • Appoint a secretarial auditor • Conduct the secretarial audit • Obtain the audit report in Form MR-3 • Annex the report to the board report These failures resulted in non-compliance with Section 204(1) of the Companies Act.
- Penalties Imposed by the ROC After reviewing the records and submissions, the ROC concluded that the company had violated the mandatory secretarial audit requirement.
The VakilKaro Brief: ROC Penalises Company for Non-Compliance with Secretarial Audit Requirements
The Update
The ROC imposed penalties on a company and its directors for failure to conduct a mandatory secretarial audit under Section 204 of the Companies Act.
The Impact
Companies crossing the prescribed thresholds must appoint a practicing company secretary to conduct secretarial audit and attach the report to the board report.
The Action
Companies should review compliance thresholds and ensure timely appointment of secretarial auditors to avoid regulatory penalties.
Background of the Case
The case concerns Ardee Industries Limited, a company based in Mehrauli, Delhi. During the financial year 2023-24, the company’s outstanding loans and borrowings from banks exceeded ₹100 crore.
Under the Companies Act, once a company crosses certain financial thresholds, it becomes mandatory to conduct a secretarial audit. The audit must be carried out by a practicing company secretary and the report must be annexed to the board report forming part of the annual financial statements.
Despite meeting the threshold criteria, the company failed to appoint a secretarial auditor and did not obtain the required secretarial audit report in Form MR-3. This resulted in a violation of the statutory provisions governing secretarial audit.
Legal Framework Governing Secretarial Audit
Secretarial audit requirements are governed by Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Section 204 requires certain companies to obtain a secretarial audit report from a practicing company secretary and annex it to the board report.
Companies required to conduct secretarial audit include:
Category Threshold
Public companies Paid-up capital of ₹50 crore or more
Public companies Turnover of ₹250 crore or more
Companies Outstanding loans or borrowings of ₹100 crore or more
The audit report must be issued in Form MR-3 and attached to the board report under Section 134 of the Companies Act.
Failure to comply attracts penalties under Section 204(4), which provides that the company and officers in default may be liable to a penalty of up to ₹2 lakh each.
Facts Leading to the Default
In this case, the company’s outstanding bank borrowings during the financial year 2023-24 amounted to approximately ₹105 crore. This exceeded the statutory threshold requiring secretarial audit.
However, the company failed to:
• Appoint a secretarial auditor
• Conduct the secretarial audit
• Obtain the audit report in Form MR-3
• Annex the report to the board report
These failures resulted in non-compliance with Section 204(1) of the Companies Act.
ROC Adjudication Proceedings
After identifying the non-compliance, the Registrar of Companies issued a show cause notice to the company and its directors asking why penal action should not be initiated.
The company admitted the violation and explained that the non-compliance occurred due to lack of professional guidance and inadvertent omission. The company also informed the ROC that it had subsequently obtained the secretarial audit report for the relevant financial year.
Despite the explanation, the ROC declined to grant remission of penalties and proceeded with adjudication under Section 454 of the Companies Act.
Directors considered “officers in default” were held liable, while certain directors were excluded from liability because they were not part of the board at the time the default occurred.
Penalties Imposed by the ROC
After reviewing the records and submissions, the ROC concluded that the company had violated the mandatory secretarial audit requirement.
The following penalties were imposed:
Person Liable Penalty Amount
Company ₹2,00,000
Managing Director ₹2,00,000
Whole-Time Director ₹2,00,000
Total penalty imposed: ₹6,00,000.
Independent directors and directors appointed after the default period were not treated as officers in default and therefore were not penalised.
The ROC directed the company and its directors to pay the penalties within 90 days and rectify the default. The penalty amounts payable by directors must be paid from their personal funds.
The order also allowed the company to file an appeal before the Regional Director within sixty days under Section 454 of the Companies Act.
Compliance Lessons for Companies
The case highlights the importance of maintaining robust corporate compliance systems.
Companies that cross statutory thresholds must ensure timely appointment of a secretarial auditor and completion of the audit process.
Key compliance practices include:
• Monitoring financial thresholds that trigger secretarial audit requirements
• Maintaining compliance checklists for board reporting obligations
• Ensuring early appointment of practicing company secretaries as auditors
• Implementing internal maker-checker systems for statutory filings
The board of directors is also required under Section 134(5) of the Companies Act to confirm that adequate systems exist for ensuring legal compliance.
Failure to implement such systems can expose companies and directors to regulatory penalties.
Conclusion
The ROC’s decision in the case of Ardee Industries Limited demonstrates the strict enforcement approach adopted by regulators toward corporate compliance failures.
Secretarial audit is not a procedural formality but a mandatory governance requirement under the Companies Act. Companies crossing prescribed financial thresholds must ensure that the audit is conducted and the report is properly attached to the board report.
Failure to comply can result in significant penalties for both the company and its officers in default. Establishing strong compliance mechanisms and periodic internal reviews is therefore essential to avoid regulatory action.
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ROC Imposes ₹6 Lakh Penalty for Failure to Conduct Mandatory Secretarial Audit+
The Registrar of Companies (ROC), New Delhi, has imposed a penalty of ₹6 lakh on a company and its directors for failing to conduct a mandatory secretarial audit. The VakilKaro Brief: ROC Penalises Company for Non-Compliance with Secretarial Audit Requirements The Update The ROC imposed penalties on a company and its directors for failure to conduct a mandatory secretarial audit under Section 204 of the Companies Act.