The VakilKaro Brief The Update ROC Guwahati imposed penalty on a company after its financial statements were signed by disqualified directors, holding it a clear violation of Section 134 of the Companies Act. Key Issue Before ROC The central issue was whether financial statements signed by disqualified directors could be considered valid compliance under the Companies Act.
Disqualified Directors Can’t Validate Financials
Because compliance doesn’t excuse invalid signatures.
Key Takeaways
- The VakilKaro Brief The Update ROC Guwahati imposed penalty on a company after its financial statements were signed by disqualified directors, holding it a clear violation of Section 134 of the Companies Act.
- The Impact Even if directors continue in a defaulting company, their signatures on financials can still attract penalties, reinforcing strict compliance standards.
- Key Issue Before ROC The central issue was whether financial statements signed by disqualified directors could be considered valid compliance under the Companies Act.
- The company argued that the default was not intentional and relied on the proviso to Section 167(1)(a), which allows disqualified directors to continue in the defaulting company to complete pending compliances.
- It observed that even though disqualified directors may continue in a defaulting company for limited purposes, this does not validate their authority to sign financial statements in violation of statutory requirements.
The VakilKaro Brief
The Update
ROC Guwahati imposed penalty on a company after its financial statements were signed by disqualified directors, holding it a clear violation of Section 134 of the Companies Act.
The Impact
Even if directors continue in a defaulting company, their signatures on financials can still attract penalties, reinforcing strict compliance standards.
The Action
Companies must verify director eligibility before signing financials or risk penalties, even if the default was unintentional.
Background of the Case
The case involved M/s Rowriah Estates Private Limited, where the Registrar of Companies, Guwahati discovered that the financial statements and board report for the financial year 2018–19 were signed by directors who were already disqualified. These directors were disqualified under Section 164(2) for failure to file financial statements or annual returns for a continuous period. Despite this, they signed the financials on 20 August 2019. The issue came to light during an inquiry initiated under Section 206 of the Companies Act.
Legal Provisions Involved
The case primarily revolved around Section 134 of the Companies Act, 2013, which governs approval and signing of financial statements and board reports. Section 134(1) requires financial statements to be signed by authorised directors. If this requirement is violated, Section 134(8) prescribes penalties on the company and officers in default. Additionally, Section 164 deals with disqualification of directors, while Section 167 explains consequences such as vacation of office.
Key Issue Before ROC
The central issue was whether financial statements signed by disqualified directors could be considered valid compliance under the Companies Act. The company argued that the default was not intentional and relied on the proviso to Section 167(1)(a), which allows disqualified directors to continue in the defaulting company to complete pending compliances. They also requested leniency on the ground that they qualified as a small company.
Findings of the Adjudicating Officer
The ROC rejected the company’s justification and held that there was a clear violation of Section 134(1). It observed that even though disqualified directors may continue in a defaulting company for limited purposes, this does not validate their authority to sign financial statements in violation of statutory requirements. The violation was admitted by the company itself, making the case straightforward from a compliance perspective.
Penalty Imposed and Reasoning
Under Section 134(8), the company was liable for penalty up to Rs. 3,00,000 and officers in default up to Rs. 50,000 each. However, in this case, both directors who signed the financials had passed away. Therefore, the ROC imposed penalty only on the company. Considering the company’s status as a small company under Section 2(85), the adjudicating officer reduced the penalty and imposed Rs. 1,50,000 instead of the maximum amount.
Role of Small Company Benefit
Section 446B allows reduced penalties for small companies and certain other entities. The ROC applied this provision and granted relief, showing that while compliance violations are penalised strictly, mitigating factors can influence the quantum of penalty. This reflects a balanced approach between enforcement and proportionality.
Key Takeaways
This case highlights a very practical compliance risk. Director disqualification is not just a status issue. It directly affects the validity of corporate actions, including signing of financial statements. Companies cannot rely on technical arguments to justify non-compliance. Even unintentional lapses can lead to penalties. At the same time, the decision shows that authorities may consider factors like company size and circumstances while determining penalties.
Conclusion
The ruling reinforces a strict compliance culture under the Companies Act, 2013. Signing of financial statements is not a routine formality. It is a statutory act that must be carried out only by eligible and authorised individuals. For companies, the message is simple. Before filing anything, check who is signing it. Because one wrong signature can turn into a penalty.
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ROC Penalises Company for Financials Signed by Disqualified Directors+
The VakilKaro Brief The Update ROC Guwahati imposed penalty on a company after its financial statements were signed by disqualified directors, holding it a clear violation of Section 134 of the Companies Act. Key Issue Before ROC The central issue was whether financial statements signed by disqualified directors could be considered valid compliance under the Companies Act.