The Adjudication Order penalizes the Statutory Auditor for failing to comply with their reporting duties under Section 143 of the Companies Act, 2013.
📑 Adjudication Order Summary: Violation of Auditor Duties (Section 143)
The Registrar of Companies (ROC), Karnataka, issued an Order of Adjudication of Penalty against Ms. Monisha Parikh, Partner of Deloitte Haskins & Sells, the Statutory Auditor of Stanley OEM Sofas Limited, for the violation of Section 143 of the Companies Act, 2013, read with its rules, for the financial year 2020-21.
The ROC, acting as the Adjudicating Officer, imposed a penalty under Section 450 of the Act for the auditor's failure to adequately comment on certain non-compliances by the company in her Audit Report.
Key Violations by the Auditor (Section 143(3) Failure)
The inquiry found that the Auditor failed to comment, qualify, or provide any adverse remark in the audit report regarding the following violations by the company:
| S. No. | Nature of Violation | Non-Compliance by Company | Auditor's Failure to Report/Qualify | Penalty Imposed (under Sec. 450) |
| 1 | MSME Disclosures | The company had outstanding amounts payable to MSME (Micro, Small and Medium Enterprises) (₹57.05 Lacs as of 31.03.2020 and ₹52.04 Lacs as of 31.03.2021) but failed to disclose details of interest due, payable, and accrued interest in the financial statements for both 2019-20 and 2020-21. | The Auditor's submission that the accrued interest (₹13,000) was "clearly trivial" was not accepted, as the disclosure is a statutory obligation and not based on materiality. | ₹10,000 |
| 2 | Related Party Disclosure (AS-18) | The company failed to disclose the names of five entities in the AS-18 statements (Related Party Disclosures) for 2019-20 and 2020-21, despite directors Mr. Sunil Suresh and Shubha Sunil having a controlling stake in them. Control was also established in one entity through the holding company's director's shareholding. | The Auditor's clean chit in the audit report was deemed a failure to report the non-disclosure of related entities. | ₹10,000 |
| 3 | Related Party Transactions (Section 188) | The company had huge related party transactions but merely stated they were at "arm's length basis" by quoting a Board Resolution passed five years prior. Form AOC-2 (Abstract of the terms of contract) failed to disclose the salient terms of the contract, thus violating Section 188 read with Section 184. | The Auditor had certified in the Audit Report (Annexure B, para xiii) that the company was in compliance with Section 188 of the Act. This certification, despite the company's non-disclosure of salient terms and reliance on old resolutions, was rejected by the ROC. | ₹10,000 |
Adjudication Outcome
Total Penalty Imposed: ₹30,000 on Ms. Monisha Parikh, the Statutory Auditor.
Compliance Action: The Auditor is directed to pay the penalty within 90 days and file Form INC-28 with a copy of the Order and payment challans.
Appeal: An appeal may be filed with the Regional Director (South East Region), Hyderabad, within 60 days in Form ADJ.
📝 Compliance Alert for CS Professionals
🚨 Auditor Penalized ₹30,000: When 'Trivial' MSME Interest and Clean Chits on RPTs Become Non-Compliance
The Adjudication Order by the Registrar of Companies (ROC), Karnataka, against the Statutory Auditor of Stanley OEM Sofas Limited serves as a stern reminder of the non-negotiable nature of Auditor duties under Section 143 of the Companies Act, 2013. The penalties imposed confirm that auditors are the statutory watchdogs, and a "clean chit" is only acceptable when compliance is pristine.
1. The MSME Disclosure Trap: Statutory Obligation Trumps Materiality
This case offers a critical lesson: MSME disclosures are a statutory mandate, not a materiality-based judgment.
The company failed to disclose the mandatory details of interest due and payable to Micro, Small and Medium Enterprises (MSMEs) despite outstanding dues exceeding ₹50 lakhs. The Auditor argued that the calculated interest amount (₹13,000) was "clearly trivial".
The ROC's Ruling: The Adjudicating Officer rejected the materiality argument outright, stating that disclosure pertaining to MSME is borne out of a statutory obligation and not "Materiality".
This emphasizes that Section 143(3) requires auditors to comment on any non-compliance with the Act, and failure to disclose MSME interest as required under the MSMED Act is a default that must be noted, regardless of the amount.
2. The Clean Chit Dilemma: RPT and Section 188 Violations
The Auditor was also penalized for giving a clean opinion on compliance with Section 188 (Related Party Transactions - RPTs), which was found to be violated on two counts:
Failure to Disclose Related Parties (AS-18): The company failed to list five related entities in the AS-18 notes, despite common control through directors' controlling stakes. The auditor's clean report was a failure to detect and report this non-disclosure.
Missing 'Salient Terms' in AOC-2: The company merely justified RPTs as "arm's length" by referring to a Board Resolution passed years ago and failed to disclose the salient terms of the contracts in Form AOC-2 (Board's Report Annexure).
The ROC's Stance on Section 188: The ROC clarified that a blanket resolution passed years ago cannot be treated as compliance, as the "interest" of related parties and the transactions themselves require yearly review. The missing salient terms in AOC-2 means there is simply no compliance with Section 188.
The Auditor's certification of compliance in the Audit Report, therefore, directly contradicted the statutory facts and led to a penalty.
3. The Final Word: Liability of the Professional
A total penalty of ₹30,000 was imposed on the Auditor for these three distinct failures under the purview of Section 143.
Key takeaway for Company Secretaries and Auditors: Your opinion on the financial statements and disclosures is your legal exposure. Any non-compliance, however "trivial" the financial amount, must be disclosed or qualified if it pertains to a specific statutory requirement (like MSME interest or RPT disclosures), or you risk penalty under Section 450 of the Act.
Ensure your company's records—especially AOC-2, Board's Report, and Notes to Accounts—are robust and reflect complete, updated compliance with Section 188, AS-18, and the MSMED Act.
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