MCA Fines Company and Directors ₹9 Lakh for Ignoring Auditor’s Remarks

Introduction

What Went Wrong?

Nidhi Limited, a company registered under the Companies Act, 2013 with an authorized capital of ₹15 lakhs, failed to comply with key statutory requirements in its Board of Directors’ reports for the financial years 2017–18 and 2018–19. Specifically, the company neglected to address remarks made by its statutory auditor.

MCA’s Findings:

The Board’s reports lacked mandatory explanations or comments on auditor qualifications and remarks.
This violates Section 134(3)(f) of the Companies Act, 2013, which requires the Board of Directors to comment on every qualification, reservation, adverse remark, or disclaimer made by the statutory or secretarial auditor.
A Show Cause Notice was issued on 25th April 2024, but neither the company nor its directors responded. As a result, no hearing was granted, and the penalty was imposed directly.

Penalties Imposed:

Company Fine: ₹3 lakhs per financial year
Directors’ Fine: ₹50,000 per director, per year (3 directors = ₹1.5 lakhs per year)

Total Penalty Breakdown:

FY 2017–18: ₹4.5 lakhs
FY 2018–19: ₹4.5 lakhs
Grand Total: ₹9 lakhs

The company and its directors are required to make the e-payment within 90 days of receiving the MCA order

How to Avoid This Kind of Non-Compliance

1. Review Auditor’s Reports Thoroughly

Read the statutory and secretarial audit reports carefully.
Identify any qualifications, adverse remarks, or disclaimers.

2. Include Clear Explanations in the Board’s Report

Under Section 134, provide detailed explanations for every negative comment.
Address:
- Why the issue occurred
- What steps the Board is taking to resolve it
- Corrective measures already implemented

3. Maintain Strong Internal Documentation

Keep records of board discussions and internal resolutions related to auditor comments.

4. Seek Professional Assistance

Engage Company Secretaries, Chartered Accountants, or Legal Experts to review your reports and filings.

5. Timely Filing of Annual Returns

File key documents like AOC-4, MGT-7, and the Board’s Report on time to avoid legal repercussions.

6. Respond Promptly to MCA Notices

Never ignore a Show Cause Notice from the Registrar of Companies.
Respond within the stipulated timeline and attend any scheduled hearings.

7. Conduct Periodic Compliance Audits

Perform a compliance check annually using scorecards or third-party audits to detect and address gaps early.
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About the Author

Muskan
Muskan is a skilled legal content writer known for simplifying complex legal and compliance topics into clear, practical insights. Her writing helps entrepreneurs confidently understand and manage the legal aspects of running a business, from startup to scale-up.

June 26, 2025