Regulatory Compliance Consequences

Title
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Changed Regulatory Scenario:
Dreadly Consequences of Non-
Compliance
 Adjudication orders issued by ROC
 Schedule III Fallouts
 Commonly Encountered Mistakes/Errors
regarding various laws like Income Tax, Co. law,
GST, etc.
- BY CA BHARAT SONKHIYA
R SOGANI & ASSOCIATES
CHARTERED ACCOUNTANTS
Email: bharat@soganiprofessionals.com Address: “Shree Dham” R-20, Yudhister
Website: www.soganiprofessionals.com Marg, C-Scheme, Jaipur, 302005

Why Discussion on this topic is
important?
 Government is focused on 100% compliance.
 Departmental Audit & Involvement of Government in Businesses has been
increased.
 Compliance provisions of various law & reporting requirements have been
increased.
 Easy to trigger non-compliances & defaults by technologies like AI &
Machine Learning.
 Integration of different portals of government.
 Consequences of defaults are very severe- High penalties, Prosecution,
Loosing trust of stakeholders.
 Stakeholders are becoming more aware.
 In future, categorisation in compliant & non-compliant can happen.

Adjudication Orders
Issued by Various
ROCs

JOURNEY OF MINISTRY OF
CORPORATE AFFAIRS PORTAL
Functioning Process
(Before MCA Portal)
 Manual processing of forms
 Paper based transaction
 Manual verification of documents
 Time consuming process
 Challenge in scrutiny of data
submitted by companies due to large
data & manual processes.
 Physical Presence were required
 History of compliance data used to
available for a small period due to
physical records.
Before
2006
Functioning Process
(Version 1.0 to 2.0)
2006 to
2021
 Clerical to strategic approach
 Timely Compliance- E-forms
 Digital Submission and Online data
maintenance
 History of compliance data
 Scrutiny of data by data analytics
but restricted to limited data
 Less time consuming
 Increased Transparency related to
Data

INTRODUCTION TO MCA21
VERSION 3.0
During the FY 2021-22, MCA launched the data analytics driven MCA21 Version 3.0 i.e. technology-driven forward looking project
based on emerging technologies such as AI and ML. Following are the key components of the same:
E-Scrutiny
E-
Adjudication CMS Module
MCA Lab
E-
Consultation
 Filing of web-forms
 Set-up of Central Security
Centre for scrutinizing
Straight Through Process
(STP) E-Forms.
 End to end Digital
Process including online
hearings.
 Management of increased
volume of adjudication
process by ROC.
 Proposed amendments/
draft legislations will be
posted in a structured
digital format on MCA
website.
 Compliance management
system (CMS) will conduct
rule based compliance
checks
 Will undertake enforcement
drives.
 MCA Lab will be to evaluate
the effectiveness of CMS and
other e-modules
 Help in ensuring correctness of
results produced by modules

E-SCRUTINY: INCREASE IN NUMBER
OF ADJUDICATION ORDERS
 The MCA has established Central Security Center for carrying out scrutiny of Straight
Through Processes (STP) e-forms filed by companies through notice of 18th March
2021. “The Random Sampling
of the returns will be
stratified. We decide on
the percentage of
returns that will be
collected for electronic
inspection,” said MCA
Secretary Rajesh Verma.
 The MCA has started random electronic scrutiny of company fillings from 2021. As per
the vision document (For 2019-24) of MCA, the ministry has electronically integrated
the MCA-21 system with CBDT, GSTN, ESIC, EPFO, NSDL, MSME and CSR Data
Portal.
 Scrutiny by MCA-21 Version 3.0, include a RED Flag System, under which following
points are considered:
 Companies with low paid-up share capital but high turnover
 High related party transactions
 Frequent resignations by auditors or directors

04
02
01
03
If balance of trade payables is appearing for
MSME Vendor & MSME-1 not filed by company.
POSSIBLE INSTANCES OF E-SCRUTINY
Details of Promoters in FS and in MGT 7/7A does
not match.
If company has not mentioned or wrongly
mentioned CIN, Address, Website etc.
If any loan for which charge was created, does not
appear in FS & CHG-4 also not filed for satisfaction of
charge.

08
06
05
07
Balances of deposits in FS and DPT-3 not
matching or DPT-3 not filed.
POSSIBLE INSTANCES OF E-SCRUTINY
Loans are appearing in FS and CHG-1 has not
been filed for the same.
More than 120 days intervene between two consecutive
meetings of the Board as mentioned in Board report and
MGT 7.
High deviations in ratios of company in financial
statements.

CONSEQUENCE OF NON-COMPLIANCE/OFFENCE?
These are compounding offences &
imposed by RD/NCLT directly.
These are non- compounding offences &
imposed by NCLT directly.
Penalties are imposed by
ROC/AO after adjudication.
By amending the companies act, govt is amending ‘fine’ word with
‘penalty’ in some of provisions.

SUBSTITUTION OF FINE BY PENALTY
Fine
Penalty
Fine is the amount of the money that
a court can order to pay for an
offence after a successful
prosecution in a matter.
A penalty is imposed by an
appropriate authority when a
person have not complied with the
law but have not committed any
offence.
One of the major highlight of the
Companies (Amendment) Ordinance,
2018, is re-categorisation of certain
‘acts’ punishable as compoundable
offences to ‘acts’ carrying civil
liabilities i.e. re-categorisation from
Fine to Penalty.
Why this amendment or re-categorisation from Fine to
Penalty is a major change?
With the re-categorisation of Fine to Penalty, ROC or MCA or any other
authority as may be prescribed; may start levying penalty directly on the
defaulting companies rather than filing application with NCLT and getting an
order for payment of Fine by the defaulting companies. This is a welcoming
step from the government as it will reduce the burden of NCLT.

CASE OF SUBSTITUTION OF FINE BY PENALTY
If a company fails to file its annual return under sub-section
(4), before the expiry of the period specified therein, the
company shall be punishable with fine which shall not be
less than Rs. 50,000 but which may extend to 5 lakhs rupees
& every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to
6 months or with fine which shall not be less than 50000 but
which may extend to 5 lakh rupees, or with both.”
If any company fails to file its annual return under sub-
section (4), before the expiry of the period specified
therein, such company and its every officer who is in
default shall be liable to a penalty of Rs. 50000 & in case
of continuing failure, with further penalty of one hundred
rupees for each day during which such failure continues,
subject to a maximum of 5 lakh rupees.
Let us analyse amendment to Section 92(5) (Annual Return) of the Companies Act, 2013:
Prior to this amendment, when MGT-7 (Annual Return) was not filed within time, Company was liable to pay a fine ranging from Rs. 50,000
to Rs. 5,00,000. This fine was levied by the NCLT after hearing all the parties. With the re-categorisation of this offence to PENALTY, now
ROC/MCA, can levy PENALTY upto Rs. 5,00,000 directly without issuing notice or moving to NCLT for the same.
Click here for details of sections where fine has been substituted by penalty.

MEANING OF ADJUDICATION ORDERS
Adjudication Order of ROC Means
Final Orders issued by ROC/adjudication officer for
defaults/non-compliance after giving notice and
opportunity of being heard.
Who can adjudicate penalties?
The Central Government may appoint any of its
officers, not below the rank of Registrar, as
Adjudicating Officers for adjudicating penalty under
the provisions of the Act.

ADJUDICATION OF PENALTIES
Jurisdiction of Adjudication officer
MCA has vide Notification No. S.O. 831(E) dated 24.03.2015
appointed various ROC’s as adjudicating officer for adjudging
penalties in their respective jurisdiction.
The Appeals, if any, filed before the concerned Regional Director shall
be disposed of in accordance with the notification G.S.R.763 (E),
dated the 15th October, 2012.
On whom penalties may be imposed?
Adjudication officer may impose the penalties on Companies and
officer in Default and any other person (“any other person” was
inserted by Companies Act, 2013.

4. Opportunities of being heard is given to
defaulters
The act provides for providing of opportunity of
being heard before imposing of any penalty to
the Company, or officer in default, or any other
person.[Section 454(4)].
5. Enquiry by Adjudication Officer- Notice
for hearing
If the AO is of the opinion that physical
appearance is required, he shall issue a
notice, within a period of 10 working days from
the date of receipt of such reply.
6. Issuance of Order by AO
AO shall pass an order:
a) Within 30 days from the expiry of period to
show cause. OR
b) Within 90 days from issue of notice where any
person has appeared.
1. Preparation of FS and Filling to MCA
Companies prepares the FS and other reports as
required by MCA under the companies act 2013 and
by various notifications and rules. Company duly files
the same with MCA withing the prescribed time.
2. Scrutiny of data of companies by
MCA
Due to MCA21 Version 3.0 i.e. a
technology-driven portal, MCA scrutinize
the data submitted to it with ease and
identify the cases of default or non-
compliance.
3. Issue of show cause notice to
Company and officer in default
The adjudicating officer shall issue a written
notice to the defaulters indicating the nature
of non-compliance & default.
PROCESS OF ADJUDICATION

Quantum of Penalty on Adjudication u/s 454
Provided that, in no case, the penalty imposed shall be less than the minimum penalty
prescribed, if any, under the relevant sec. of the Act.
Under Rule 3(12) the Adjudicating Officer while adjudging the quantum of Penalty
shall have due regards to the following factors:
 Size of the Company
 Nature of business carried on by the Company
 Injury to public interest
 Nature of default
 Repetition of the default
 The amount of disproportionate gain or unfair advantage, wherever
quantifiable
 Loss caused to an investor or group of investors or creditors
Wherein a fixed sum of penalty is provided for the default of a provision, the AO shall impose
that fixed sum, in case of default therein.

Proviso to Section 454 Section : Penalty for repeated Defaults
In case the default relates to non-compliance of Section 92(4)- Filing of
Annual Return to ROC or 94(1)- Place of keeping & inspection of
Registers, Returns etc. or Section 137(2)- Filing of Audited FS in AOC-
4 & such default has been rectified either prior to, or within 30 days of,
the issue of the notice by the adjudicating officer, no penalty shall be
imposed in this regard and all proceedings u/s 454 in respect of such
default shall be deemed to be concluded.
If any Company, officer of a Company or any other
Person default within a period of 3 years from the date
of order imposing such penalty passed by the AA or
the RD then Penalty will be imposed of an amount
equal to twice the amount of penalty provided for
such default
Proviso to Section 454 and Introduction of Section 454 A

 Order Date & ROC
 Order issued to
 Violation of Provision
 Final Penalty Imposed
 Fact of the Case
ROC Gujarat, Dadra & Nagar
Haveli issued the adjudicating
order on 30th September 2022.
For Detailed Order: Click Here
M/s. ERIS HEALTHCARE
PRIVATE LIMITED
CIN: U24211GJ2013PTC113419
Registered Address: Bodakdev,
Ahmedabad,Gujarat,380054
India.
In procedural scrutiny, it was
observed that company has
advanced loan to the subsidiary
company in which Directors of
the Company were interested
and in this matter the Company
has passed necessary Special
Resolution pursuant to Section
185 of the Companies Act, 2013
in the General Meeting of
Shareholders of the Company
however Company has not
filed Form MGT-14 with ROC
and to that extent Company
has not complied with the
provisions of the Act.
The non-compliance of Section
117 read with Section 185 of
the Companies Act 2013-
Resolutions and Agreements
to be filed.
On Company- Rs. 91,000
On Each Director - Rs. 50,000
CASE 1: ADJUDICATION ORDER FOR NON-FILING OF MGT-14

 Order issued to
ROC, Bihar, Patna issued the
adjudicating order on 19th
September 2022.
GSHP MUTUAL BENEFIT
INDIA LIMITED
CIN: U65991BR2013PLC020159
Registered Address: Ward no.
18, Circle No. 6 Patna Bihar
800001 India.
Company was in default for
filing its Financial
Statements for the FY 2019-20
till the date with the ROC,
Patna. Hence, ROC issued show
cause notice for default under
section 137 of companies act,
2013 but company has not
replied against the same notice
and then ROC issued ‘Notice for
hearing’ and company and its
director had not presented for
hearing.
Due to that company was in
failure in compliance of section
137 (1) of the companies act,
2013.
Default of Section 137 of the
companies act, 2013 - Copy of
Financial Statement to be Filed
with Registrar.
CASE 2: ADJUDICATION ORDER FOR DEFAULT IN FILING OF FINANCIALS
Under section 137 (3), following
penalties were imposed.
On Each Director- Rs. 50,000

 Order issued to
ROC, Gujrat, Dadra & Nagar
order on 21st June 2022.
JAGDISH SILK MILLS
PRIVATE LIMITED
CIN:U17116GJ1994PTC022390
Registered Address: Plot-65, 1st
Floor, Subhash Nagar Society,
Ghod Dod Road, Nr. Ram
Chowk, Surat, Gujrat -395001
During the procedural scrutiny
of Annual Return/Financial
Statements filed by the
Company under MCA 21 portal,
it was observed that the
Company has 2 Secured Open
Charges in favour of Bank of
Baroda. However the said
secured loan have not been
reflected in the Balance sheet
as at 31.03.2020 of the
Company filed under the MCA
21 Portal. Thus it has revealed
that the Company has not
filed CHG-4 for satisfaction of
charge, hence the company has
violated the provisions of
Section 82 of the Companies
Act, 2013
companies act, 2013 – Non
Filling of CHG -4 for satisfaction
of charge.
CASE 3: ADJUDICATION ORDER FOR NON FILING OF CHG-4
Under section 86 & 446B,
following penalties were
imposed.
On Company- Rs. 7,50,000

 Order issued to
ROC, Delhi, issued the
adjudicating order on 25th May
2022.
PITCHERS INTERNET
PRIVATE LIMITED
CIN: U72900DL2017PTC310458
Registered Address: B-39, 1st
Floor, Block B, Connaught
Place, Landmark: Near Park,
New Delhi 110001.
It had been noticed that the
Whole Time Company Secretary
had resigned from the Company
on 15.10.2019 and the
Company appointed another
Whole Time Company Secretary
on 10.05.2021 even during that
period Company was having a
paid up Capital more than 10
Crores so the Company has
defaulted u/s 203 for not
appointing Whole time CS
during that period under the
Companies act , 2013.
appointment of Key managerial
Person (includes Whole Time
Company Secretary)
CASE 4: ADJUDICATION ORDER FOR NON-APPOINTMENT OF CS
Under section 203 (4), following
On Each Director- Rs.
4,41,000

 Order issued to
ROC, Bihar, Patna issued the
September 2022.
GSHP MUTUAL BENEFIT
INDIA LIMITED
CIN:U65991BR2013PLC020159
Registered Address: Jamal
Road, Kumer Complex, Block A,
PS Gandhi Maidan Ward no. 18,
Circle No. 6 Patna Bihar 800001
The Company was in default
for filing its Annual Return for
the Financial Year 2019-20 with
the ROC, Patna. Accordingly
Proceedings against the
Company and its Directors were
initiated. Hence show cause
notice under Section 454 of the
act for violation of Section 92 of
the act have been issued to the
Company.
Filling of Annual Return.
CASE 5: ADJUDICATION ORDER- DEFAULT IN FILING OF ANNUAL RETURN
Under section 92(5), following

 Order issued to
ROC, Delhi issued the
November 2021.
RUNXIN GIFT BOX PRIVATE
LIMITED
CIN:U36994HR2018FTC07306
0Registered Address :B-06-606,
6th Floor Tower B, Global
Business Park, M.G. Road
Gurgaon- 122002
ROC issued a order for penalty
u/s 454 of companies act, 2013
for violation of section 12(1).
It was found that when RD
send the order to Company
which have returned back
undelivered with Postal Marks
Left that indicates that
Company is not maintaining
its registered office and
violated u/s 12(1) of the
Companies Act.
Default of Section 12(1) of the
Maintenance of Registered
Ofiice.
CASE 6: ADJUDICATION ORDER FOR NON MAINTAINANCE OF REG. OFFICE
1,00,000

 Order issued to
order on 13th April 2022.
Order No. : ROC-G/77-
ADJ/Order u/s 454/STA(V)/
2021-22/ Registrar of
Companies, Gujarat, Dadra &
Nagar Haveli
DJ SHAH INVESTMENT
FINANCE PRIVATE LIMITED
Registered Address: Gujrat
ROC Gujrat, Dadra & Nagar
Haveli issued a order for
violation of Section 137(1) r.w.s.
129 and Schedule III of the
Companies Act, 2013 read with
Rules made thereunder for
failure to attach Note No. 8 to
accounts regarding Tangible
Assets under the head Fixed
Assets in the Financial
Statements/Balance Sheet as
at 31st March 2018.
companies act, 2013 – Copy of
financials statement to be filed
with Registrar.
CASE 7: ADJUDICATION ORDER FOR MISSING NOTE OF ASSETS IN FS

 Order issued to
order on 17th February 2022.
CENTONO SOLUTIONS PRIVATE
LIMITED
CIN:U72900GJ2021PTC121704
Registered Address: F.P No. l34
l40, Cental Bazaar, Opp Puja
Abhishek Building' vesu' sumt-
395007
ROC issued a order for penalty
u/s 454 of companies act, 2013
for violation of section
10A(1)(a). Rule 23A of the
Companies (incorporation) Rules,
2014 provides that the declaration
under section 10A by a director
that every subscriber to the
memorandum has paid the value
of shares agreed to be taken by
him shall be in e-Form namely
INC-20A. The company has failed
to file the e-form INC-20A and
therefore, default has occurred in
complying with the aforesaid
statutory provisions by non-filing
of the declaration of
commencement of business
(INC-20A) within the prescribed
statutory Period.
Default of Section 10A of the
companies act, 2013 –
Commencement of Business.
CASE 8: ADJUDICATION ORDERS FOR NON-FILING OF INC-20A
Under section 10A, following
1,00,000

 Order issued to
ROC, Bengaluru, Karnataka
issued the adjudicating order
on 1st July 2022.
SOLID FINANCIAL
TECHNOLOGIES PRIVATE
LIMITED
Registered Address: 315, 1ST
Floor, 6th Main, HAL 2nd Stage,
Indra Nagar, Bengaluru, 560038
Every Company is required to
mention its name, address of its
registered office and Corporate
Identity Number along with
telephone number, fax number,
if any e-mail and website
address should be mentioned in
the letterhead of the Company
but it has been noticed from the
attachment of the Company
that Company’s CIN was not
mentioned on the letterhead
of the Company and hence
made default under section
12(8) of the Companies act,
2013.
mentioning CIN on the
Letterhead of the Company
CASE 9: ADJUDICATION ORDER- NOT MENTIONING CIN ON LETTERHEADS

 Order issued to
ROC, Maharashtra, Pune
on 20th September 2022.
DANA INDIA PRIVATE
LIMITED
CIN: U74999PN2000PTC015131
Registered Address: Hinjewadi,
Mulshi, Pune, Maharashtra-
411057, India.
The company has failed to
conduct four meetings of its
board for the financial year
2019-2020 in such a manner
that not more than 120 days
intervene between two
consecutive meetings of the
board.
The company conducted one of
board meeting on 15.10.2019
and next meeting on
25.02.2020, having the gap of
133 days between the two
meetings. The meeting should
be conducted on or before
13.02.2020.
Violation of Section 173 (1)-
*First Board meeting- within 30
days of incorporation.
*Minimum four board meetings
every year.
*Not more than 120 days shall
intervene btw 2 consecutive
meetings of the Board.
Penalty on the officers in
default pursuant to Rule 3(12)
of Companies (Adjudication Of
Penalties) Rules, 2014- Rs.
25,000 per officer on 4 officers.
CASE 10: ADJUDICATION ORDER FOR GAP IN BOARD MEETING >120 DAYS

 Order issued to
ROC, Gujarat, Dadra & Nagar
order on 23rd September 2022.
M/S. SHRINIDHI SAFE VAULT
PVT LTD
CIN: U74999G1991PTC016239
Registered Address: Pipla Sheri
Mahidharpura, Surat - 395003,
Gujarat, India
It was observed from reply /
letters dated 04.10.202 that on
company’s letter head registered
address was mentioned as
“6/7A29 Laxminarayan Chamber
Mahidhar Pura, Surat 395003”
(Address 1) instead of “Basement
SY No.6/2152-2153, Sahjanand
Chamber, Pipla Sheri, Mahidhar
pura,, Surat
surat,Gujarat,395003,lndia”
(Address 2).
As the company was changed its
registered office address from
Address 1 to Address 2 w.e.f.
30.07.2021, for which the
company has filed INC-22 vide
SRNT35309731 on 12.08.2021
and the same was taken on record
through STP mode.
Violation of Section 12(3)(c)-
address of registered office
should be printed in all
business letters, billheads,
letter papers and in all notices
and other official publications of
company.
On Each Director- Rs. 1000
CASE 11: ADJUDICATION ORDERS FOR WRONG REGISTERED ADDERESS

PROCESS FOR APPEAL IN REGIONAL DIRECTOR

SECTION 450. PUNISHMENT WHERE NO SPECIFIC PENALTY OR
PUNISHMENT IS PROVIDED
If a company or any officer of a
company or any other person
contravenes any of the
provisions of this Act or the
rules made thereunder, or any
condition, limitation or
restriction subject to which any
approval, sanction, consent,
confirmation, recognition,
direction or exemption in
relation to any matter has been
accorded, given or
granted
For which no penalty or
punishment is provided
elsewhere in this Act,
the company and every
officer of the company
who is in default or such
other person
Liable to a penalty of ten
thousand rupees, and
where the contravention
is continuing one, with a
further fine which may
extend to one thousand
rupees for every day
after the first during
which the contravention
continues subject to a
maximum of two Lakh
rupees in case of
Company and fifty
thousand rupees in case
of an officer who is in
default.
For several offences, for which no specific penalty is provided in the Act, and are, thereby, punishable
under section 450- (Click here for details)

Fall Outs of
Schedule III
under Companies Act, 2013

Schedule III Amendments
Schedule III provides format and presentation requirement of financial of companies.
What are the objectives of Schedule III Amendments?
 The main aim of the amendments in Schedule III of the Companies Act, 2013 is to improve the transparency in the financial statements of
the company.
 By these amendments MCA is increasing stringency in compliance and adding numerous additional disclosures in Financial Statement, Directors
Report and Audit Report.
Why to comply with Schedule III Provisions?
 Not to invite adjudication orders & penalties of section 129 from ROC/MCA.
 Different government stakeholders like MCA, Income tax authority, GST authority etc are getting aligned- False data can attract scrutiny cases.
 For users and banks points of view- For correct picture of company.

Major Updates of Schedule III
32
Following are the main points to focus on them:
 Ageing schedule of Trade Payables to be disclosed.
 Ageing schedule of Trade Receivables to be disclosed.
 Reconciliation note of quarterly returns of current assets submitted with banks with financial
statements.
 Ratio Analysis
 Details of transactions with struck off companies
 Unspent CSR Disclosure

Commonly Encountered
Mistakes/Errors regarding
various laws

Spent CSR within 3 years from date of transfer.

Non-Compliances Penal Consequences
CSR not spent within a period of 3 years from the date of
such transfer.
Company- Twice of unspent amount or 1 cr. whichever is less.
Officer- 1/10th of unspent amount or 2 lakh, whichever is less.
In case of other than for ongoing project, unspent CSR as at
the end of financial year,
is not deposited in the funds specified under schedule VII
within 6 months of year end.
Company- Twice of unspent amount or 1 cr. whichever is less.
Officer- 1/10th of unspent amount or 2 lakh, whichever is less.
Unspent CSR Related Issues

 Order issued to
ROC, NCT of Delhi & Haryana
on 27th September 2022.
COMVIVA TECHNOLOGIES
LIMITED
CIN: U72200HR1999PLC041214
Registered Address: Golf Course,
Extension Road, Gurgaon, HR,
122102, India.
During the end of FY company
had an unspent amount of CSR
obligation of FY 20-21, Rs.
5,50,122 which was to be
transferred within 6 months of
the end of FY i.e. 31.03.2021 to
the fund specified in Schedule
VII of the act.
The company transferred such
unspent amount of CSR to PM
Relief Fund on 22nd April
2021. But due to technical
error, the said amount
bounced back into company’s
bank account on the same day
and it remained unnoticed to
company.
However default was made good
by company by depositing the
same amount on 30.03.2022.
Non-compliance of section 135
(5) r/w Rule 10 of the
Companies (Corporate Social
Responsibility Policy) Rules,
2014.
On Company Officers- Rs.
55,012 per person for 8
officers.
CASE : ADJUDICATION ORDERS BY ROC RELATED TO UNSPENT CSR

2. Loan
taken &
Given to
Directors

Prohibition on Loan by
Company to
Director
Any Partner of
Director
Any Relative of
Director
Director of
HoldingCo.
Individual
Loan to Managing or Whole
time director
L/G/S by a company in the
ordinary course of business
to company
G/S by H Co. to S Co. in
respect of loan by Bank or
FI
L/G/S by Holding Co. to
Wholly Owned Subsidiary
Co
Other than
Individual
Partnership Firm (If
Director or Relative of
Director is a partner)
Pvt. Ltd. Co.
(If Director is a director or
member)
Body Corporate
(If Director/s having atleast 25%
voting power)
Body Corporate
If BOD, MD or manager
accustomed to act as per directions
of director/s, board of lending co.
Other than
Individual
Exemptions
* As a part of condition
of service to all
employees
* Under Scheme By
Passing SR
Interest is charged at a
rate not less than bank
rate.
Provided that such
loans are used by
subsidiary co. for its
principal business
activity.
Penal Consequences for Contravention: Lender Company- Fine of 5 Lakh to 25 Lakh
Borrower Director- Imprisonment upto 6 months or Fine of 5 Lakh to 25 Lakh or Both
Sec 185

Non-Compliances Penal Consequences
Company has advanced loan to company in whom the
director is interested without passing the special resolution.
Company: Fine –Rs. 5 lakh to 25 lakh
Officer in default:
Fine –Rs. 5 lakh to 25 lakh
Imprisonment: Upto 6 months or Both
i) Loan received from director out of borrowed funds
ii) Declarations not taken from directors that loan has been
provided out of their own funds.
Such loans will be treated as deposits, then companies
accepting shall file the details of monies so accepted to the
Registrar in Form DPT-3 and must comply with Deposit Rules.
And company will have to give compulsorily interest on the loans.
Loan Given & Received From Directors

Non-Compliances Provision Penal Consequences
Payment to MSME Vendors has not been
made within 45 days from the date of
acceptance of goods/services.
The MSMED Act, 2006 specifies 45 day credit period for
the recipient of any goods or services to pay to the
MSME supplier.
Non payment to MSME vendors with-in 45 days
attracts interest @ rate three times of rate notified by
RBI. Vendors can demand for the interest by way of
legal notice.
Non-Filing of MSME-1 Form with ROC.
Where the Company has not made payment to MSME
vendors within 45 from the date of acceptance of goods
/services, then it is require to file the form MSME-1 with
ROC every half year:
i) April-September due date - 31st October
ii) October-March due date - 30th March
Companies- Fine upto Rs. 25,000
Officers- Fine of Rs. 25,000 to Rs. 3 lakh or
imprisonment upto 6 months or both.
MSME Related Issues

 Order issued to
ROC, Cuttack, Odisha issued
the adjudicating order on 29th
August 2022.
BHAGABAN MOHAPATRA
CONSTRUCTIONS AND
ENGINEERS PRIVATE LIMITED
CIN:U45202OR2001PTC006440
Registered Address: HIG 27,
Gourab Vihar , Madhuban ,
Paradeep , Jagatsinghpur , Orissa
It had been noticed that the
Company had not filed MSME
Form I, Accordingly
Proceedings against the
Company and its Directors were
initiated. Hence show cause
notice under Section 454 of the
act for violation of Section
405(4) of the act had been
issued to the Company.
compliance of MSME Form
CASE : ADJUDICATION ORDERS BY ROC FOR NON-FILING OF MSME-1
This matter was sub-judice
before the Jharkhand MSME
Court. Hence the present
Proceedings is hereby dropped.

Other Audit Related Issues
 Non-deduction/ Short-deduction of TDS: Companies should avoid deducting TDS/collection of TCS at a lesser
rate or non-deduction of TDS/collection of TCS, otherwise it could lead to 30% disallowance of the expense in
the current year.
 Late deposition of TDS/TCS: Companies should avoid late deposition of TDS/TCS to avoid serious
repercussions.
Please note that, if there is delay in deposit of TDS/TCS of amount exceeding Rs. 1,00,000/-, a notice of prosecution
might be served.
Nature of Default
Interest subject to
TDS/TCS amount
Period for which interest is to be paid
TDS not deducted/ TCS not collected (fully/partly) 1% per month
From the date on which tax is deductible to the date on which
tax is actually deducted.
TDS not deposited to the government after deduction
(fully or partly)
1.5% per month From the date of tax deduction to the date of deposit
TCS not deposited to the government after collection
(fully or partly)
1% per month From the date of tax collection to the date of deposit

 Violation of Section 269SS/T: Loan taken or given by way of accounting entries or cash.
 Cases of violation of Section 40A(3): Payments in cash in excess of Rs. 10,000/- to a person in a single day to
be avoided.
 Deemed Dividend – This will be treated as income in the hands of recipient and will be taxable thereon at 30-35%
approx.
 Advance Tax: Shortfall leading to interest burden as well as reporting in CARO
 Prior Period Expenses
 Mismatch in Information sheet from Books: Difference in data provided for audit and income tax return leading
to mismatch in data which may attract scrutiny by the department. The data should be given after due checking of
the Accounts department

 26AS, AIS and TIS reconciliation
 Excess GST input taken and cases of Blocked credit
 Non payment of GST on RCM: Liability is generally identified during the time of audit and then it is paid along
with interest which could have been saved
 Late deposition of ESI/PF: Companies should avoid late deposition of ESI/PF to safeguard themselves from
disallowance of employer’s contribution of ESI/PF.
 No actuarial valuation of Gratuity, Leave encashment, wherever applicable.
 GP-NP deviation as compared to previous year figures: GP-NP justification note to be made.

Overvaluation/Undervaluation of Stock:
 Proper Physical verification should be done at closing date i.e. 31st March, each year.
 The details of stock statement given to bank must match with the closing stock as mentioned in the audited
financials of that year.
 Profit remains undecided till stock is finalized Leading to Inaccurate payment of Advance tax, Self
Assessment Tax which further leads to unnecessary interest cost.
 Budgets cannot be made to ensure proper planning and execution for current year.
 Might lead to major deviation in GP-NP and other ratio analysis.
 Leading to delay in Audit

PREVENTIONIS BETTER THAN
CURE!!
In mentioned cases in above slides, small
non-compliances are being penalised, in case
of severe non-compliance, MCA/ROC can
impose huge penal consequence.
As per the MCA website, till now 1166
adjudication orders has been issued by
various ROCs.
Click here to refer the orders
WHY COMPLIANCES ARE REQUIRED?
MGT 14 filing fee
Rs. 500
MGT 14 non filing penalty
Rs. 1,00,000/-

PREVENTIVE MEASURES THAT SHOULD BE TAKEN BY
COMPANIES TO AVOID DEFAULT & PENALTY
Books Closure & Preparation of Financial
Statements
• Company should ensure to close their books on
monthly basis. There should be a maker and
checker concept internally as well.
• There is need of software integration as well.
• Financial Statements should be prepared with
due care and accurate information.
Compliance with laws becomes an integral part of business management and cannot be ignored. Merely providing documents/information for
ROC filing will not ensure 100% compliance, entities should ensure following points as well:
Maintenance of Statutory Records
• Company should document & maintain the
minutes of each meeting conducted internally or
with external parties on real time basis.
• All resolutions copy should be documented.
• Company should ensure to keep proof of dispatch
of notices of AGM & Financials to members.
Preparation of financial statements is ultimate responsibility of Management.

PREVENTIVE MEASURES- Continúe
Deciding Internal Timelines for compliances
Company should ensure to decide internal timelines
for legal compliances well before due dates such as
advance tax, TDS, GST & various return filing.
Strengthening accounts department
Entity should have a competent and strong accounts
team. Companies should conduct training sessions
for team to update them with various updates of
relevant acts.
In-house retainer for compliances
Company should appoint someone as a retainer for
all the ROC & Legal compliance for whole 12
months.
External Party
There should be a external consultant party to
mange the ROC and Legal Compliances and vetting
of documents should also be done on reasonable
intervals.
Half yearly balance sheet to be closed in proper and detailed format to understand all the required details for
financials.

Delay in data receiving & data
received nearby due dates.
Less involvement of top
management in audit issues.
Data not managed in proper
format for verification.
Less time for qualitative analysis
and better output.
Proper/Complete data not received
for compliance.
Change in data during the course
of audit, leading to duplication in
efforts.
Challenges faced by Auditors

Regulatory Compliance Consequences

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