Adjudication order under section 134

Adjudicating Order for violation of not attaching Form AOC-2 to Board report

Section 134 of the Companies Act, 2013 (Act) commonly outlines the mode of approving & signing the Board Report and also the list of attachments to be included to the Financial Statements. There shall be attached to Financial Statements laid before a Company in its Annual General Meeting, a report by its Board of Director’s, which shall include all necessary attachments as may be prescribed. As per sub– section 3(h) of this section, there shall be disclosure of particulars of contracts/arrangements entered into by the company with related parties in Form AOC-2.

Form AOC-2 discloses:

1.Details viz., name, nature and other salient terms of contracts or arrangements or transactions entered by the Company not at arm’s length basis

2.Details of material contracts or arrangement or transactions entered by the Company at arm’s length basis.

Further, The Form shall be signed by the Directors who have signed the Board’s report.

If any default is made in complying with the provisions of this section, the Company shall be liable to a penalty of Rupees Three lakh only (Rs. 3,00,000) and every officer of the Company who is in default shall be liable to a penalty of Rupees Fifty Thousand only (Rs. 50,000).

Facts of the case:

• The company in its Board’s report for FY 2018-19 and 2019-20 mentioned that the related parties’ transactions comply with section-134(h) of the Companies Act, 2013. However, no annexure relating to the particulars of the Contracts or arrangement with Related parties forming part of the Board report was attached.
• Therefore, the Company has not complied with section-134(h) of the Companies Act read along with rule-8 of the Companies (Accounts) Rules,2014.
• In view of the above, the Regional Director issued an Adjudication notice to the Company and its directors who were liable for violation and the same was accepted by the Company and its directors.
• The order was passed by the Regional Director imposing a penalty of Rs. 50,000 for each year on the Officers in Default totaling Rs. 1,00,000 as penalty amount

Refer the Order passed: Click Here

Conclusion

This order highlights the significance of including and attaching disclosures to the Financial Statements as mandated by Section 134 of the Companies Act which includes The Auditor’s Report, Board Report and Director’s responsibility statements and significant notes or disclosures from auditors to provide transparency regarding the company’s affairs.

However, it’s crucial for companies to ensure compliance with Section 134 to avoid potential legal consequences and maintain credibility. Non-compliance or misrepresentation in the board report could lead to penalties, fines, or other regulatory sanctions, which may tarnish the company’s reputation and affect its business operations.

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