Prof R Balakrishnan – [2025] 172 taxmann.com 415 (Article)
1. Background of this case
This is a case pertaining to a company called M/s. Faurecia India Private Limited who failed to obtain the secretarial audit report for the financial year 2020-21 and failed to annex the same to the board report of the company. In this case, the company had a significant amount of borrowings and therefore was subject to the mandatory requirement of obtaining the secretarial audit report and the company failed to obtain the secretarial audit report and attach the same to its board report which ultimately led to the penalties under the provisions of section 204(4) of the Companies Act 2013. The Registrar of Companies of Maharashtra, Pune, after following the due procedure, had issued an adjudication order against M/s. Faurecia India Private Limited for violating the provisions of section 204 of the Companies Act 2013 and levied penalty of Rs. 12 lakh upon the company, its managing director, and upon 3 of the directors and also upon the company secretary. Besides levying the penalty, the Adjudication Officer had also directed the company and its officers to rectify the defect by filing a revised board report along with the secretarial audit report obtained from the practicing company secretary. Let us go through this case in details in order to understand the intricacies involved and the compliance provisions along with the consequences of the non-compliance and the rationale behind levying the penalty by the regulators.
2. Provisions relating to the cases discussed under the Companies Act 2013.
The following are the relevant provisions under the Companies Act 2013, relevant to the case as given below.
| Companies Act 2013 Chapter XIII – Appointment and Remuneration of Managerial Personnel Section 204 – Secretarial Audit for bigger Companies |
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| Section | Provisions |
| 204 (1) | Every listed company and a Public Company having paid up share capital of Rs.50 Crore or more; or having turnover of Rs.250 Crore or more or every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more shall annex with its Board’s report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed. |
| 204 (2) | It shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for auditing the secretarial and related records of the company. |
| 204 (3) | The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall explain in full any qualification or observation or other remarks made by the company secretary in practice in his report under sub-section (1). |
| Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 (Effective from the 1st day of April 2014) Rule 9 – Secretarial Audit Report |
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| Rule 9 (1) | For the purposes of sub-section (1) of section 204, the other class of companies shall be as under: – |
| Rule 9 (1) (a) | every public company having a paid-up capital of fifty crore rupees or more or |
| Rule 9 (1) (b) | every public company having a turnover of two hundred fifty crore rupees of more or |
| Rule 9 (1) (c) | every company having outstanding loan or borrowing from banks or public financial institution of one hundred crore rupees or more. |
| Explanation | For the purposes of this sub-rule, it is hereby clarified that the paid-up share capital, turnover, or outstanding loans or borrowing as the case may be, existing on the last date of latest audited financial statement shall be taken into account. |
| Rule 9 (2) | The format of the Secretarial Audit Report shall be in form no MR-3 |
| Companies Act 2013 Chapter XIII – Appointment and Remuneration of Managerial Personnel Section 204 – Secretarial Audit for bigger Companies |
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| Penal section for non-compliance/default if any | |
| 204 (4) | If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be liable to a penalty of two lakh rupees. |
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