Roc Hyderabad Imposes Rs. 40,000 Penalty On Sai Silks (Kalamandir) Limited And Directors For Non-Disclosure Of Asset In Rs. 50.94 Million Impairment Loss

The Registrar of Companies, Hyderabad has held imposed a penalty of Rs. 40,000/- on Sai Silks (Kalamandir) Limited and its directors for failure to disclose the nature of the asset associated with an impairment loss of Rs. 50.94 million. IND AS 36 deals with the impairment of assets. This standard requires companies to ensure that their assets are carried at no more than their recoverable amount. If the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired, and the company must recognize an impairment loss. IND AS 36 outlines the procedures for identifying, measuring, and reporting such impairment losses to ensure that financial statements reflect the true value of the company's assets. Brief Facts: Sai Silks (Kalamandir) Limited received a notice from the Registrar of Companies (RoC) which pointed out a discrepancy in the company's financial statements for the fiscal year ending March 31, 2022. It noted that the company reported an impairment loss of Rs. 50.94 million for an individual asset but failed to disclose the nature of this asset. This omission was deemed a violation of the disclosure requirements under IND AS 36, which impacted the accuracy and fairness of the company's financial reporting. The Ministry of Corporate Affairs (MCA) further investigated and held that there was a reasonable cause to believe that the company and its officers had breached Section 133 of the Companies Act, 2013. This section mandates that financial statements must adhere to accounting standards prescribed by the Central Government, in consultation with the Institute of Chartered Accountants of India and the National Financial Reporting Authority. In response to the RoC notice, the Company and its officers in default filed an application under Section 454 of the Companies Act, 2013 which was received by the office. In their application, the they contended that the non-compliance with the disclosure requirements was due to circumstances beyond the control of the company's management and was not driven by any malafide intentions. They argued that the omission did not harm the interests of the company's members, creditors, or other stakeholders. Observations by the RoC: The RoC held that the company failed to adequately disclose an impairment loss of Rs. 50.94 million for an individual asset in its financial statements for the year ended March 31, 2022. It did not reveal the nature of the asset associated with this impairment loss which constitutes a violation of Section 133 of the Companies Act, 2013 read in conjunction with Indian Accounting Standard (Ind AS) 36. Section 133 of the Companies Act mandates that the Central Government may prescribe accounting standards or any addenda to them, as recommended by the Institute of Chartered Accountants of India after consulting with and reviewing recommendations from the National Financial Reporting Authority. Further, the RoC noted that Section 450 of the Companies Act, 2013, provides for penalties when a company, its officers, or any other person contravenes the provisions of the Act or its rules, for which no specific penalty or punishment is prescribed elsewhere. In this case, the penalty includes an initial fine of ten thousand rupees, with an additional penalty of one thousand rupees per day for continuing contraventions subject to a maximum limit depending on whether the contravener is a company, an officer in default, or any other person. The RoC reviewed the admissions made by the Managing Director and other officers in the application and held that the company violated Section 133. The RoC held that the imposition of penalties was justified and necessary to address the contravention of statutory provisions. Therefore, the RoC imposed a penalty of Rs. 10,000/- on each officer in default, including the Managing Director, Chief Financial Officer, and Company Secretary and Compliance Officer. The total penalty imposed on the company and its officers amounted to Rs. 40,000/-. Click Here To Read/Download Order

Roc Hyderabad Imposes Rs. 40,000 Penalty On Sai Silks (Kalamandir) Limited And Directors For Non-Disclosure Of Asset In Rs. 50.94 Million Impairment Loss

Rajesh Kumar

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