20 April 2021
A Ltd Co. in its Company Master is showing 1.0 year 2011, authorized capital as 50 lakhs. 2.0 year 2021, authorised capital as 5 crore. In fact in BS of year 2012 & later the figure is deliberately is reported as 5 crore - no formality is done with the ROC to raise this capital. The balance sheets as on date carry the same figure of 5 crore. What steps to be taken in this case? How the responsibility be fixed - The directors, auditors, company? Whom to approach and how?
11 July 2024
In the scenario where A Ltd. has been reporting an authorized capital of 5 crore in its balance sheets without completing the formalities with the Registrar of Companies (ROC), here are the steps to be considered and the responsibilities of the directors, auditors, and the company:
### Steps to Address the Issue:
1. **Verification and Documentation**: - **Verify Records**: First, verify the accuracy of the information in the Company Master as per the ROC records and the balance sheets. - **Document Evidence**: Gather all relevant documents such as the memorandum of association, board resolutions, and filings with the ROC related to authorized capital.
2. **Directorial Responsibility**: - **Board Approval**: Determine if the increase in authorized capital was approved by the board of directors as per company law requirements. - **Filing Requirements**: Directors are responsible for ensuring that any change in authorized capital is formally approved and filed with the ROC. Failure to do so may lead to legal and regulatory non-compliance.
3. **Auditor's Role**: - **Audit Scope**: Auditors are responsible for examining the accuracy and compliance of financial statements, including the reporting of authorized capital. - **Audit Opinion**: If auditors have consistently approved financial statements showing an authorized capital of 5 crore without proper ROC filings, their role in verifying compliance could be questioned.
4. **Company's Action**: - **Rectification with ROC**: The company should immediately rectify the discrepancy by filing the necessary forms with the ROC to reflect the correct authorized capital. - **Disclosure**: Properly disclose any discrepancies or non-compliances in the next financial statements and related filings.
### Who to Approach:
- **Registrar of Companies (ROC)**: Contact the ROC to understand the process and requirements for correcting the authorized capital details. Prepare and submit the required forms and documents to rectify the records.
- **Legal Advisor**: Seek advice from a corporate lawyer specializing in company law to understand the legal implications and best course of action.
- **Auditors**: Discuss the issue with the auditors to understand their stance and ensure future compliance with audit and regulatory requirements.
### Responsibility Allocation:
- **Directors**: Responsible for ensuring compliance with company law, including proper approval and filing of changes in authorized capital.
- **Auditors**: Responsible for verifying the accuracy and compliance of financial statements, including disclosures related to authorized capital.
- **Company**: Responsible for rectifying the discrepancy by completing the necessary filings with the ROC and ensuring accurate reporting in future financial statements.
### Conclusion:
Addressing the issue of incorrect reporting of authorized capital requires immediate action to rectify the records with the ROC and ensure compliance with company law. Directors, auditors, and the company itself each have specific responsibilities in rectifying and preventing such discrepancies in the future. Seek professional advice to navigate the regulatory requirements and mitigate any potential legal consequences.
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