Adjudication of Penalty Under Section 454 for Violation of Section 134(3)(f) of the Companies Act, 2013: A Detailed Legal Analysis of the ROC Ahmedabad Order Against Topsun Energy Limited

1. Introduction

The Ministry of Corporate Affairs (MCA) continues to strengthen compliance standards under the Companies Act, 2013, particularly in relation to corporate financial reporting and statutory disclosures. A recent adjudication order issued by the Registrar of Companies, Ahmedabad, highlights strict scrutiny regarding compliance with Section 134(3)(f), read with Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, concerning audit trail (edit log) requirements in accounting software.

The present adjudication order dated 02 December 2025 is issued against:

• Topsun Energy Limited (CIN: U31900GJ2007PLC051489), and

• Mr. Chintan Gandabhai Patel, Managing Director (DIN: 01660438),

for default relating to non-compliance with the mandatory disclosure under Section 134(3)(f) for the financial year 2023–24.

This article provides a comprehensive legal analysis of the order, the statutory framework, the applicable penalties, and practical implications for companies and directors.

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2. Statutory Framework

2.1 Section 134 of the Companies Act, 2013 – Financial Statements and Board’s Report

Section 134 governs the preparation, approval, authentication, and disclosures pertaining to financial statements and the Board’s Report.

Section 134(3)(f) specifically mandates that the Board’s Report shall include:

“A statement indicating development and implementation of a risk management policy for the company including identification of elements of risk, if any.”

However, due to the 2022 amendment to Rule 11(g) and its linkage with the auditor’s reporting responsibility, this clause now indirectly aligns with compliance relating to audit trail implementation in accounting software.

2.2 Audit Trail Requirements – Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended)

The amended rule mandates auditors to report:

• Whether the company has used accounting software with an audit trail (edit log) facility.

• Whether the audit trail feature was operational throughout the year.

• Whether entries were tampered with or the audit trail was disabled.

This requirement became applicable from 1 April 2023.

If the company uses software without an audit trail, it constitutes a breach of compliance, and the company’s Board must disclose the same in the Board’s Report as per Section 134(3).

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3. Background of the Case

During internal due diligence, Topsun Energy Limited identified that:

• It used accounting software without an audit trail feature for FY 2023–24.

• The Statutory Auditor’s Report for FY 2023–24 (Para 2(h)(v)) explicitly noted non-compliance with Rule 11(g).

• The company subsequently purchased new compliant software to rectify the issue for FY 2024–25.

The company filed a suo motu adjudication application in Form GNL-1 (SRN: AB5754819 dated 30.07.2025) under Section 134(3)(f).
However, only the Company and its Managing Director applied. Other officers in default did not file applications.

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4. Findings of ROC Ahmedabad

The Adjudicating Officer observed the following:

4.1 Default Under Section 134(3)(f)

The company failed to ensure compliance with amended audit trail requirements, and the Board failed to make adequate disclosure in the Board’s Report for FY 2023–24.

4.2 Applicability of Section 134(8)

Under Section 134(8):

Entity	Penalty
Company	Rs 3,00,000
Every officer in default	Rs 50,000

4.3 Penalty Table Issued Under the Order

Name	Rectification Required	Penalty	Additional Penalty	Total
Topsun Energy Limited	Yes	Rs. 3,00,000	Nil	Rs. 3,00,000
Mr. Chintan Gandabhai Patel (MD)	Yes	Rs. 50,000	Nil	Rs. 50,000

No continuing default penalty was levied as the company had already migrated to new compliant software for 2024–25.

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5. Legal Reasoning Adopted by ROC

5.1 Mandatory Nature of Disclosures

The ROC emphasized that compliance with Section 134(3) disclosures is not optional. Audit trail compliance forms an integral part of risk management and internal control reporting.

5.2 Officer Liability is Separate and Personal

Directors cannot rely on the company’s compliance alone. Penalty must be paid from personal funds.

5.3 Suo Motu Application Does Not Automatically Reduce Penalty

Though the company filed the application voluntarily, the statute prescribes fixed penalties, leaving no discretion unless reasonable cause is proven—which was not established.

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6. Directions Issued Under the Order

1. Penalty to be paid within 90 days through the e-Adjudication portal.

2. Proof of payment to be uploaded on the MCA system.

3. Officers must pay penalty from personal income.

4. Appeal, if any, must be filed to the Regional Director, Ahmedabad within 60 days in Form ADJ.

5. Non-payment consequences under Section 454(8) apply.

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7. Consequences of Non-Payment – Section 454(8)

If penalty is not paid:

• Company: Rs.25,000 to Rs. 5,00,000

• Officer in default:

  • Imprisonment up to 6 months, or

  • Fine of Rs. 25,000–1,00,000, or both

Thus, strict adherence to payment deadlines is crucial.

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8. Key Compliance Lessons for Companies

8.1 Audit Trail Requirement is Fully Enforceable

All companies using accounting software must ensure audit trail-enabled systems.

8.2 Board’s Report Must Reflect True Compliance Status

Non-disclosure under Section 134(3)(f) can lead to penalties, even if the auditor highlights it.

8.3 Directors Must Individually Ensure Compliance

Liability is personal and cannot be shifted.

8.4 Suo Motu Filing Helps Avoid Additional Penalty

But does not eliminate statutory default penalty.

8.5 Internal Due Diligence is Essential

The default was detected internally—showing importance of periodic compliance audits.

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9. Conclusion

The adjudication order against Topsun Energy Limited reflects the MCA’s increased vigilance on corporate governance, financial reporting accuracy, and implementation of audit trail requirements. Companies must proactively adopt compliant accounting systems and ensure transparent disclosures in their Board’s Reports.

Failure to comply—whether intentional or inadvertent—may result in significant monetary penalties and personal liability for directors. This order serves as an important compliance reminder for companies to strengthen internal audit mechanisms, update accounting systems, and adopt technology-enabled governance processes.

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Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc

Anshul Goel

LegalMantra.net Team

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