In Crl.O.P.No.9492 of 2019-MAD HC- Company having turnover of more than Rs 100 crore is liable to appoint Cost Auditor as per Rule 6(1) of Companies (Cost Records & Audit) Rules, 2014; Any failure or omission to do so attracts prosecution under Companies Act, 2013: Madras HC
Justice G.Jayachandran [26-09-2022]

Read Order: M/s.Sky Cotex India Private Limited And Ors v. The Registrar of Companies 

Tulip Kanth

Chennai, September 27, 2022: While dismissing a petition to quash the complaint filed by the Registrar of Companies against the petitioner-Company alleging non-compliance of Section 148 of Companies Act, 2013, the Madras High Court has held that the petitioner Company had to appoint Cost Auditor and inform the same to the Ministry of Corporate Affairs 

Placing heavy reliance on  Companies (Cost Records and Audit) Rules, 2014 as well as  Companies Act, 2013, the Bench of Justice G.Jayachandran asserted, “From reading of the provisions, it is evident that the petitioner company which has turn over more than Rs.100 crores is liable to appoint Cost Auditor as per Rule 6(1) and the Registrar of Companies has to be informed about the Board resolution regarding appointment of Cost Auditor in the specific form with specific fees as per Rules 6(2). Any failure or omission to appoint Cost Auditor attracts prosecution under Section 147(1) of the Act.”

In this matter The first petitioner, a Private Company incorporated under the Companies Act. The 2 nd petitioner is the Managing Director of the Company. 

This matter was mainly concerned with  Section 148 of Companies Act and Rules framed thereunder in Companies (Cost records and Audit) Rules 2014, wherein it is mentioned that a company which has net worth of above Rs 500 crore or annual turnover of above Rs 100 crore has to appoint cost auditor and maintain Cost Audit records in their books of account. 

The prosecution was launched on the premise that the first accused, a private company, had not appointed a Cost Auditor within time prescribed and in spite of show cause notice, they did not respond. Hence, being a continuous offence, the petitioner Company was liable to be punished for contravention of Section 148 of the Act.

This complaint was  sought to be quashed on the ground that the petitioner Company through its Board Resolution had appointed Cost Auditor and notice to the Government along with fees in Form CRA-2 was submitted by it. As mandate under the Rules, Form CRA-4 was submitted along with the fees on July 13, 2017. 

The Bench made it clear that petitioner company which had turn over more than Rs 100 crore was liable to appoint Cost Auditor and the Registrar of Companies had to be informed about the Board resolution regarding appointment of Auditor in the specific form with specific fees.

Taking note of the fact that admittedly the petitioner company had not appointed the Cost Auditor within the time prescribed, the Bench realized that the documents in the typed set of papers annexed to the petition made it clear that the Board had resolved to appoint Cost Auditor by name Mr.Venkateswar, Cost Accountant, for the financial year ending March 31, 2016 in their meeting held on December 2,2016. 

Justice Jayachandran  considered the fact that within 30 days of the Board resolution, under Rules 6(2) of the Companies (Cost Records and Audit), the Company ought to have submitted Form CRA-2 along with required fee. The receipt issued by Ministry of Corporate Affairs towards fees for CRA-2 was dated December 29, 2016 and thereafter, on receipt of the Cost Audit Report, the petitioner Company along with its explanation, had submitted the Cost Audit Report in Form CRA-4 to the Ministry of Corporate Affairs on July 13, 2017. 

The petitioner company had paid a sum of Rs 4,200  under CRA-4 on July 13, 2017 but in the complaint, it was specifically stated that it is a case of continuing offence and therefore, the complaint was not barred by limitation as per Section 472 of Cr.P.C.

As per the Bench, it was evident that the compliance of Section 148 of Companies Act, 2013, for the financial year 2015-2016 had been completed only on  July 13.07.2017 hence, the limitation had to be reconciled from that date. 

“Thus, the process commenced from issuance of show cause notice dated 05.12.2016, for the contravention of Section 148(1) of the Companies Act, which commenced on 01.10.2015, after expiry of 180 days and ceased on 13.07.2017, the date on which the Cost Audit report under CRA-4 submitted along with the explanation and fees, the complaint filed on 12.03.2018”,the Bench said.

Noticing that the petitioner Company was in existence when the Companies Act 2013 came to force, the Bench observed that it is mandatory on the part of the petitioner to appoint Cost Auditor and inform the same to the Ministry of Corporate Affairs with requisite forms and fees, within the period of 180 days.

It was also held by the Bench that the offence ceased on July 13, 2017, when Form CRA-4 was filed. The complaint was filed within one year, i.e., on March 12, 2018. Therefore, the complaint regarding contravention between October 1, 2015 to July 13, 2017 couldnot be quashed on the ground of limitation. Thus, considering such aspects, the Bench dismissed the Petition.