Section 134 of the Companies Act, 2013: Non-Compliance & Penalties Explained

Under the Companies Act, 2013, Section 134 outlines the mandatory components of a company’s Board’s Report, ensuring transparency and accountability in financial disclosures. Failure to comply with this section can lead to significant penalties, enforced through Section 454, under the Companies (Adjudication of Penalties) Rules, 2014.

Let’s break down what this means for companies and directors, and how the adjudication process works in case of a violation.

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What Does Section 134 Entail?

Section 134 governs the preparation, content, and approval of financial statements and the Board’s Report. It requires the Board of Directors to:

• Present a comprehensive report on the company’s operations and performance
• Disclose financial highlights, risk management, and corporate governance practices
• Include the Directors’ Responsibility Statement
• Properly sign and approve the financial statements

These disclosures are designed to provide transparency and help stakeholders make informed decisions.

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Consequences of Non-Compliance with Section 134

When a company fails to include mandatory disclosures, neglects to approve the Board’s Report correctly, or does not follow prescribed formats, it violates Section 134.

In such instances, Section 454 authorizes the Registrar of Companies (RoC) or other adjudicating officers to initiate proceedings and impose penalties, ensuring accountability.

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Adjudication Process Under Section 454

The adjudication of penalties is a formal process governed by the Companies (Adjudication of Penalties) Rules, 2014. The steps are as follows:

1. Notice Issued: The RoC issues a notice outlining the nature of non-compliance.
2. Opportunity to Respond: The company and its officers are given a chance to present their case, either through written submissions or a personal hearing.
3. Issuance of Order: After considering the facts and submissions, the adjudicating officer passes an order imposing penalties if required.
4. Payment of Penalty: The fine must be paid within the time specified in the order.
5. Right to Appeal: If dissatisfied, the company can appeal the order before the Regional Director.

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Penalties for Breach of Section 134

As per Section 134(8), the penalty provisions are:

• Company: Minimum ₹50,000, which may extend up to ₹25,00,000
• Every defaulting officer (including directors): Minimum ₹50,000, extendable to ₹5,00,000

The quantum of penalty depends on factors such as the severity of the omission and whether the violation was deliberate or due to oversight.

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Real Case Example

In a recent adjudication order, a company was penalized for failing to include key information in its Board’s Report. The RoC identified the non-compliance and held both the company and specific directors liable. The order required them to rectify the error and pay the prescribed penalties within the given timeframe, showcasing the strict approach regulators are now adopting.

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Frequently Asked Questions (FAQs)

Q1. What is the purpose of Section 134?
To enhance corporate transparency and ensure companies make full and fair disclosures to stakeholders through the Board’s Report.

Q2. Who is liable for non-compliance?
Both the company and responsible officers such as directors and company secretaries can be penalized.

Q3. Is the penalty appealable?
Yes, appeals can be made to the Regional Director if a company or officer is dissatisfied with the adjudicating officer’s decision.

Q4. What’s the deadline for paying the penalty?
Typically, penalties must be paid within 90 days from the date of the order, unless otherwise specified.

Q5. How can companies avoid such penalties?
Regular internal compliance checks, maintaining updated records, and consulting professionals such as Company Secretaries can help avoid violations.

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Conclusion

Section 134 is pivotal in maintaining corporate discipline and ensuring all critical disclosures are made in the company’s Board’s Report. Ignoring even minor compliance requirements can lead to heavy penalties. With adjudication now streamlined under Section 454, the regulatory enforcement mechanism has become more robust and swift.

For companies, the message is simple: Ensure your financial statements and Board’s Reports are fully compliant. If you’re unsure or have received a notice, consult a professional promptly to avoid costly consequences.

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📞 Need Expert Help?

At Chhavi Goyal & Associates, we provide expert compliance and advisory services to help your business stay on the right side of the law. From drafting Board’s Reports to handling adjudication proceedings, our experienced team is here to assist you.

👉 Contact Us Now: Click Here

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📅 Published on: 29 April 2025
✍️ Author: CS Chhavi Goyal