Cost Auditor’s Appointment: Penalties for Non Compliance of provisions with respect to appointment of Cost Auditor:
29th June, 2012 is the Last date of filing Form 23C relating to appointment of Cost Auditor (for the financial year 2012-13) with MCA, GOI
With maximum companies getting covered under Cost Audit for the first time for the year 2012-12, this is the time to file form 23C with the Ministry of Corporate Affairs.
The companies are required to comply with:
a. Circular No. 15/2011 dated 11/04/2011
b. The Companies (Cost Accounting Records) Rules, 2011 dtd 3rd June 2011 (Common)
c. Specific Cost Accounting Record Rules for six industries like power, telecom etc.
d. The Companies (Cost Audit Report) Rules, 2011 dtd 3rd June 2011
e. Other relevant Sections of the Companies Act 1956
Normally the companies ask, what if, the company does not appoint Cost Auditor. Non-appointment is considered as non-compliance with Companies Act Provisions, various Cost Accounting Record Rules, Cost Audit Report Rules and penal provisions become applicable which include penalties and prosecution.
Last date of filing of Form 23C with Ministry of Corporate Affairs for appointment of Cost Auditor for 2012-13
29 June 2012
Persons responsible for compliances
The company and every officer thereof who is in default including Managing director, Directors, persons referred to in Section 209(6) of Companies Act
Penal Provision under Section 642(2) for all officers in default
Rs 5000 and Rs 500 for each day of delay
Penal Provision under Section 233B(11) for all officers in default
Imprisonment for a term which may extend to three years, or with the fine which may extend to five thousand rupees, or with both
We would like to bring to your kind notice about the recent developments made with regard to Cost Audit and compliance to be made by the companies(as mentioned below) within ninety days of the commencement of financial year i.e by 29th June
The Ministry of corporate Affairs had issued One circular regarding appointment of Cost Auditor and various cost orders wherein General Cost Audit Orders have been issued for all the companies falling in that industry.
The Cost Audit Orders issued by MCA can be viewed at: http://mca21.gov.in/Ministry/cao.html
The Cost Audit orders dated 24/01/2012, 30/06/2011 and 2/05/2012 are on companies covered under Industries rather than on Companies.
All the companies falling in the industries covered under Cost Audit Orders and fulfilling certain criterion are required to get its cost records audited by a Practising Cost Accountant.
The first step in getting the Cost Accounts Audited is the appointment of Cost Auditor and filing of Form 23C with the Ministry of Corporate Affairs within ninety days of the commencement of financial year i.e by 29th June
MCA had issued one circular no 15/2011 dated 11/04/2011 paving the way for new method of appointment of Cost Auditor where the concept of deemed approval was brought in. Earlier the appointment of the cost auditor was to be approved by the MCA and an intimation to this effect was issued by the Cost Audit Branch.
In the circular no 15/2011, it is mentioned that if a company contravenes any provisions of this circular, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of Section 209 of the Act shall be punishable as provided under subsection (2) of section 642 read with sub-section (5) and (7) of section 209 and sub-section (11) of section 233B of Companies Act, 1956.
Also Companies(Cost Audit Report) Rules, 2011 have been notified on 3rd, June 2011.
Relevant extract with regard to penalties for non-compliance with the provisions relating to Cost Audit/appointment of Cost Auditor under the Companies Act entails certain penalties which are mentioned below.
Rule 3. Application – (1) These rules shall apply to every company in respect of which an audit of the cost records has been ordered by the Central Government under sub-section (1) of section 233B of the Act.
(2) Every company as specified in sub-rule (1) shall, within ninety days of the commencement of every financial year, file an application with the Central Government seeking prior approval for appointment of the cost auditor, through electronic mode, in the prescribed form, alongwith the prescribed fee as per the Companies (Fees on Applications) Rules, 1999, and requisite enclosures.
8. Penalties – (1) If default is made by the cost auditor in complying with the provisions of rule 4 or rule 5, he/she shall be punishable with fine, which may extend to five thousand rupees.
(2) If a company contravenes any provisions of these rules, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of section 209 of the Act, shall be punishable as provided under sub-section (2) of section 642 read with sub-sections (5) and (7) of section 209 and sub-section (11) of section 233B of Companies Act, 1956 (1 of 1956).
Relevant extracts of the sections are given below:
Section 209 (5) states that If any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company thereunder, he shall, in respect of each offence, be punishable with [imprisonment for a term which may extend to six months, or with fine which may extend to [ten thousand rupees], or with both]:
Section 209 (6) states that The persons referred to in sub-section (5) are the following, namely:—
[(a) where the company has a managing director or manager, such managing director or manager and all officers and other employees of the company; and]
[(d) where the company has neither a managing director nor manager, every director of the company;]
Section 209 (7) states that If any person, not being a person referred to in sub-section (6), having been charged by the [managing director, manager] or Board of directors, as the case may be, with the duty of seeing that the requirements of this section are complied with makes default in doing so, he shall, in respect of each offence, be punishable with [imprisonment for a term which my extend to six months, or with fine which may extend to [ten thousand rupees], or with both].
Sec 233B (11) states that If default is made in complying with the provisions of this section, the company shall be liable to be punished with fine which may extend to five thousand rupees, and every officer of the company who is in default, shall be liable to be punished with imprisonment for a term which may extend to three years, or with fine which may extend to [fifty] thousand rupees, or with both..
Section 642 is concerned with the Power of Central Government to make rules.
Section 642 (1) states that In addition to the powers conferred by section 641, the Central Government may, by notification in the Official Gazette, make rules-
(a) for all or any of the matters which by this Act are to be, or may be, prescribed by the Central Government; and
(b) generally to carry out the purposes of this Act.
Section 642(2) states that Any rule made under sub-section (1) may provide that a contravention thereof shall be punishable with fine which may extend to [five thousand rupees] and where the contravention is a continuing one, with a further fine which may extend to [five hundred rupees] for every day after the first during which such contravention continues.
Navneet Kumar Jain
Practising Cost Accountant
FCMA, MBA., LL.B., M.COM., PGDTL, AIIISLA., LIII
N.K. Jain And Associates