Section 383a- non compliance

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Rahul Mittal (Querist)
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10 July 2013 one of my client has defaulted in the provisions of section 383a of the Companies Act, 1956 and has not appointed a whole time company secretary.

does this default should be reported in the Audi report as per the new format of Audit report under SA 700.

where this default should be reported as this incurs the liability of Rs. 500/- per day for the default continues.

The Paid up Share Capital is 5 Crores and company is running into gud profits.i.e. company is financially sound. in that position can we qualify the Audit report for non Compliance of Sec. 383a of the Companies Act.

Ajay Mishra

Ajay Mishra (Expert)
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10 July 2013 Hi

Failure to comply with section 383A
Where a company having paid-up share capital of Rupees Two Crores or more fails to employ a whole-time secretary, the company and every officer of the company who is in default shall be punishable with fine upto Rs. 500 for every day during which the default continues:
Provided that in any proceedings against a person in respect of an offence under this section, it shall be a defence to prove that all reasonable efforts to comply with the provisions of section 383A(1) were taken or that the financial position of the company was such that it was beyond its capacity to engage a whole-time secretary.

You can take the benefit of financial weak position to appoint CS.

Rahul Mittal

Rahul Mittal (Querist)
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10 July 2013 Dear Ajay Sir,

As per my knowledge the Prescribed limit u/s 383a is 5 crores and not 2 crores. more over my client in financially sound with gud reserves and still earning.

my question is can auditors report be qualified for non compliance of sec. 383a of the Companies Act, 1956 under new Audit report format as per SA 700, which requires reporting on regulatory framework of the company.

Ajay Mishra

Ajay Mishra (Expert)
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10 July 2013 Yes it is 5 crore.

If company not appointed then you can ask the details for the same if they not given a genuine reason then you can take action in Audit Report.

Rahul Mittal

Rahul Mittal (Querist)
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11 July 2013 I need the Perfect base whether this can be qualified or not. can anybody else answer the query

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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23 July 2025 Yes, non-compliance with Section 383A of the Companies Act, 1956 should be reported in the audit report, particularly under the reporting requirements of CARO and SA 700 framework, as it relates to statutory non-compliance.

📘 What was Section 383A (Companies Act, 1956)?
Section 383A required:

Every company with a paid-up share capital of ₹5 crore or more to appoint a whole-time Company Secretary.

Non-compliance attracted a penalty of ₹500 per day of default.

🧾 Reporting Requirements in the Audit Report:
Under the old format (as per SA 700 and CARO, 2003/2011), you were required to report material statutory non-compliances.

✅ Where to report:
CARO Report (if applicable):
You should include this under the "Other Matters" or "Statutory Dues" section.

Main Audit Report (SA 700):
If the non-compliance is significant and continuous, and may have implications on financial reporting or legal exposure:

You may include an Emphasis of Matter or

Consider qualifying the report, especially if management has ignored legal obligations.

However, if the only issue is non-appointment of CS and all filings and governance are otherwise in place, a qualification may not be strictly necessary — a mention in Other Legal/Regulatory Requirements or Annexure to Audit Report should suffice.

✍️ Suggested Wording in Audit Report (Illustrative):
"The Company has not complied with the provisions of Section 383A of the Companies Act, 1956, which requires a company with a paid-up share capital of ₹5 crores or more to appoint a whole-time Company Secretary. As informed to us, the Company is in the process of making such an appointment."

⚖️ Legal & Financial Implications:
The company is liable for daily penalties.

In case of scrutiny, ROC may issue notices.

The auditor has a professional obligation to report material non-compliances.

✅ Conclusion:
Yes, report the non-compliance.

Include it in the CARO Report, and optionally under "Other Legal & Regulatory Requirements" in the main audit report.

A qualification may not be required unless it reflects serious governance failure.

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