KARNATAKA BANK MD AND ED RESIGNS OVER AUDIT RED FLAGS FOR SPENDING WITHOUT BOARD’S APPROVAL

KARNATAKA BANK MD AND ED RESIGNS OVER AUDIT RED FLAGS FOR SPENDING WITHOUT BOARD’S APPROVAL

REASON FOR RESIGNATION

On Sunday, June 29, 2025, Karnataka Bank's Managing Director & CEO, Srikrishnan Hari Hara Sarma, and Executive Director, Sekhar Rao, resigned.

A small amount of Rs 1.16crores spent towards consultancy fee beyond the delegated powers of the MD and not ratified by the board is the cause for resignation.

The resignation letter says reason is " personal and decision to relocate to Mumbai"

MARKET REACTION

The bank's shares dropped by 7–8% after the resignations became public, settling around ₹192–₹194, as investor concerns over governance spooked the market.

TRIGGERING GOVERNANCE ISSUES

This as a serious governance lapse: the statutory auditors’ report—made public—accused  MD and ED of defying the board’s authority, which raises red flags about discipline and internal checks.

This underscores the importance of strict adherence to board oversight and internal controls.

 

R V SECKAR FCS,LLB 79047 19295

CAN AUDITOR BE APPOINTED BY A COMPANY PRIOR TO THEIR WRITTEN CONSENT AND ELIGIBILITY CERTIFICATE UNDER SECTION 141 COMPANIES ACT, 2013?

CAN AUDITOR BE APPOINTED BY A COMPANY PRIOR TO THEIR WRITTEN CONSENT AND ELIGIBILITY CERTIFICATE UNDER SECTION 141 COMPANIES ACT, 2013?

WHAT COMPANIES ACT 2013 SAYS ABOUT THE APPOINTMENT OF AUDITOR .

Section 139(1) of the Companies Act, 2013 and Rule 4(1) of the Companies (Audit and Auditors) Rules, 2014:

“The company shall obtain prior written consent from the auditor proposed to be appointed, and a certificate stating that they are eligible under Section 141, before the appointment is made.”

ARISIFRA SOLUTIONS LTD

ARISIFRA SOLUTIONS LTD has appointed an auditor (Price Waterhouse Chartered Accountants LLP) without first obtaining:

• ·      The auditor’s written consent, and
• ·      Eligibility certificate (as per Section 141)

Then ,the appointment is invalid, and it may attract penalties under:

Section 147: Penal provisions for contravention of Sections 139 to 146.

·      Company: Fine up to ₹5 lakhs.

·      Officer in default: Fine up to ₹1 lakh.

·      Auditor (if knowingly consents): May be disqualified and penalized.

REMEDIAL ACTION

• If the mistake has already occurred:

• ·      Immediately obtain the auditor’s consent and eligibility certificate.
• ·      Convene a Board Meeting again and ratify or re-appoint the auditor with proper documentation.

• ·      File Form ADT-1 (if applicable), only after valid appointment.

·      If already filed, consider compounding or rectification by reporting to ROC with a compounding application under Section 441.

The interim order dated july 25, 2024 provided that the contravention can be compounded on a payment of a compounding fee of ₹ 75,000 by the company and ₹ 25,000 each by the two of their promoters/ Directors :

FINAL THOUGHT

No auditor appointment is valid unless the company has received their written consent and eligibility certificate prior to the appointment.

R V SECKAR FCS,LLB 79047 19295

MAJOR CHANGES ANNOUNCED BY SEBI ON RPT RULES

 MAJOR CHANGES ANNOUNCED BY SEBI ON RPT RULES

Now ,Shareholders of Listed Companies will receive valuation reports for significant  RPT transactions, accessible via a web link and QR code.

 

SEBI has made significant updates to the rules around Related Party Transactions (RPTs) under LODR Regulations, with changes announced today, June 27, 2025

 

1.CEO/CFO CERTIFICATE NOW MANDATORY  FOR RPT

 

The audit committee must receive a certificate from the CEO (or whole-time director) and CFO, verifying that the terms of proposed RPTs are indeed in the best interest of the company.

 

Previously, promoters were also required to provide such certification; this requirement has now been removed.

 

DETAILED DISCLOSURES FROM SEPTEMBER 1,2025

 

From September 1, 2025, companies are required to furnish:

 

·      The new CEO/CFO certificate,

 

·      An external valuation or valuation report,

 

·      Detailed disclosures in a standardized format to both the audit committee and shareholders

 

INDUSTRY STANDARDS FRAMEWORK

 

• These disclosures must align with the Industry Standards developed by ASSOCHAM, CII, and FICCI, in consultation with SEBI.

 

• RPTs are categorized as Material, Limited, or Minimum, depending on thresholds (e.g., ₹1 crore, 2% of turnover/net worth), with corresponding disclosure levels

 

• Material RPTs require comprehensive disclosures; smaller residual RPTs only need limited or minimal info

BROADER MATERIALITY POLICY REQUIREMENTS

• The LODR Amendment 2025 further mandates that boards must approve materiality policies for RPTs, to be reviewed at least once every three years, with thresholds clearly defined .

 

• It also empowers audit committees to review subsidiary RPTs exceeding 10% of a subsidiary's turnover.

 

WHAT LISTED COMPANIES SHOULD DO?

 

·      Update internal RPT policies to include signature requirements from CEO/CFO.

 

·      Engage external valuers for RPTs above ₹1 crore.

 

·      Revise templates to match standardized disclosure formats.

 

·      Train audit committees and boards on the new thresholds, categories, and documentation needs.

 

·      Schedule a policy review once every 3 years, in line with LODR amendments.

 

RELAXATION IN ROYALTY PAYMENT DISCLOSURES:

 

 SEBI has eased the requirement for peer comparison in royalty payment-related disclosures, reducing compliance burden.

 

R V SECKAR FCS,LLB 79047 19295

 

SUMMONING LAWYERS FOR LEGAL ADVICE IS A THREAT TO THEIR AUTONOMY - SUPREME COURT OF INDIA

SUMMONING LAWYERS FOR LEGAL ADVICE IS A THREAT TO THEIR AUTONOMY - SUPREME COURT OF INDIA

On June 25, 2025, a Supreme Court bench led by Justices KV Viswanathan and N Kotiswar Singh—and assisted by CJI BR Gavai—took suo motu cognisance after two senior advocates were summoned by the Enforcement Directorate over advice given to clients.

The Court expressed a prima facie view that allowing investigative and law enforcement agencies (like ED or police) to directly summon lawyers for client advice is legally untenable and constitutes a grave threat to the autonomy of the legal profession and judicial independence .

It emphasized that lawyers, bound by confidentiality and fiduciary duties, should not face coercive summonses concerning client communications—which could severely hamper justice delivery.

CAN INVESTIGATIVE AGENCIES DIRECTLY SUMMON A LAWYER STRICTLY ACTING IN THEIR PROFESSIONAL CAPACITY?

Supreme Court opinion upholds attorney–client privilege, which safeguards confidentiality unless specific exceptions (like advice to commit wrongdoing) apply .

The Supreme Court has taken a strong preliminary stand that summoning lawyers for legal advice is impermissible and threatens the core principles of justice and professional autonomy.

R V SECKAR FCS,LLB 79047 19295

CONDUCTING BM & AGM ON SAME DAY FOR APPROVAL OF FINANCIALS MAY ATTRACT PENALTIES AND RESULT IN COMPLIANCE ISSUE.

 CONDUCTING BM & AGM ON SAME DAY FOR APPROVAL OF FINANCIALS MAY ATTRACT PENALTIES AND RESULT IN COMPLIANCE ISSUE.

 Conducting a Board Meeting (BM) and Annual General Meeting (AGM) on the same day to approve financial statements is a compliance risk and not in line with good corporate governance.

STANLEY OEM SOFAS LIMITED

In the matter of M/s Stanley OEM Sofas Limited, it is cautioned that conducting the Board Meeting and the Annual General Meeting (AGM) on the same day for approval of financial statements may attract penalties under the Companies Act, 2013.

SECTION 134 OF THE COMPANIES ACT, 2013

As per Section 134 of the Act, the financial statements must be approved by the Board of Directors before being presented to the shareholders in the AGM. Adequate time must be allowed between the BM and AGM to:

•Finalize board-approved financials;

•Ensure proper dispatch of financials and AGM notice to shareholders (at least 21 clear days before the AGM as per Section 101); and

•Enable shareholder review and compliance with Secretarial Standards (SS-1 & SS-2).

BOARD MEETING & AGM CONVENED ON THE SAME DAY

•The ROC has raised concerns on how the company complied with the notice requirements under Section 101 & rules made thereunder with supporting documents like Notice, Board Minutes etc.

ROC BANGALORE IMPOSED A PENALTY OF ₹40,000

ROC Bangalore imposed a penalty of ₹40,000 on the company and its directors for non-compliance with Sec 101 of the Companies Act, 2013.

RECOMMENDATION:

AVOID PRACTICE OF PAPER MEETINGS.

Avoid conducting BM and AGM on the same day. Schedule the AGM only after dispatching AGM notice and financials duly approved by the Board, to avoid non-compliance and penalties.

 

R V SECKAR FCS,LLB 79047 19295

INSPITE OF STANDALONE LOSSES, 24 LISTED COMPANIES DECALARE TO PAY DIVIDENDS FOR FINANCIAL YEAR 2025.

DIVIDEND DESPITE LOSSES: WHAT SECTION 123 OF THE

 COMPANIES ACT REALLY SAYS?

INSPITE OF STANDALONE LOSSES, 24 LISTED COMPANIES

 DECALARE TO PAY DIVIDENDS FOR FINANCIAL YEAR 2025.

 

The companies in the above list have incurred loss in 2025 and have declared dividend as per item 1 above and therefore there is no need for them to refer to the Dividend Rules.

EID Parry, Edelweiss Financial Services, Shipping Land, AB Real Estate, S H Kelkar & Co, Majestic Auto, lL&FS Investment Managers, Manali Petrochemicals, and KCP are among the 24 companies that made losses on a standalone basis in the fiscal 2025 and have proposed to pay dividends despite of losses in 2025 subject to shareholders approval.

SECTION 123 OF THE COMPANIES ACT, 2013 ALLOWS A COMPANY TO DECLARE DIVIDENDS OUT OF:

The profits of the current year after providing for depreciation,

OR

The accumulated profits of previous financial years, again after providing for depreciation.

So even if the company makes a loss in the current year, it can still pay dividends from its free reserves—which are basically past profits that have been retained by the company.

EID Parry had a standalone loss of ₹428 crore but a consolidated profit of ₹1,773 crore, and Edelweiss had a standalone loss of ₹52 crore but a consolidated profit of ₹536 crore. They used free reserves or profits from previous years to propose dividends.

WHAT IF THE COMPANY HAS MADE LOSSES BOTH ON STANDALONE AND CONSOLIDATED BASIS?

Even then, dividend declaration is possible only if there are sufficient free reserves built from earlier profitable years. But companies must follow conditions such as:

·      Disclosing the source of dividend payment,

·      Justifying the rationale behind it in the AGM,

·      Ensuring that such payouts don’t erode core capital.

REGULATORY SAFEGUARDS

·      Lender approval needed for dividends from accumulated profits

·      Companies should pay attention to strategic factors like growth plans, stock valuation, and geopolitical developments affecting operating costs while deciding on dividend declarations.

·      Companies must account for depreciation and adjust any current or past losses before distributing dividends.

·      Further, dividend payout from general reserves requires shareholder approval, while those drawn from prior-year profits may be declared as interim dividends by the board without such approval.

CLOSING THOUGHTS

Thus, in a nutshell ,the dividend declaration is not just a thought process to add value to stakeholders but also to convey a message about financial stability as well as to build investors’ confidence.

R V SECKAR , FCS,LLB  79047 19295

COMPLIANCE OFFICER NOT FILLEDIN WITHIN 90 DAYS OF RESIGNATION OF A COMPLIANCE OFFICER IN A LISTED COMPANY

 COMPLIANCE OFFICER NOT FILLEDIN WITHIN 90 DAYS OF RESIGNATION OF  A COMPLIANCE OFFICER IN A LISTED COMPANY

KEY CASE LAWS AND REGULATORY ACTIONS RELATED TO THE NON-APPOINTMENT OF COMPLIANCE OFFICER WITHIN 90 DAYS OF VACANCY UNDER REGULATION 6(1) OF THE SEBI (LODR) REGULATIONS, 2015:

Regulation 6(1) of the SEBI LODR mandates that every listed entity shall appoint a qualified Company Secretary as the Compliance Officer, and in case of vacancy, the same must be filled within 15 days.

SEBI ORDER AGAINST GUJARAT NARMADA VALLEY FERTILIZERS & CHEMICALS LTD :DATE: MAY 31, 2021

1. Delay in appointing Compliance Officer after vacancy.

2. Violation acknowledged and resolved without detailed adjudication.

3. Settlement Order passed by SEBI on payment of settlement fees.

 

SEBI ADJUDICATION ORDER – RUCHI SOYA INDUSTRIES LTD : DATE: AUGUST 21, 2018

 

1.       Non-compliance with Regulation 6(1) – delay in appointment of Compliance Officer.

 

2.       Penalty of ₹2 lakhs imposed for the delay.

 

SEBI ORDER IN THE MATTER OF HB PORTFOLIO LTD

DATE: FEBRUARY 2023

1.Monetary penalty imposed.

2.SEBI reiterated that even small procedural lapses regarding Compliance Officer can adversely impact governance.

OBSERVATIONS FROM SEBI:

Strict liability: Even unintentional delays attract penalties.

 

Materiality not relevant: Even a few days of delay can invite action.

Company Secretary is vital to corporate governance and investor relations — hence treated seriously.

Listed companies are advised to take note of this important rule and to avoid any penalties in future.

R V Seckar , FCS, LLB

79047 19295