ROC AHMEDABAD IMPOSED RS. 3.5 LAKH PENALTY ON TOPSUN ENERGY AND ITS DIRECTOR FOR NON-MAINTENANCE OF AUDIT TRAIL ROC AHMEDABAD VS TOPSUN ENERGY LIMITED

 ROC AHMEDABAD IMPOSED RS. 3.5 LAKH PENALTY ON TOPSUN ENERGY AND ITS DIRECTOR FOR NON-MAINTENANCE OF AUDIT TRAIL

ROC AHMEDABAD VS  TOPSUN ENERGY LIMITED

WHAT IS AUDIT TRAIL ?

An audit trail (or audit log) is a chronological, sequential record of activities and changes within a system, tracking who did what, when, and to which data, serving as a digital paper trail for transparency, security, and compliance, especially in finance, IT, and healthcare.

AUDIT TRIAL APPLICAPILITY

Ministry of Corporate Affairs (MCA) mandate, effective April 1, 2023, requiring all companies using accounting software (public, private, OPCs, government, non-profits) to use software with a non-disableable audit trail feature that logs every transaction's creation, alteration, and deletion (who, what, when). It ensures transparency, prevents fraud, and applies broadly, not based on turnover, for records kept for at least eight years.

SECTION 134(3)(F) READ WITH RULE 11(G) OF THE COMPANIES (AUDIT AND AUDITORS) RULES, 2014

The company voluntarily filed an application (GNL-1) dated July 30, 2025, for adjudication under Section 134(3)(f) of the Companies Act, 2013. 

During an internal due diligence, the company found that it had violated Section 134(3)(f) read with Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

AUDITOR’S REPORT FINDINGS

In the Auditor’s Report for Financial Year 2023-24, the auditors observed that the accounting software used by the company did not have an audit trail (edit log) feature, which is mandatory under the amended rules.

LEGAL FRAMEWORK

·    Section 134(3)(f), Companies Act, 2013: Requires disclosure in the Board’s Report of material changes and compliance with accounting standards, including audit trail facilities.

·    Rule 11(g), Companies (Audit and Auditors) Rules, 2014 (amended 2022): Mandates accounting software to maintain an audit trail (edit log) feature.

·    Section 134(8), Companies Act, 2013: Provides for penalties where a company is in default under Section 134.

·    Section 454, Companies Act, 2013: ROC’s adjudication authority to impose penalties.

PENALTY UNDER SECTION 134(8)

In conclusion to this, auditors could not confirm whether audit trails were properly maintained. Therefore, the default took place in the time period between April 01, 2023, and March 31, 2024, attracting a penalty under Section 134(8), but the non-compliance has now been corrected.

ROC ORDER

the ROC Ahmedabad imposed a penalty of Rs. 3 lakh on the company and Rs. 50,000 on its director, Chintan Gandabhai Patel.

LESSONS LEARNED

·    No Excuses: Small or large, the rule applies to every company.

·    Personal Stakes: Penalties target both the company AND the directors.

·    Time-Stamping: Records must capture user-wise changes with precise dates and times.

·    No Retroactive Fixes: Complying late won't save you from penalties for past non-compliance.

·    Non-disclosure of such compliance gaps in the Board’s Report under Section 134(3)(f) can itself trigger penalties.

·    Directors and officers in default remain personally liable for defects in compliance, even if corrective actions are taken later.

CONCLUSION

The ROC Ahmedabad adjudication against Topsun Energy Ltd and its Managing Director represents one of the more prominent enforcement actions relating to digital compliance with accounting software audit trail requirements under the Companies Act.

R V SECKAR , FCS, LLB 79047 19295