Section 147 Auditor Punishment: The Two Limbs

Section 147 auditor punishment is not one penalty but two, pointed at different people and triggered by different lists of sections. Sub-section (1) reaches the company and its officers for a breach anywhere in sections 139 to 146. Sub-section (2) reaches the auditor personally, and only for four of those sections. Sub-sections (3) to (5) then add the money consequences and settle how liability falls inside an audit firm. It is not investment advice.

What section 147 auditor punishment covers in sub-section (1)

The first limb is the wide one. If any of the provisions of sections 139 to 146 (both inclusive) is contravened, two people are punishable:

A note on the text. The officer limb once carried imprisonment as well. The words "with imprisonment for a term which may extend to one year or" were omitted by Act 29 of 2020, section 31, with effect from 21 December 2020, and the same amending section substituted "one lakh rupees" for the earlier "one lakh rupees, or with both". Both changes are recorded as footnotes to the sub-section in the India Code consolidation. The officer's exposure under sub-section (1) is now a fine alone.

Note who this limb does not reach. It is the company and its officers, not the auditor. An auditor who breaches a section in the 139 to 146 range faces sub-section (2), and only if that section is one of the four named there.

The auditor's own limb, and the four sections in it

Sub-section (2) applies where an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145.

• Section 139, appointment and rotation
• Section 143, powers and duties, including the fraud reporting duty in sub-section (12)
• Section 144, the prohibited services
• Section 145, signing the report and reading out the adverse comments

Sections 140, 141, 142 and 146 are inside sub-section (1)'s range but outside sub-section (2)'s list.

The base fine is fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or four times the remuneration of the auditor, whichever is less. Because the ceiling is the lower of the two figures, the four times limb only binds where four times the remuneration comes to less than five lakh rupees.

The proviso raises the whole thing where the state of mind is worse. If an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he is punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less. The consolidated text spells the word willfully here, with two letter l's, where other sections of the Act spell it wilfully; it is quoted above as printed. Those fine figures were substituted by Act 1 of 2018, section 44, with effect from 9 February 2018, for an earlier band running from one lakh rupees to twenty-five lakh rupees.

What does a conviction cost beyond the fine?

Sub-section (3) attaches to a conviction under sub-section (2), and it is the part that runs to the people who lost money rather than to the state. The auditor is liable to:

1. refund the remuneration received by him to the company; and
2. pay for damages to the company, statutory bodies or authorities, or to members or creditors of the company, for loss arising out of incorrect or misleading statements of particulars made in his audit report

The words "or to members or creditors of the company" in clause (ii) were substituted by Act 1 of 2018, section 44, with effect from 9 February 2018, for the words "or to any other persons". The change is a narrowing as much as a naming: an open ended class became two named classes.

Sub-section (4) supplies the machinery: the Central Government shall, by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages under clause (ii), and that body, authority or officer shall, after payment, file a report with the Central Government in the manner the notification specifies.

How liability falls inside an audit firm

Sub-section (5) answers the question a firm appointment always raises. Where the audit of a company is being conducted by an audit firm and it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal, is of the partner or partners concerned of the audit firm and of the firm jointly and severally. The India Code text prints abetted as two words at this point, "a betted", a spacing slip in the published copy rather than a different word, so this page does not quote that stretch.

The proviso, inserted by Act 1 of 2018, section 44, with effect from 9 February 2018, narrows that for the criminal side: in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable. So a fine can still reach the firm jointly, while liability other than fine follows the individual partners.

Where a section 147 proceeding becomes visible

Section 147 is enforced through prosecution and adjudication rather than through a register, so the usual first trace is an order rather than a filing. For a listed company, a proceeding against its auditor or an order against the company under this section is normally a material event the company must disclose, and a change of auditor around such a proceeding shows up in the auditor resignation filings.

Read section 147 against the audit chapter's other exit route: compounding under section 441 is unavailable for an offence punishable with imprisonment only, or with imprisonment and also with fine, which is what the proviso to section 147(2) creates.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.