DIN on Financial Statements: Mandatory or Not?

Director Identification Number (DIN), the eight-digit identification code for company directors, plays a crucial role in enhancing transparency and accountability in corporate governance. Chapter XI of the Companies Act, 2013, deals with director appointments and qualifications. under this chapter section 158 mandates the mentioning of DIN. Although The requirement to include Director Identification Number (DIN) on financial statements may seem ambiguous at first glance. This article clarifies the obligation and explores a relevant case study.

The Act’s Language and Its Interpretation:

Section 158. Every person or company, while furnishing any return, information, or particulars as are required to be furnished under this Act, shall mention the Director Identification Number in such return, information, or particulars in case such return, information, or particulars relate to the director or contain any reference of any director.

Section 158’s wording doesn’t explicitly mention financial statements. However, the phrase “any reference of any director” allows for broader interpretation.

Premier Solution Case & Ambiguity:

In the “Premier Solution Private Limited” case (CA(CAA) No. 31 of 2021), the Registrar of Companies (ROC) imposed a penalty for not mentioning DIN on financial statements. While the company challenged this, arguing the Act doesn’t explicitly require it AND financial statements solely reflect financial health and directors’ details are already submitted in e-Forms 23AC/AOC 4 on the MCA Portal. 

 The ROC’s Reasoning 

• The Registrar of Companies (ROC) disagreed, emphasizing the public interest rationale. Financial statements on the MCA Portal are accessible to various stakeholders, including investors and creditors.
• In the case mentioned above, the ROC argued that excluding DIN on financial statements would hinder transparency and information accessibility.
• Hence the penalty of Rs. 1,50, 000/- each imposed on the company and its directors ie.Kirit Harilal Shah (Director), Ms. Bharti Kirit Shah (Director), and Ms. Shital Chintan Shah (Director), who are officers in default.

The Final Verdict:

the initial penalty of ₹1,50,000 imposed by the Registrar of Companies (ROC) for omitting DIN from financial statements was ultimately reduced to ₹15,000 each for the company and its directors. This revision, authorized by the Regional Director under Section 454(5) of the Companies Act, 2013, took into account the company’s appeal and its financial circumstances. 

Takeaways and Conclusion:

While the reduced penalty might seem like a victory for the company, it’s crucial to understand the broader implications of this verdict:

• Reinforcement of DIN as Mandatory: Although the initial penalty was reduced, the ROC’s stance on DIN inclusion remains firm. This verdict serves as a reminder that, despite the lack of explicit mention in the Act, the broader interpretation of “any reference” and the public interest principle necessitates DIN inclusion in financial statements.
• Importance of Transparency: The Regional Director’s decision emphasizes the paramount importance of transparency in corporate governance. Financial statements are vital in informing stakeholders, and readily accessible DIN enhances their ability to identify and verify directors associated with the presented financial information.
• Proactive Compliance Encouraged: This case underscores the importance of proactively complying with regulations, even if they seem ambiguous. By adhering to requirements like DIN inclusion, companies avoid potential penalties and contribute to a more transparent and accountable business environment.
• Potential for Further Clarification: While the verdict provides some clarity, it doesn’t definitively settle the debate around mandatory DIN inclusion. This might pave the way for further legal interpretations or even amendments to the Act, providing more specific guidance in the future.

Conclusion:

The Premier Solution case serves as a valuable learning experience for companies and directors. It highlights the evolving legal landscape surrounding corporate governance and transparency, emphasizing the need for proactive compliance and a commitment to open communication. By understanding the nuances of this verdict and its implications, companies can navigate the regulatory environment effectively and contribute to a more responsible and transparent business ecosystem.

Also, read our article on Director Identification Number 

reference: https://www.mca.gov.in/content/mca/global/en/data-and-reports/rd-roc-info/rd-adjudication-orders.html