Harsh Electronics Ltd., a manufacturing company, planned to set up a new R&D centre at its existing industrial premises in Pune to mark its 25…

In the given case, Harsh Electronics Ltd. has entered into a non-cash transaction during the financial year involving a land exchange with a director, Ms. Reena, who is also a member of the company's Board. The company transferred a land parcel, located in a different industrial zone, to Ms. Reena, and in return, acquired a strategically located plot adjacent to its main manufacturing facility in Pune, which was owned by her. The transaction was approved by the Board of Directors and was executed through a formally registered agreement in January 2023. This arrangement was entered into without any cash consideration and instead relied on the relative value and strategic importance of the properties being exchanged. As this transaction involves a director and is non-cash in nature, it attracts specific attention from an audit perspective under the Companies Act, 2013 and the CARO, 2020. Accordingly, the auditor must evaluate the appropriateness of the transaction, ensure compliance with statutory provisions, and consider following reporting implications. The auditor is required to report the transaction as per Clause (xv) of Paragraph 3 of the CARO, 2020 which states whether the company has entered into any non-cash transactions with directors or persons connected with him and if so, whether the provisions of section 192 of the Companies Act, 2013 have been complied with. In addition, this is a transaction with a related party. The provisions of section 188 of the Companies Act, 2013 as regards Related Party Transactions are to be checked for compliance. Section 189 of the Companies Act, 2013 requires a register to be maintained wherein the contract with related parties is to be entered. The compliance with section 177 and section 188 has to be reported under Clause (xiii) of Paragraph 3 of the CARO, 2020.