CARO 2020 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clauses (vii) to (x) of paragraph 3 of CARO 2020 cover the parts of the report that lenders and regulators read first: whether statutory dues are regular, whether unrecorded income was surrendered in tax assessments, whether the company defaulted on borrowings or is a wilful defaulter, how term loans and short-term funds were used, and whether money raised by public offer, preferential allotment or private placement was used for its purposes. This article is based on the Order as amended up to the notification of 24 March 2020 per the MCA e-book. Later amendments should be checked.
Clause (vii)(a) asks whether the company is regular in depositing undisputed statutory dues and, if not, the extent of arrears outstanding at year-end for more than six months from the date they became payable; clause (vii)(b) asks for disputed dues, with the amount and the forum. Clause (viii) covers income surrendered in tax assessments, clause (ix) has six sub-clauses on defaults, wilful defaulter status, diversion and group funding, and clause (x) covers public offers, preferential allotments and private placements. For tax points, see our income-tax guides.
Clause (vii): statutory dues
(a) Undisputed dues. Whether the company is regular in depositing undisputed statutory dues, including Goods and Services Tax, provident fund, employees' state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues, to the appropriate authorities. If not, the extent of the arrears of outstanding statutory dues as on the last day of the financial year, for a period of more than six months from the date they became payable, is indicated.
(b) Disputed dues. Where the dues in (a) have not been deposited on account of any dispute, the amounts involved and the forum where the dispute is pending are mentioned. The Order adds that a mere representation to the concerned department is not treated as a dispute.
Two tests are built into the wording: the dues must be "undisputed" for sub-clause (a), and the arrears are measured at the last day of the year for a period of more than six months from the date payable. The list of dues is as printed; the tax laws behind each item are outside this article, and for any tax questions see our income-tax guides.
Clause (viii): unrecorded income
Whether any transactions not recorded in the books of account have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961, and, if so, whether the previously unrecorded income has been properly recorded in the books of account during the year. The Act is named as printed; check the current income-tax law for any replacement, and see our income-tax guides.
Clause (ix): borrowings
| Sub-clause | What the auditor reports |
|---|---|
| (a) | Whether the company has defaulted in repayment of loans or other borrowings, or in payment of interest on them, to any lender; if yes, the period and amount of default in the format below |
| (b) | Whether the company is a declared wilful defaulter by any bank, financial institution or other lender |
| (c) | Whether term loans were applied for the purpose for which they were obtained; if not, the amount of loan diverted and the purpose for which it is used |
| (d) | Whether funds raised on a short-term basis have been utilised for long-term purposes; if yes, the nature and amount |
| (e) | Whether the company has taken any funds from any entity or person on account of or to meet the obligations of its subsidiaries, associates or joint ventures; if so, details with nature and amount in each case |
| (f) | Whether the company has raised loans during the year on the pledge of securities held in its subsidiaries, joint ventures or associate companies; if so, details, and whether it defaulted in repayment of such loans |
The default format in sub-clause (a) has six columns: nature of borrowing, including debt securities; name of lender (lender-wise details to be provided for defaults to banks, financial institutions and Government); amount not paid on due date; whether principal or interest; number of days delay or unpaid; and remarks, if any.
Note that sub-clauses (e) and (f) look at the company's dealings with its own group: funds taken to meet the obligations of subsidiaries, associates or joint ventures, and loans raised on the pledge of securities held in them. The deposits and loans given by the company are in clauses (iii) to (vi). Our books of accounts compliance service can prepare the lender-wise default schedule and the funds-flow working an auditor will ask for.
Clause (x): money raised
- (a) Whether moneys raised by way of initial public offer or further public offer (including debt instruments) during the year were applied for the purposes for which they were raised; if not, the details, together with delays or default and subsequent rectification, if any.
- (b) Whether the company has made any preferential allotment or private placement of shares or convertible debentures (fully, partially or optionally convertible) during the year and, if so, whether the requirements of section 42 and section 62 of the Companies Act, 2013 have been complied with and the funds raised have been used for the purposes for which they were raised; if not, the amount involved and the nature of non-compliance.
For the rules behind private placement and preferential allotment, see Rule 14 of the Prospectus and Allotment Rules and Rule 13 of the Share Capital and Debentures Rules. The next group of clauses is in clauses (xi) to (xvi), and the introduction is in paragraphs 1, 2 and 4.
A worked example
Basil Chemicals Limited (invented) has not deposited an undisputed statutory due for more than six months at year-end; the auditor states the amount of arrears. It has also withheld a disputed amount pending an appeal; the auditor states the amount and the forum where the appeal is pending (a letter to the department would not count as a dispute). During the year the company delayed repayment of a term loan to a bank; the default is reported in the six-column format, with lender-wise details. A short-term working capital facility was used to buy a plant, which is reported under (d). The company also made a preferential allotment during the year; the auditor reports compliance with sections 42 and 62 and use of the funds for their stated purposes.
Practical points
- Keep a dues schedule that separates disputed from undisputed amounts and shows the date each amount became payable.
- Record the forum and case number for every disputed item.
- Keep lender-wise confirmations; sub-clause (ix)(a) asks for lender-wise default details for banks, financial institutions and Government.
- Match the utilisation of every preferential allotment and private placement with the objects stated in the offer document.
Need help preparing for clauses (vii) to (x)?
These clauses draw on tax, lending and fund-raising records at once. We can build the dues schedule, the default table and the utilisation statement through our books of accounts compliance service.
Key takeaways
- Clause (vii): undisputed dues with arrears over six months; disputed dues with amount and forum.
- Clause (viii): unrecorded income surrendered in assessments.
- Clause (ix): six sub-clauses, from defaults and wilful defaulter status to diversion and group pledges.
- Clause (x): public offers, preferential allotments and private placements, sections 42 and 62.
- Tax questions: see our income-tax guides.
Read next
- Clauses (iii) to (vi): loans, investments, deposits and cost records
- Clauses (xi) to (xvi): fraud, Nidhi, related parties and RBI registration
- Rule 13 of the Share Capital and Debentures Rules: preferential allotment
- What is CARO 2020 and Its Applicability
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.