The Ministry of Corporate Affairs (MCA) appointed an adjudicating officer to evaluate penalties for non-compliance under Section 138 of the Companies Act, 2013. The specific case in question involves Tanman Jewels Private Limited, a company registered in Gujarat, which failed to appoint an internal auditor for several financial years despite meeting the criteria set out under the Act.
Key Details of the Case:
1. Legal Framework:
- Section 138 of Companies Act, 2013 mandates certain classes of companies to appoint an internal auditor. This auditor must be a chartered accountant, cost accountant, or another professional decided by the company’s board.
- Rule 13 of Companies (Accounts) Rules, 2014 specifies which companies must comply, including private companies with a turnover of Rs. 200 crore or more in the preceding financial year.
2. Company Overview: Tanman Jewels Private Limited was registered on December 30, 2009, with its office located in Surat, Gujarat. From FY 2013-14 to FY 2019-20, the company’s turnover exceeded the Rs. 200 crore threshold, requiring it to appoint an internal auditor. However, the company failed to comply with this requirement.
3. Inquiry and Findings: An inquiry revealed that Tanman Jewels did not appoint an internal auditor for the fiscal years 2013-14 to 2019-20. The company received a show-cause notice on April 28, 2023, to which their response was deemed unsatisfactory.
4. Hearing and Absence: A hearing scheduled for February 26, 2024, saw no representation from the company despite an earlier rescheduling request. This absence indicated non-cooperation with the adjudication process.
Penalties and Considerations:
1. Factors for Penalty: The adjudicating officer considered several factors while determining the penalty, including any disproportionate gain from the default, loss to investors, and the repetitive nature of the default.
2. Quantum of Penalty: The penalties imposed on Tanman Jewels Private Limited and its directors, Mr. Rakesh Kumar Jain and Mr. Shubham Jain, were calculated at Rs. 304,000 each for the period of default. The company and its directors were also subject to additional penalties under Sections 450 and 446B of the Act.
3. Financial and Compliance Status: As of September 30, 2023, the company was classified as a “small company,” making it eligible for lesser penalties under Section 446B.
Ex-Parte Order:
1. Penalty Details: The company and each director were fined Rs. 314,000. This amount was based on a default period from April 28, 2023, to February 26, 2024, calculated at Rs. 1,000 per day. As company is “small company,” the penalties are capped at Rs. 100,000 for the company and Rs. 25,000 for each director.
2. Compliance and Payment: The company and its directors must pay the penalties within 60 days via the MCA portal. Failure to comply will result in further action under Section 454A of the Companies Act, 2013.
3. Right to Appeal: An appeal against this order can be filed within 60 days with the Regional Director, North-Western Region, Ministry of Corporate Affairs.
Consequences of Non-Payment: Non-payment of the penalty could lead to fines ranging from Rs. 25,000 to Rs. 500,000 for the company, and imprisonment up to six months or fines ranging from Rs. 25,000 to Rs. 100,000, or both, for the directors.
Conclusion: The order emphasizes the importance of compliance with statutory requirements, such as appointing an internal auditor as mandated by Section 138 of the Companies Act, 2013. Tanman Jewels Private Limited’s failure to adhere to these requirements has resulted in substantial penalties. The company’s directors must take corrective actions to rectify the default and ensure future compliance to avoid further legal and financial repercussions.
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BEFORE THE ADJUDICATING OFFICER
REGISTRAR OF COMPANIES, GUJARAT, DADRA & NAGAR HAVELI
Order No. ROC/Sec.138/454(4)/TANMAN JEWELS/2023-24/794 to 97 Dated: 27 MAY 2024
ORDER FOR PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 and COMPANIES (ADJUDICATION OF PENALTIES) AMENDMENT RULES, 2019 FOR VIOLATION OF SECTION 138 OF THE COMPANIES ACT, 2013
IN THE MATTER OF TANMAN JEWELS PRIVATE LIMITED
(U36910GJ2009PTC059040)
Date of hearing: 26.02.2024
PRESENT:
1. Shri Keerthi Thej N. (ROC), Adjudicating Officer
2. Shri Indrajit Vania (DROC), Presenting Officer
3. Company/ Officers/ Directors/ KMP/ Authorized Representative: Absent
Appointment of Adjudication Authority:
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014- Ad. II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the power conferred under section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.
Company:
2. WHEREAS, TANMAN JEWELS PRIVATE LIMITED (hereinafter referred to as “Company”) is a company registered under the provisions of the Companies Act, 1956/2013 in the State of Gujarat on 30.12.2009, having CIN: U36910GJ2009PTC059040 and presently having its registered office situated 6/2020-21-22, Office No. 305,3rd Floor, Panchratna Apt, Bhojabhai Ni Sheri Naka, Hat Faliya, Mahidharpura, Surat, Gujarat,395003, India.”
Facts of the case
3. It is noticed during the inquiry and on the basis of submission made that through the turnover of the company from the Year Exceeded 200 crores, the company has not appointed the internal Auditor for the Year 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 and 2019-20 and violated the provisions of Section 138 of the Companies Act, 2013.
4. As per Section 138 of the Companies Act,2013:
Internal audit. — (1) Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.
5. As per section 138 of Indian Companies Act 2013 read with Rule 13 Of Companies (Accounts) Rules, 2014, “certain class of companies are required to appoint Internal Auditors. An extract of Rule 13 of Companies (Accounts) Rules, 2014 is as follows-
Companies required to appoint internal auditor. —
(1) The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely: –
(a) every listed company; Always applicable
(b) every unlisted public company having—
(i) paid up share capital of fifty crore rupees or more during the preceding financial year: or
(ii) turnover(income) of two hundred crore rupees or more during the preceding financial year; or (iii) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or (iv) outstanding deposits of twenty-five crore rupees or more at any point of time during the preceding financial year; and
(c) every private company having—
(i) turnover of two hundred crore rupees or more during the preceding financial year; or
(ii) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year”.
6. Based on the above-mentioned limits, the company has fallen within the criteria of Section 138 of the Companies Act 2013 ,as its turnover exceeded the limit of 200 CR. From FY 2013-14 to FY 2019-20, the company shall be required to appoint an internal auditor, who shall either be a chartered accountant, a cost accountant, or such other professional as may be decided by the board, to conduct an internal audit of the functions and activities of the company as the turnover exceeded the prescribed limit under Section 138 of the Act. However, the company has not appointed any internal auditor to comply with the provisions of Section 138 of the Act. Therefore, it has violated the provisions of Section 138 of the C.A 2013.
7. It is further submitted that there is a reasonable ground to believe that the company and its officers in default have violated the provisions of Section 138 of the Companies Act, 2013. In view of the facts narrated above, the company and its directors/ officers, in default are liable for penalty in pursuant to Section 138 of the Companies Act, 2013 and Rules, made thereunder.
8. Show Cause Notice and Reply/Submission of the Company/Director/Authorised Representative:-
Whereas the office of the undersigned issued show cause notice under section 454 of the Companies Act, 2013 for violation of section 138 of the Companies Act, 2013 to the Company and its officers in default on 28.04.2023 with request to rectify the aforesaid default within 30 days of the notice. In this regard, reply was received from the company which is not satisfactory. Accordingly, the Office of the Registrar of Companies vide letter No. ROC-GJ/ADJ/Tanman/Sec.454/Sec.138/2023-24/5121 to 5123 dated 31.01.2024 has made an official communication with the above-named company and its directors and gave on opportunity of being heard on 14.02.2024. In response to the aforementioned letter dated 31.01.2024, the company vide its letter dated 13.02.2024 intimated this office that due to personal reasons they were not available on the said date. Hence, they requested to grant the date of hearing on 26.02.2024. This office has considered the request of the company and intimated through e-mail dated 19.04.2024 to company and gave on opportunity of being heard on 26.02.2024. However, no officer/representative of the company were present in the hearing on 26.02.2024.
Submission of the Presenting Officer
9. The Presenting Officer has further submitted that as seen from the Annual Return up to 30.09.2023 the paid-up capital of the company is Rs. 1,000,000/- and Turnover is Rs. 0/-Hence, as per the Ministry’s Notification No. G.S.R. 700(E) dated 15.09.2022, in light of Companies (Specification of definition details) Amendment Rules, 2022 with respect to the provisions of Section 2(85) of the Companies Act, 2013, the company falls under the ambit of “small company”. Therefore, the provisions of imposing lesser penalty as per the provisions of Section 446B of the Companies Act, 2013 shall be applicable to the company.
EX- PARTE ORDER:
1. While adjudging quantum of penalty under section 138 of the Act, the Adjudicating Officer shall have due regard to the following factors, namely.
a. The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as a result of default.
b. The amount of loss caused to an investor or group of investors as a result of the default.
c. The repetitive nature of default.
2. With regard to the above factors while determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the notice or loss caused to the investor as a result of the delay on the part of the notice to redress the investor grievance is not available on the record. Further, it may also be added that it is difficult to quantify the unfair advantage made by the noticee or the loss caused to the investors in a default of this nature.
3. Having considered the facts and circumstances of the case and submissions made by the Presenting Officer, the undersigned has reasonable cause to believe that the company and its officers in default have failed to comply with the Provisions of Section 138 of the Companies Act, 2013.Hence, I hereby imposed penalty as under:
Detault for non-compliance under Section 138
| Violation Under Companies Act, 2013 | Company/ Directors/ Officer | No. of Days For Default | Penalty for Default (Rs.) in Pursuant to Section 138 of the C.A. 2013 | Penalty to Be imposed for
Default |
Maximum Limit for Penalty (Rs.) as per Section 450 Of C.A. 2013 | Penalty for Small company Section 446B of CA 2013 |
| Section 138 | TANMAN JEWELS PRIVATE LIMITED (COMPANY) | 304×1000= 304000/- | 304×1000 = 304000+10,000 = 314000 | 314,000 | 2,00,000 | 1,00,000 |
| MR. RAKESH KUMAR JAIN (DIRECTOR) | 304×1000= 304000/- | 304×1000 = 304000+10, 000=314000 | 314,000 | 50,000 | 25,000 | |
| MR. SHUBHAM JAIN (DIRECTOR) | 304×1000= 304000/- | 304×1000 = 304000+10,000 =314000 | 314,000 | 50,000 | 25,000 |
[Default counted from 28/04/2023 to 26/02/2024]
Adjudicating Officer is of the opinion that penalty is commensurate with the aforesaid default committed by the Noticees:
4. The company/ Officer is further directed to rectify the default failing which this office shall proceed further in the matter pursuant to Section 454A of the Companies Act, 2013 for noncompliance of the aforesaid provisions of the Companies Act, 2013.
5. The noticee shall pay the amount of penalty individually for the company and its officers from their personal sources/ income by way of e-payment available on Ministry Website www.mca.gov.in under “Pay Miscellaneous fees” category in MCA fee and payment Services under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 within 60 days from the date of receipt of this order and copy of this adjudication order and Challan/SRN generated after payment of penalty through online mode shall be filed in INC-28 under the MCA portal without further reference.
6. Appeal against this order may be filed in writing with the Regional Director, North-Western Region, Ministry of Corporate Affairs, ROC Bhavan, Opp. Rupal Park, Nr. Ankur Bus Stand, Naranpura, Ahmedabad (Gujarat) 380013 within a period of sixty days from the date of receipt of this order, in Form ADJ) setting forth the grounds of appeal and shall be accompanied by the certified copy of this order [Section 454(5) & 454 (6) of the Companies Act, 2013 read with the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies Adjudication of Penalties) Amendment Rules, 2019].
7. Your attention is also invited to Section 454(8) (i) and 454(8) (ii) of the Companies Act, 2013, which state that in case of non-payment of penalty amount, the company shall be punishable with the fine which shall not be less than Twenty Five Thousand Rupees but which may extend to Five Lakhs Rupees and the officer in default shall be punishable with imprisonment which may extend to Six months or with fine which shall not be less than Twenty Five Thousand Rupees which may extended to one Lakhs Rupees or with both.
The adjudication notice stands disposed off with this order.
Registrar of Companies
& Adjudicating Officer
Gujarat, Dadra Nagar Haveli
