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Introduction: The Ministry of Corporate Affairs (MCA) has imposed a penalty of Rs. 4.50 lakh on Kudos Finance & Investments Private Limited for failing to appoint an internal auditor, as mandated by the Companies Act, 2013. This adjudication order, under Section 454(3) read with section 138, outlines the violations and penalties incurred by the company and its officers.

Detailed Analysis:

1. Appointment of Adjudicating Officer: The MCA appointed an adjudicating officer in accordance with the Companies (Adjudication Of Penalties) Rules, 2014. The officer is empowered to adjudicate penalties under section 138 of the Companies Act, 2013, effective from 21.12.2020.

2. Company Overview: Kudos Finance And Investments Private Limited, a registered company, failed to comply with the appointment of an internal auditor, a requirement under Section 138(1) of the Companies Act, 2013.

3. Relevant Provisions: The article highlights key provisions of the Companies Act, 2013, including Section 138(1) and Section 450, emphasizing the obligation of certain companies to appoint internal auditors.

4. Facts about the Case: The company’s violation of Section 138(1) and Section 450 is detailed, emphasizing the failure to appoint an internal auditor despite a turnover exceeding Rs. 1000 crore.

5. Inquiry and Adjudication Process: The adjudication officer conducted an inquiry, providing the company with an opportunity to respond. Unsatisfactory replies led to the issuance of an adjudication notice, and penalties were imposed under Section 450 of the Act.

6. Company’s Response: The company defended its position, citing turnover figures for FY 2020-21 and 2019-20, claiming that the provisions of Section 138(1)(c) were not applicable.

7. Penalty Imposed: The adjudication officer imposed penalties on the company and its officers based on the violation period. Individual penalties for officers were also specified.

Conclusion: In conclusion, the article summarizes the order, emphasizing the imposed penalties and the obligation to pay through the Ministry of Corporate Affairs portal. The option to appeal within sixty days and the consequences of non-payment are highlighted, providing a comprehensive overview of the MCA’s actions against Kudos Finance & Investments Private Limited.

OFFICE OF THE 

REGISTRAR OF COMPANIES MAHARASHTRA, PUNE

MINSTRY OF CORPORATE AFFAIRS

GOVERNMENT OF INDIA

RoCP/ADJ/138/2023-24/KUDOS/8(iv)/B/2865 to 2871

Dated: 09/02/2024

ADJUDICATION ORDER

*****

Adjudication Order of penalties in the matter of  Kudos Finance  And Investments Private Limited (U65910PN2009PTC148795)  under Section 454(3) read with section 138 of the Companies Act,  2013 read with rule 13 of the Companies (Accounts) Rules, 2014

Please Read:

In respect of:

Whereas KUDOS FINANCE AND INVESTMENTS PRIVATE LIMITED having CIN-(U65910PN2009PTC148795) & having its registered office as per MCA21 Registry at address “C/o, EFC Limited, 7th Floor, East Wing, Marisoft-3, Marigold Premises, Kalyani Nagar, Pune, Maharashtra,411014,India.” and its directors/ KMPs.

1. Appointment of Adjudicating Officer:

Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 (see SO 831(E), dated 24.03.2015) appointed undersigned as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (herein after known as Act) r/w Rule 3(1) of Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act. The undersigned vide Companies (Amendment) Act, 2020 is entrusted to adjudicate penalties under section 138 of the Companies Act, 2013 with effect from 21.12.2020

2. Company:

KUDOS FINANCE AND INVESTMENTS PRIVATE LIMITED (U65910PN2009PTC148795) (herein after referred as Company) is a registered company with this office under the provisions of section 3(1)(iii) of the Companies Act, 1956 having its registered office as per MCA21 Registry at address “C/o, EFC Limited, 7th Floor, East Wing, Marisoft-3, Marigold Premises, Kalyani Nagar, Pune , Maharashtra, 411014, India.”

3. Relevant provisions of the Companies Act, 2013:

Section 138(1) of the Act provides that 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.

Section 450 of the Act provides that If any default If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.

Rule 13 of the Companies (Accounts) Rules, 2014

Companies Required to Appoint Internal Auditor

(1)  The following class of companies shall be required to appoint an internal auditor I [which may be either an individual or a partnership firm or a body corporate], namely:-

(a) every listed company;

(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 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:

4. Facts about the Case:

a) In terms provisions of section 138 (1) Companies Act, 2013, 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.

b) In terms of the provisions of section 450 , of the Companies Act, 2013, —If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.

c) An Inquiry was conducted by the IO and during the Inquiry it was pointed out by the IO that the turnover of the company exceeds the Rs.1000 Crore. Hence, In compliance of the Section 138 of the Companies Act, 2013, the company shall appoint internal auditor 8s shall conduct audit in the company. However, The company neither appointed internal auditor and nor conducted audit in the company and failed to comply with requirements of section 138 of the Companies Act, 2013. Thus, company and its officers are liable under provisions of section 450 of the Act.

d) A reasonable opportunity was given to company and its directors vide order under section 206(4) of the Companies Act, 2013 vide letter no. ROCP/INQ/2021/2045 to 2051 dated 18.02.2022. However, reply submitted by the Company was not satisfactory and the competent authority has now directed to adjudicate the matter.

e) Accordingly, the adjudication officer has issued adjudication notice vide ROCP/ADJ/Sec-138/JTA(B)/23-24/728 to 735 dated 23.06.2023 (herein after referred as Adjudication Notice) under Section 454(4) read with 138 of the Companies Act, 2013 read with Rule 3(2) Of Companies (Adjudication of Penalties), 2014 as amended in Amendment Rules, 2019, to the company and its officers in default for the violation of the provisions of the act as mentioned in para “a 8s b” above;

f) A reply to the Adjudication notice has been received on 28.06.2023 from the Directors stated as under-

1. The provisions of Section 138(1)(c) of the Companies Act, 2013 state that:

(1) The following class of companies shall be required to appoint an internal auditor [which may be either an individual or a partnership firm or a body corporate], namely:-

(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:

2. In our case, the turnover of the Company for FY 2020-21 and 2019-20 amounts to:

Particulars FY 2020-21 (Amount in INR’) FY 2019-20 (Amount in INR’)
Turnover 2,77,366,888 3,62,285,565
Other Income 5,968,664 1,913,999
Total Revenue 2,83,335,552 3,64,199,564

3. Further, the loans or borrowings for FY 2020-21 and 2019-20 amounts to:

Particulars FY 2020-21 (Amount in INR’) FY 2019-20 (Amount in INR’)
Long Term
Borrowings
27,060,658 59,744,640
Short Term
Borrowings
15,899,561 9,133,784
Total

Borrowings

42,960,219 68,878,424

Hence, provisions of Section 138(1)(c) of the Companies Act, 2013 were not applicable to our Company.

g) Further, under section 454(4) of the Act read with Rule 3(2) of the Companies (Adjudication Of Penalties) Rules, 2014, Notice(s) were given an opportunity to submit a reply by issuing an Adjudication Notice vide ROCP/ADJ/Sec-138/23-24/2238-2244 dated 23.06.2023 (herein after referred as Adjudication Notice) to why the penalty should not be imposed under the provisions of 450 of the Act against the Company and its officers in default for the above stated violations.

h) Hence, as the said violation has already been concluded by I0 during the course of Inquiry :- no further hearing in physical is required to ascertain the violation of the said section.

Furthermore, the Noticee(s) are at liberty to file appeal against this order as per Para. 5.(e) of this order. Hence the Order-

5. ORDER:

a. The applicant company and its officers, who have defaulted the provisions of section 138(1) of the Act that the turnover of the company exceeds the Rs.1000 Crore & the company neither appointed an internal auditor and nor conducted audit in the company, and failed to comply with requirements of section 138, hence company and its officers are liable under provisions of section 450 of the Act.

b. In exercise of the powers conferred on the undersigned vide Notification dated 24th March, 2015 and after taking into account the factors mentioned herein above, I do hereby impose the penalty on the company and its officers in default pursuant to Rule 3(12) of Companies (Adjudication Of Penalties) Rules, 2014 and the proviso of the said Rule and Rule 3(13) of Companies (Adjudication Of Penalties) Rules, 2014 r/w General Circular No. 1/2020 dated 02.03.2020; as per table below for violation of section 138 of the Act:-

Nature of default
Violation of
Section of the
Companies Act,
2013
Company/Officers to whom penalty
imposed
No. of Days in default*
Penalty For defaults (Rs.) as Per Section 450 of the Act
Total Penalty (Rs.) as Per Section 450 of the Act
Penalty Imposed (Rs.)
Non appointment of an internal auditor and nor conducted auditin the company
Section 138(1)
Kudos Finance And Investments Private Limited
914
Rs. 10000+1000 /per day
10000+1000 x 914=9,24,000
Rs.2,00,000/-
Pavitra Pradip  Walvekar
914
Rs. 10000+1000 /per day
10000+1000 x 914=9,24,000
Rs. 50,000/-
Swati Jindal
914
Rs. 10000+1000 /per day
10000+1000 x 914=9,24,000
Rs.  50,000/-
Naresh Vigh
914
Rs. 10000+1000 /per day
10000+1000 x 914=9,24,000
Rs.  50,000/-
Audumbar Dattatray Raut
914
210000+1000 /per day
10000+1000 x 914=9,24,000
Rs. 50,000/-
Rizwan Hasan Shaikh (from date of appointment i.e. 30.04.2022)
419
210000+1000 /per day
10000+1000 x 419=4,29,000
Rs.  50,000/-

(*Period of default from 21.12.2020 to till date of Notice, i.e.,23.06.2023)

c. I am of the opinion that penalty so imposed is commensurate with the aforesaid failure committed by the notice(s).

d. The Notice(s)/applicant(s) shall pay the penalty so imposed through Ministry of Corporate Affairs portal only as per rule 3(14) of Companies (Adjudication of Penalties) Rules, 2014.

e. Appeal against this order may be filed under section 454(5) of the Act, in writing with the Regional Director (Western Region), Ministry of Corporate Affairs 100, Everest, 5th Floor, Netaji Subhash Road, Marine Drive, Mumbai-400002, 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 a certified copy of this order. [Section 454 of the Act read with Companies (Adjudication of Penalties) Rules, 2014 as emended by Companies (Adjudication of Penalties) Amendment Rules, 2019.

f. Your attention is also invited to section 454(8)(ii) of the Act regarding consequences of non-payment of penalty within the prescribed time limit of 90 days from the date of the receipt of copy of this order in terms of the provisions of section 454(8)(i) of the Act.

g. In terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019, copy of this order is being sent to KUDOS FINANCE AND INVESTMENTS PRIVATE LIMITED and all directors/officers in default mentioned herein above and also to Office of the Regional Director (Western Region) and Ministry of Corporate Affairs at New Delhi.

(Mangesh Jadhav, ICLS)
Adjudicating Officer
Registrar of Companies
Maharashtra, Pune

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