Non-appointment of Internal Auditor by Company: MCA imposes Penalty

The Registrar of Companies, NCT of Delhi & Haryana, issued an order dated May 10, 2024, imposing penalties under Section 138 of the Companies Act, 2013, read with Section 450 of the Companies Act, 2013, against Sector 113 Gatevida Developers Private Limited and its directors.

The company, Sector 113 Gatevida Developers Private Limited, inadvertently failed to appoint an Internal Auditor for the financial year 2022-23, as required by Section 138 of the Companies Act, 2013, read with Rule 13 of the Companies (Accounts) Rules, 2014. Although the company appointed an Internal Auditor for the financial year 2023-24 on January 30, 2024, it failed to do so for the preceding financial year.

Upon receipt of the application from the company regarding adjudication of penalties, the Registrar of Companies initiated an inquiry. The company admitted to the default in its reply to the clarification letter sent by the Registrar’s office.

Since there is no specific penal provision specified for non-compliance with Section 138, penalties were imposed under Section 450 of the Companies Act, 2013. The penalty amount of Rs. 10,000 was imposed on the company and each of its directors: Sh. Sidharth Chauhan, Sh. Dinesh Kushwaha, Sh. Dharam Chand Yadav, Sh. Manu Gupta, and Sh. Aravind Maiya.

The order directed the parties to pay the penalty amount within 90 days of receipt of the order through online payment on the MCA website. The appeal process was also outlined, allowing the parties to file an appeal with the Regional Director (NR), Ministry of Corporate Affairs, within sixty days from the date of receipt of the order.

Non-compliance with the order was warned to attract the consequences specified under Section 454(8) of the Companies Act, 2013.

In summary, the order imposed penalties on the company and its directors for the failure to appoint an Internal Auditor as required by the Companies Act, 2013, and provided instructions for payment of penalties and the appeal process.

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Government of India
Ministry of Corporate Affairs,
Office of Registrar of Companies,
NCT of Delhi & Haryana
4th Floor, IFCI Tower, 61, Nehru Place,
New Delhi -110019

Order for Penalty under Section 138 of the Companies Act, 2013 r/w Section 450 of the Companies Act, 2013 in the matter of Sector 113 Gatevida Developers Private Limited (U45202DL2011PTC277182)

1. Appointment of Adjudicating Officer: –

Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.11, dated 24.03.2015 appointed Registrar of Companies, NCT of Delhi & Haryana as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter known as Act) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company: –

Whereas the company viz. SECTOR 113 GATEVIDA DEVELOPERS PRIVATE LIMITED (herein after known as ‘company’) is a registered company with this office under the Companies Act, 1956 having its registered office as per MCA21 Register address at Plot no.5, J block, Community Centre, Rajouri Garden NA, New Delhi, New Delhi,Delhi,110027,India. The financial & other details of the subject company for immediately preceding F.Y 2022-23 as available on MCA-21 portal is stated as under:

3. Facts about the Case: –

i. This office is in receipt of application on 09.02.2024 (GNL-1 F91935759 dated 08.02.2024) from the company regarding adjudication of penalties u/s 138 of the Act.

ii. That as per the financial statements for F.Y. 2021-2022, the turnover of the company was Rs. 288.92 crore and as per the provision of section 138 r/w rule 13(1) (c) of Companies (Accounts) Rules, 2014, company was required to appoint Internal Auditor for F.Y. 2022-23 but the company has submitted that inadvertently it did not appoint any Internal Auditor for F.Y. 2022-23. However, the company could appoint Internal Auditor for F.Y. 2023-24 on 30.01.2024, in this regard an e-form MGT-14 was filed by the company vide SRN AA6749936 dated 01.02.2024.

iii. That a clarification letter was sent to company vide letter date 12.03.2024 to which a reply has been received on 13.03.2024 wherein inter-alia it is admitted that though M/S. Mahajan & Aibara was serving as an internal auditor in the Company in FY 2022-23, the Board of Directors had not appointed it in the Board Meeting as per the requirements of 138 of the Act.

iv. Accordingly, an SCN was issued on 22.03.2024 for the default u/s 138 of the Act r/w rule 13 of Companies (Accounts) Rules, 2014, in response to which a reply was received vide email dated 25.03.2024 wherein the default u/s 138 was admitted and it was requested that penalties be imposed with a lenient view.

4. The relevant provision of Section 138 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.

Section 450 OF THE COMPANIES ACT, 2013 (Punishment where no specific penalty or punishment is provided)

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 Companies (Accounts) Rules, 2014 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:-

(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:

5. Adjudication of penalty: –

i. The default u/s 138 of the Act has been admitted as the internal auditor was not appointed by the Board. There is no penal provision specified for non­compliance u/s 138. Hence, company and its officers in default are liable for penalties in terms of provisions of section 450 of the Act.

ii. The subject company does not get covered under the purview of small company as defined u/s 2(85) of the Act. Hence, the benefit of section 446B would not be applicable on the company.

iii. Now in exercise of the powers conferred on me vide Notification dated 24th March, 2015 and having considered the reply submitted, I do hereby impose the following penalty :-

TABLE-I

7. Order:

a. Names of parties as mentioned in the table I above are hereby directed to pay the penalty amount as per column no. ‘C’ therein. In case of parties other than company, such amount is required to be paid out of their own funds.

b. The said amount of penalty shall be paid through online by using the website mca.gov.in (Misc. head) in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimate this office with proof of penalty paid.

c. Appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003 within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].

d. Your attention is also invited to section 454(8) of the Act in the event of non­compliance of this order.

(Pranay Chaturvedi,
(Adjudicating Officer)
Registrar of Companies
NCT of Delhi & Haryana

Order No. ROC/D/Adj/138/Sector 113 Gatevida/2089-2095 Date: 10/05/2024