Non-Appointment of Internal Auditor: MCA Imposes Penalty on Muthootu Mini Nidhi Limited
In a recent development, the Ministry of Corporate Affairs (MCA) has imposed penalties on Muthootu Mini Nidhi Limited for non-compliance with the provisions of Section 138 of the Companies Act, 2013, read with Rules framed therein. The penalties are a result of the company’s failure to appoint an internal auditor for the financial years 2016-17 to 2018-19, a violation that attracts penal action under Section 450 of the Act.
Background:
Muthootu Mini Nidhi Limited, a company incorporated in 1990 and presently registered under the jurisdiction of the Registrar of Companies, Karnataka, came under scrutiny after a notice was issued by the Registrar of Companies Karnataka on 28.04.2022. The notice sought comments and explanations on certain points arising from the scrutiny of the company’s financial statements for the years ending on 31.03.2017, 31.03.2018, and 31.03.2019.
Upon further investigation, it was found that the company, with outstanding deposits exceeding Rs. 25 crore, did not appoint an internal auditor for the financial years 2016-17 to 2018-19, a non-compliance with the provisions of Section 138(1) of the Companies Act.
Imposition of Penalties:
In accordance with the powers conferred by Section 454 of the Companies Act, 2013, and the Companies (Adjudication of Penalties) Rules, 2014, the adjudicating officer imposed penalties on Muthootu Mini Nidhi Limited and its officers in default. The penalties were levied under Section 450 of the Act, which specifies penalties for contraventions not covered elsewhere in the legislation.
The penalties imposed on the company and its officers are as follows:
| S. No. | Particulars | Penalty for the year 2016-17 (In Rs.) | Penalty for the year 2017-18 (In Rs.) | Penalty for the year 2018-19 (In Rs.) | Penalty imposed as per Section 450 of the CA, 2013 (In Rs.) |
|---|---|---|---|---|---|
| 1 | Company | 10,000 | 10,000 | 10,000 | 30,000 |
| 2 | Nizzy Mathew, Director | 10,000 | 10,000 | 10,000 | 30,000 |
| 3 | Roy Mathew Mathew, Director | 10,000 | 10,000 | 10,000 | 30,000 |
| 4 | Mathew Muthoottu, Director | 10,000 | – | – | 10,000 |
| 5 | Saramma Mammen Mathai, Director | 10,000 | 10,000 | 10,000 | 30,000 |
Payment and Compliance:
The company and its directors/key managerial personnel have been directed to pay the penalty amounts within 90 days from the date of receipt of the order. The payment is to be made online through the MCA website, and a copy of the order and payment challans must be attached while filing Form INC-28. Directors are required to pay the penalty amount from their own funds.
Appeal and Further Action:
The company and its directors have the option to file an appeal against this order with the Regional Director (South East Region), Hyderabad, within 60 days from the date of receipt of the order. Failure to comply with this order may result in further penal action under Section 454(8) of the Companies Act, 2013, without further notice.
The company is also mandated to serve a copy of this order on the directors/officers-in-default as per the provisions of Section 20 of the Companies Act, 2013.
Conclusion:
This order serves as a reminder of the stringent regulatory framework governing corporate compliance in India. Non-compliance with the appointment of internal auditors, a crucial aspect of corporate governance, has resulted in significant penalties on the company and its directors. It underscores the importance for companies to adhere to statutory requirements and maintain diligent compliance practices to avoid legal repercussions.
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Registrar of Companies Karnataka
Kendriya Sedan, 2nd Floor, ‘E’-Wing
Koramangala, Bengaluru – 560 034
Phone: 080-23337049/25633105
Email ID: [email protected]
F No. ROC(B)/Adj. Order/454-138/Muthootu/Co.No.10837/2023
Date: 09.11.2023
ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF COMPANIES ACT. 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALITES) RULES. 2014 FOR VIOLATION OF PROVISIONS OF SECTION 138 READ WITH RULES (AS AMENDED TIME TO TIME) FRAMED THEREIN BY MUTHOOTU MINI NIDHI LIMITED.
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 powers conferred by section 454 of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of Companies Act, 2013 (hereinafter referred to as Act).
2. The company, Muthootu Mini Nidhi Limited (hereinafter referred to as Company) having CIN: U85110KA1990PLC010837 was incorporated on 16.03.1990 and is presently registered under the jurisdiction of Registrar of Companies, Karnataka and the registered office of the company is situated at No. 102, 1st floor, Copper Arch, 83, Infantry Road, Bangalore-560001, Karnataka.
3. It is seen that the pursuant to a notice issued by this office 28.04.2022 calling for comments/ explanation on certain points arising out of scrutiny of financial statements as on 31.03.2017, 31.03.2018 and 31.03.2019 and further show cause notice was issued for violation of section 138 read with Rule 13(1)(b)(iv) of Companies (Accounts) Rules, 2014, the company has filed an application for compounding/adjudication of offences.
4. It is further seen that the total outstanding deposit received by the company was Rs. 44.03 crores, Rs. 44.02 crores and Rs. 27.06 crores as at 31.03.2017, 31.03.2018 and 31.03.2019 respectively, Also, the company did not appoint any internal auditor of the year 2016-17, to 2018-19. Hence, the company and its officers in default are liable for penal action under section 450 of Act, for violation of section 138 read with Rule 13(1)(b)(iv) of Companies (Accounts) Rules, 2014.
5. As per the provisions of section 138(1) of the Act, 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. As per Rule 13(2)(b)(iv) of the Companies (Accounts) Rules, 2014, every unlisted public company having outstanding deposits of twenty-five crore or more at any point of time during the preceding financial year shall be required to appoint an internal auditor.
6. As per provisions of Section 450 of the Act, 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.
7. Pursuant to the adjudication application filed by the company, Notice of hearing was sent on 18.09.2023 and physical hearing was held on 26.09.2023 which was attended by Mr. Haribabu Pothapu, practising company secretary who appeared on behalf of the company and directors and made his submissions.
8. As the company is a public limited company, it does not fall under the definition of a small company as per the provisions of section 2(85) of the Companies Act, 2013. Therefore, the provisions of imposing lesser penalty as per the section 446B of the Act shall not be applicable in this case.
9. Therefore, having considered the facts and circumstances of the case and the submissions made by the company / director / key managerial personnel through their authorised representative, in view of the above said violation of non-compliance of provisions of section 138 of the Companies Act, 2013 in exercise of the powers vested under section 454(3) of the Act, I do hereby impose penalty in the following manner on the company and all the officers in default during the period of offence committed:
|
S. |
Particulars | Penalty for the year 2016-17 (In Rs.) |
Penalty for the year 2017-18 (In Rs.) |
Penalty for the year 2018-19 (In Rs.) |
Penalty imposed as per Section 450 of the CA, 2013 (In Rs.) |
| 1 | Company | 10,000 | 10,000 | 10,000 | 30,000 |
| 2 | Nizzy Mathew, Director |
10,000 | 10,000 | 10,000 | 30,000 |
| 3 | Roy Mathew Mathew, Director | 10,000 | 10,000 | 10,000 | 30,000 |
| 4 | Mathew Muthoottu, Director | 10,000 | – | – | 10,000 |
| 5 | Saramma Mammen Mathai, Director | 10,000 | 10,000 | 10,000 | 30,000 |
10. The company and its directors / key managerial personnel are hereby directed to pay the penalty amount as tabulated above within 90 days from the date of receipt of this Order and file Form INC-28 attaching a copy of the Order and payment challans. In case of directors, such penalty amount is required to be paid out of their own funds. The noticee shall pay the said amount of penalty online by using the website www.mca.gov.in (Miscellaneous head) specifying the details of this Order and the noticee who is paying the penalty.
11. Appeal, if any, against this Order may be filed with the Regional Director (South East Region), Hyderabad within a period of 60 days from the date of receipt of this Order in Form ADJ setting forth the grounds of appeal and shall be accompanies by a certified copy of this Order.
12. Your attention is also invited to section 454(8) of the Companies Act, 2013 in case of non-compliance of this Order wherein necessary penal action will be initiated under 454(8)(i) and (ii) of the Companies Act, 2013 against the company and directors / key managerial personnel without further notice in the matter.
13. The company is required to serve a copy of this Order on the director(s)/ officer(s)-in-default mentioned above in terms of provisions of section 20 of the Companies Act, 2013.
(Sanjay Sood)
Registrar of Companies, Karnataka
and Adjudicating Officer
