Company Faces Penalty For Not Appointing Internal Auditor for Three Financial Years

The Registrar of Companies (ROC), Chennai, has imposed a penalty on a company as it failed to appoint an internal auditor for three financial years, violating Section 138 of the Companies Act, 2013.

During an inquiry under Section 206(4) of the Companies Act, it was observed that the company, Arvind Remedies Limited, had not appointed an internal auditor for three consecutive financial years: 2014-15, 2015-16 and 2016-17.

Section 138 of the Companies Act requires a company to appoint an internal auditor who can be either a Chartered Accountant or a Cost Accountant, or another Professional to conduct an internal audit in the manner prescribed by the Central Government. As per the inquiry report, Arvind Remedies Limited had violated this mandatory requirement.

For the above violation, the ROC issued an order for adjudication of a penalty under Section 454 of the Companies Act. Since no specific penalty exists for the above violation, it has been treated as a violation under section 450 of the Companies Act, under which a company and its officers in default are liable to pay a penalty of Rs 10,000 plus an Rs 1,000 daily fine for continuing offences (capped at Rs 2 lakh for the company and Rs 50,000 for individuals).

Accordingly, the company’s two directors are fined Rs 50,000 each, which is required to be paid within 90 days via the e-Adjudication facility on the Ministry of Corporate Affairs (MCA) Portal.