MCA Imposes Maximum Penalty for Internal Auditor Appointment Lapse on Private Company and Its Directors [Read Order]

The Ministry of Corporate Affairs (MCA) has issued an adjudication order under Section 454 of the Companies Act, 2013, imposing penalties on a private company and its director for violation of Section 138 relating to appointment of an internal auditor.

The order followed a suo motu application filed by the company Exotel Techchom Private Ltd acknowledging non‑compliance for the financial years 2022‑23 and 2023‑24.

According to the facts recorded, the company’s turnover exceeded ₹200 crore in FY 2021‑22, thereby triggering the statutory requirement under Section 138 read with Rule 13(1)(c) of the Companies (Accounts) Rules, 2014 to appoint an internal auditor from FY 2022‑23 onwards.

However, the appointment was delayed until November 14, 2024, resulting in a default period of 958 days. The ROC noted that despite the eventual appointment, the prolonged non‑compliance rendered both the company and its officer in default liable for a penalty under Section 450.

The adjudication process involved issuance of show cause notices in February and July 2025, followed by an e‑hearing in August 2025 attended by the company’s authorized representative.

During the hearing, details of turnover and compliance submissions were provided, confirming the applicability of Section 138. The MCA concluded that the company did not qualify as a “small company” under Section 2(85) of the Act, and therefore, the benefit of reduced penalty under Section 446B was not available.

In its order, the MCA imposed the maximum permissible penalty: ₹2,00,000 on the company and ₹50,000 on the director, Shivakumar Ganesan. The penalties reflect the seriousness of the prolonged default and the statutory ceiling under Section 450.

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The order directs rectification of the default and payment of penalties within 90 days via the MCA’s e‑Adjudication portal, with the stipulation that the officer’s penalty must be paid from personal sources.

The MCA further clarified that appeals may be filed before the Regional Director, Hyderabad, within 60 days in Form ADJ, accompanied by a certified copy of the order. It also warned that failure to pay penalties within the prescribed period would attract consequences under Section 454(8) of the Act, which includes potential prosecution.

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