Section 378ZF Companies Act 2013 - Internal Audit of Producer Company

Section 378ZF of the Companies Act, 2013 forms part of Chapter XXIA dealing with Producer Companies. It makes internal audit mandatory for every Producer Company and links the manner and interval of that audit to the company's articles.

Section 378ZF - Internal audit

Every Producer Company shall have internal audit of its accounts carried out, at such interval and in such manner as may be specified in articles, by a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949).

Legislative note: Section 378ZF was inserted by section 52 of the Companies (Amendment) Act, 2020 (Act 29 of 2020) with effect from 11 February 2021.

Meaning and scope of Section 378ZF

The provision imposes a specific internal audit obligation on every Producer Company. Unlike a provision that applies only after prescribed financial thresholds are crossed, Section 378ZF itself states that every Producer Company shall have an internal audit of its accounts.

Mandatory requirement: Every Producer Company is required to arrange internal audit of its accounts.
Interval of audit: The frequency or interval is to be specified in the articles of the Producer Company.
Manner of audit: The procedure or manner of internal audit is also governed by the articles.
Who conducts the audit: The audit must be carried out by a chartered accountant within the meaning referred to in Section 378ZF.

Who is a chartered accountant for Section 378ZF?

Section 378ZF expressly refers to clause (b) of sub-section (1) of Section 2 of the Chartered Accountants Act, 1949. Under that provision, a "chartered accountant" means a person who is a member of the Institute of Chartered Accountants of India.

Role of the articles of a Producer Company

The articles are important for compliance with Section 378ZF because the statutory text leaves the interval and manner of internal audit to what is specified in those articles. A Producer Company should therefore ensure that its articles contain workable provisions governing the internal audit process and that the audit is conducted consistently with those provisions.

Section 378ZF and Section 138

Section 378ZF is a special provision in Chapter XXIA applicable to Producer Companies. Section 138 of the Companies Act, 2013 separately deals with internal audit for prescribed classes of companies. For a Producer Company, Section 378ZF should be read as the specific Producer Company requirement, while other applicable provisions of the Companies Act and rules should also be checked according to the company's facts and status.

Related provisions

Section 378ZF appears in Part VI of Chapter XXIA, titled "Finance, Accounts and Audit". It follows Section 378ZE on books of account and is followed by Section 378ZG on duties of auditor under Chapter XXIA.

Compliance note: The statutory text should be read with the current articles of the Producer Company and other applicable provisions, rules and notifications. Official legislation should be checked for amendments before taking a filing or compliance decision.

Official legal sources

For the current statutory text, see the Companies Act, 2013 on India Code. The insertion of Chapter XXIA, including Section 378ZF, can also be verified in the Companies (Amendment) Act, 2020 published by the Ministry of Corporate Affairs. The definition referred to in Section 378ZF is available in the Chartered Accountants Act, 1949 on India Code.