Under Section 140(5) of the Companies Act 2013, Auditor cannot be debarred for 5 years in the absence of evidence says NCLT

Anil Ambani

The appellant filed an application in NCLT against the Judgment given on 6th February 2019. One of the Respondents to this case, M/s Zen shaving Limited came out with an initial public offer and issued a prospectus to raise funds in the year 1996. The petitioner was appointed as the statutory auditor of Zen Shaving Limited on 12th March 2014 and the auditor report was released for the year 2014-15 and 2015-16 on 5th September of 2015 and 2016, respectively. The Respondent (Union of India) ordered for the inspection through Corporate Affairs of the M/s Zen Shaving Limited based on the information received from Jagdip H Vaishnav. The complaint was regarding the irregularities in statutory compliances including non-listing in Pune Stock Exchange (PSE) and there was no issuance of financial statements from 1995. The report submitted by The Central Government addressed before the Tribunal that notices sent to the company through the post but postal articles were returned with the endorsement “left”. A letter was addressed through Ministry of Corporate Affairs (MCA) by The Central Government to The Regional Director, West Region and forwarded an action to be taken under Section 140(5) of the Companies Act 2013. Based on the inspection report which was made by the Assistant Registrar of Companies, Maharashtra filed a Special Company case No. 34 of 2018 before the Civil and Sessions Court of Mumbai under Section 447 of the Act against the appellant for providing clean auditing reports to Zen Shaving Limited for the financial year of 2014-15 & 2015-16. On 3.1.2019 NCLT passed ad interim order whereby it was directed that the appellant shall cease to act as statutory auditor of Respondent No.2 Company and further permitted Respondent No.1 to appoint an independent auditor for Respondent No.2 Company. 

The Counsel representing the petitioner submits to NCLT before passing the order that the appellant would be ineligible to be appointed as an auditor of the company has not given reasonable opportunity to put up his defence and solely gives his findings on the report of Inspecting Officer and that due to financial hardship the appellant could not engage counsel and did not file a formal reply to the company petition. 

The tribunal opined that “the act of the appellant is certainly a negligent act but there is no material on record to infer that he has acted fraudulently and colluded with the directors of the company concerning affairs of the company or he has misused his position as statutory auditor of the company”.

The findings of NCLT aren’t sustainable in law as well as facts and the appeal was allowed and impugned order is set aside.

Key-Features:-

  • The tribunal consisted of Justice J.K. Jain, Balvinder Singh (Technical) and Ashok Kumar Misra (Technical). 
  • The findings of NCLT aren’t sustainable in law as well as facts.
  • The tribunal felt the act of the appellant was negligent but there is no material in record. 
  • The legal issue raised in this appeal is that NCLT has passed the order against the appellant under 2nd proviso to sub-Section (5) of 140 of the Act which came into force on 1.6.2016.
  • During the audit, the appellant didn’t call for any book of accounts and statutory register from the company. 

Edited by J. Madonna Jephi

Approved & Published – Sakshi Raje

Reference:-

Previous articleArrest of Women
Next articleClashes in Delhi between Citizenship Amendment Act, 2019 supporters and opposers leave 20 dead; more than 170 injured
I am pursuing my integrated five years bachelors of law degree from Centre for Juridical Studies, Dibrugarh University. I do have an interest in reading books written by Arundhati Roy, Ashwini Sanghi, Ramachandra Guha and others. Any personality whom I like is Karl Marx and Che Guevara, as latter did write the book “Motor Cycle diaries” which is based on upon his journey on a bike with his friend. Whereas I do like to binge-watch series and out of those which I have seen till now are two and a half men, Suits, Sherlock and Friends to name a few. Apart from that, I do have an interest in writing articles and stories along with being a part of any discussions or debates.