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Companies Act, 2013 – s.140(5) – Analysis and Interpretation of – Maintainability of proceedings u/s. 140(5) after resignation of the auditors – s.140(5) empowers the Tribunal (NCLT), either suo motu or on an application made to it by the Central Government or by any person concerned, to take action against the auditor who has acted in a fraudulent manner or is abetting or colluding in fraud with the management of a company – If on completion of an enquiry it is found by the Tribunal that an auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may by order direct the company to change its auditors – By the impugned judgment, the High Court held that once the auditor resigns as an auditor or is no more an auditor on his resignation, thereafter s.140(5) proceedings are no longer maintainable – Whether after resignation of the auditors, proceedings u/s. 140(5) are maintainable – Held: The view taken by the High Court is absolutely erroneous and is unsustainable – Application/proceedings u/s. 140(5) of the Act, 2013 is maintainable even after the resignation of the concerned auditors – Enquiry/proceedings initiated under the first part of s. 140(5) has to go to its logical end and subsequent resignation and/or discontinuance of an auditor shall not terminate the enquiry/proceedings u/s. 140(5) – If interpretation given by High Court that once an auditor resigns, proceedings u/s. 140(5) stand terminated and are no longer further required to be proceeded, in that case, an auditor to avoid the final order and the consequence of final order as provided under the second proviso to s. 140(5) may resign and avoid any final order by the Tribunal – That cannot be the intention of the legislature – NCLT to pass final order on such application after holding enquiry in accordance with law and thereafter on basis of such final order, further consequences as provided under second proviso to s. 140(5) shall follow. Companies Act, 2013 – s. 140(5) – Constitutional validity of – s. 140(5) empowers the Tribunal (NCLT), either suo motu or on an application made to it by the Central Government or by any person concerned, to take action against the auditor who has acted in a fraudulent manner or is abetting or colluding in fraud with the management of a company – If on completion of an enquiry it is found by the Tribunal that an auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may by order direct the company to change its auditors – Held: s. 140(5) is neither discriminatory, arbitrary and/or violative of Arts. 14, 19(1)(g) of the Constitution – NCLT exercises quasi-judicial powers u/s. 140(5) with all the powers akin to civil court – Ample opportunity is given by NCLT before passing any final order – Plea that s. 140(5) discriminates against the auditors unfairly in comparison to similarly placed alleged perpetrators, such as directors, management etc. not tenable, as the role of auditors cannot be equated with directors and/or management – Acting in a fraudulent manner, directly or indirectly, by an auditor is a very serious misconduct and therefore the necessary consequence of indulging into such fraudulent act shall follow – Merely because the auditor can be removed as an auditor of a company under the other provisions, s. 140(5) which has been enacted with a special object and purpose cannot be said to be arbitrary and/or ultra vires – Constitution of India – Arts. 14 and 19(1)(g). Companies Act, 2013 – s. 140(5), first proviso – Powers under the first proviso to s. 140(5) – Nature of – Held: It can be said to be interim or pro tem measure to prevent an existing auditor from continuing and substitute him with an auditor based on a prima facie satisfaction that a fraud has been perpetrated and when circumstances warrant the substitution – Such an order can be said to be an interim order akin to a temporary suspension during the pendency of the detailed enquiry as provided in s. 140(5) and before any final order is passed by the Tribunal. Companies Act, 2013 – s. 140(5), second proviso – Object and purpose of – When attracted –– Held: The object and purpose of second proviso to s. 140(5) is to make the provision more stringent and to provide for consequences for an auditor when such an auditor is found to have been perpetrating a fraud and is removed by the NCLT for such fraud – Before second proviso of s. 140(5) is attracted, there must be a detailed enquiry against an auditor of a company as per first part of s. 140(5) and there must be a finding arrived at by the NCLT that the auditor of a company has, directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers. |
