2001 (5) TMI 906 - HC - Companies Law

Summary

Issues:
Appointment of cost auditor under Companies Act, 1956 - Discretion of Central Government to approve or disapprove appointment - Allegations of professional misconduct against the petitioner.

Analysis:

1. Appointment of Cost Auditor:
The petitioner, a fellow member of the Institute of Cost and Works Accountants of India, was appointed as the cost auditor of a company for the period 1995-96. Subsequently, the company proposed the petitioner's reappointment, which was not approved by the Central Government due to pending allegations of professional misconduct against the petitioner. The petitioner challenged this decision seeking approval for the appointment.

2. Discretion of Central Government:
The petitioner argued that under section 224 of the Companies Act, the Central Government is mandated to positively act on proposals for the appointment of cost accountants. However, the respondent contended that section 233B is the relevant provision, granting the Central Government the discretion to disapprove appointments based on valid grounds. The Central Government's power includes the authority to reject proposals after considering all relevant factors.

3. Allegations of Professional Misconduct:
The refusal to approve the petitioner's appointment was based on a complaint alleging professional misconduct by the petitioner for failing to submit an audit report despite specific instructions. The court held that the Central Government had the discretion to disapprove the appointment based on pending allegations of misconduct. The decision was deemed reasonable and not arbitrary, considering the circumstances.

4. Judgment:
The court analyzed the provisions of section 224 and section 233B of the Companies Act, emphasizing the distinction between the appointment of auditors for financial accounts and cost accounts. It concluded that the Central Government's power to approve or disapprove appointments under section 233B is not arbitrary but based on valid grounds. As the complaint against the petitioner was pending, the refusal to approve the appointment was deemed justified. The petitions were dismissed, and the court upheld the decision of the Central Government to not approve the petitioner's reappointment as the cost auditor.