2010 (8) TMI 184 - HC - Companies Law

Whether the period for which the audit was ordered by the earlier order of the Company Law Board had expired and that a fresh auditor be appointed for the period October 1, 2005, onwards? Held that - For effective disposal of this appeal the impugned order of the Tribunal dated September 14, 2009, is set aside. However, in the facts and circumstances of the case I appoint Mr. Monoranjan Sen, Empanelled Auditor of this court, 8/3, Bhabani Dutta Lane, 1st Floor, Kolkata-73, as auditor to audit the accounts for the period October 1, 2005 to March 31, 2006 and also for a limited audit of expenses from April 1, 2006 to June 10, 2006. The auditor may fix his fees, according to the work done. The audit work should be completed expeditiously. Liberty to the parties to approach the Company Law Board for implementation of this order.

Issues Involved:
1. Maintainability of the appeal under section 10F of the Companies Act, 1956.
2. Removal and appointment of auditors by the Company Law Board.
3. Allegations of bias against the appointed auditors.
4. Validity of the consent order and its variation.
5. Perversity in the Tribunal's decision.

Detailed Analysis:

1. Maintainability of the Appeal:
The primary issue was whether an appeal under section 10F of the Companies Act, 1956, was maintainable. The court referenced the Supreme Court's decision in CIT v. Scindia Steam Navigation Co. Ltd., which outlined when a question of law arises from an order. The court noted that the Company Law Board's order did not fit neatly into any of the categories defined by the Supreme Court. However, the court also considered the expanded interpretation by the Division Bench in Metal Press Works Ltd. v. Ram Pratap Kayan, which allowed a question of law to be raised for the first time in an appeal under the Companies Act, 1956. The court concluded that the facts needed to be examined in detail to determine if a question of law arose from the Tribunal's order.

2. Removal and Appointment of Auditors:
The appeal challenged the interlocutory order of the Company Law Board, which removed the appointed auditors and replaced them with two new firms. The court examined whether the Tribunal had the authority to make such changes, especially when the original auditors were appointed by consent. The court found that the Tribunal had not considered the alleged bias of the auditors or the inter se differences between them, which were crucial factors in making such a decision.

3. Allegations of Bias:
The OPT group alleged bias against the appointed auditors, M/s. Singhi & Co., due to their close relationship with the A.K. Tantia group. The court noted that while bias was alleged in the application, the Tribunal's order did not address this issue. The court found this omission significant, as the alleged bias could have impacted the fairness of the audit process.

4. Validity of the Consent Order and Its Variation:
The court discussed the legal principle that a consent order, akin to a consent decree, cannot be easily varied except under circumstances like fraud, misrepresentation, or undue influence. The court cited several authorities supporting this principle. However, the court acknowledged that an interim order passed by consent could be varied if there were subsequent developments justifying such variation. The court found that the Tribunal had not adequately considered factors like the continuity of the auditing process and the familiarity of the existing auditors with the subject matter before ordering the change of auditors.

5. Perversity in the Tribunal's Decision:
The court examined whether the Tribunal's decision was perverse, i.e., not based on evidence or relevant factors. The court found that the Tribunal had not considered necessary materials and factors required for forming an opinion, rendering its decision perverse. This perversity constituted a question of law, making the appeal maintainable.

Conclusion:
The court set aside the Tribunal's order dated September 14, 2009, due to its failure to consider relevant factors and allegations of bias. To ensure effective resolution, the court appointed Mr. Monoranjan Sen, an Empanelled Auditor of the court, to audit the accounts for the specified periods. The court allowed the appeal and application to this extent and provided liberty to the parties to approach the Company Law Board for implementing this order. The court also stayed the operation of its judgment and order for three weeks.

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