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2014 (7) TMI 17 - Board - Companies LawAppointment of directors - Oppression and mismanagement - on account of the dispute having been pending before the Hon ble Company Law Board, the Auditor of the company refused to continue with the audit work till the matter is resolved between the parties and therefore, the facility could not be renewed by the Bank. - Held that - Auditor is statutorily required to audit the books of account for the financial years ending 31st March, 2012 and 31st March, 2013, as a part of his duties - Auditors to comply with the provisions of section 215 of the Companies Act, 1956, for the approval of the Balance sheets by be Board of Directors before giving the same to the Auditors. Respondent Nos 3 & 4 continued to be Directors despite the issue of their appointment under dispute pending for judicial scrutiny by this Hon ble Board. On the same analogy, Petitioner Nos 1 & 2 continued to be Directors of the Company. Under these circumstances, the Balance sheets for the financial years ending 31st March, 2012 and 31st March, 2013, may be audited by the Auditors of the Company with due compliance of Section 215 of the Companies Act, 1956, by the Board of Directors consisting of Directors as per statutory records available with the Registrar of Companies and this will not prejudice the right of the Petitioners to challenge the appointment of Respondent Nos 3 & 4 - Decided in favour of appellants.
Issues:
1. Company Application for direction to audit company accounts for credit facility renewal. 2. Dispute over appointment of directors affecting audit process. 3. Compliance with statutory provisions of Companies Act, 1956 for audit approval. 4. Request for appointment of independent director for audit finalization. Issue 1: Company Application for Audit Direction The case involved a Company Application under Sections 397 & 398 of the Companies Act, 1956, seeking direction to audit the company's accounts for credit facility renewal. The Respondent-Company's cash credit limit from a bank was due for renewal, but the statutory auditor refused to audit the accounts due to a pending dispute before the Company Law Board. The Respondent Bank required audited financial statements for renewal, leading to the application for audit direction to ensure credit facility continuation. Issue 2: Dispute Over Appointment of Directors The Respondent's advocate highlighted the lack of Board meetings since 2011, emphasizing the challenge to the appointment of certain directors. The Respondent suggested appointing an independent director to ensure the company's operation continuity amidst the directorial stalemate. The Respondent's argument focused on the responsibility of the Board to approve accounts before auditing, raising concerns about delegation of such powers in the absence of proper Board meetings. Issue 3: Compliance with Companies Act for Audit Approval Both parties acknowledged the statutory duty of the auditor to audit the company's accounts for specific financial years. Compliance with Section 215 of the Companies Act, 1956, regarding the approval of balance sheets by the Board of Directors before auditing, was a key point of contention. The Respondents advocated for strict adherence to the Act's provisions, emphasizing the importance of Board approval before audit. Issue 4: Request for Independent Director Appointment Considering the directorial dispute and the need for audit finalization, the Respondent proposed appointing an independent director to facilitate the audit process and ensure operational continuity. The judgment directed for a statutory audit of the company's accounts for the relevant financial years with the cooperation of the Board of Directors, aiming to balance the audit requirements with the ongoing directorial disputes. In conclusion, the Company Application was disposed of without costs, emphasizing the need for statutory audit compliance and cooperation among directors for the audit process to proceed smoothly, ensuring the company's operational continuity and financial transparency.
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