2018 (1) TMI 1334 - Tri - Companies Law

Removal of the Statutory Auditors - Audit of accounts - Held that - There is no reason to create any impediment in the Respondents availing the scheme floated by the Ministry of Corporate Affairs for filing of the Returns for the defaulting years, which consequently shall result in restoration of their DINS, this Bench is of the opinion that it would be apposite and expedient to direct the financial statements to be audited by an Independent Auditor for the purpose of laying it before the shareholders and filing them with ROC. This Bench appoints M/S. K.G. Somani and Company, Delight Cinema Building, Gate No.2, 3rd Floor, Asaf Ali Road, New Delhi (Mobile No. 9899904779, 9871098777), as the Statutory Auditors to audit the accounts for the relevant years. The Auditor shall conduct the audit in a time bound manner to ensure that respondents are able to take advantage of scheme floated.

Summary

Issues:
1. Urgency in disposal of application for removal of Statutory Auditor.
2. Disqualification of Directors for non-filing of Annual Returns.
3. Difficulty in availing benefit under the Condonation of Delay Scheme.
4. Allegations of bias and professional misconduct against the Statutory Auditor.
5. Criminal cases against the Statutory Auditor and Board's resolution for removal.
6. Request for replacement of Statutory Auditors by an Independent Auditor.
7. Impartiality and propriety concerns in the audit process.
8. Decision to replace Statutory Auditors by the Board of Directors.
9. Lack of justifiable grounds for resisting replacement of Auditors.
10. Ensuring compliance with Ministry of Corporate Affairs' scheme for filing returns.
11. Appointment of M/S. K.G. Somani and Company as Statutory Auditors.
12. Disposal of the applications CA No. 11/2018 and CA No. 142/2014.

Analysis:

1. The Tribunal addressed the urgent disposal of the application for the removal of the Statutory Auditor, emphasizing the need for timely resolution due to the potential loss and injury caused by delays in the main petition. The Tribunal considered the interest of justice and recent actions by the Ministry of Corporate Affairs in making this decision.

2. The disqualification of Directors for non-filing of Annual Returns was highlighted, leading to the introduction of the "Condonation of Delay Scheme 2018" by the MCA. The scheme aimed to rectify defaults in filing documents and temporarily reactivate DINs of disqualified Directors until a specified period.

3. The difficulty in availing the scheme arose from the requirement for auditing Financial Statements by a Statutory Auditor whom the respondents no longer trusted, alleging bias and improper conduct. The non-filing of Annual Returns by the Respondent Company further complicated the situation.

4. Allegations of bias and professional misconduct were raised against the Statutory Auditor, emphasizing the need for an independent and fair audit. The Auditor's actions, including signing balance sheets after ceasing to be Directors, were deemed violations of relevant provisions.

5. Concerns regarding the Statutory Auditor's integrity, involvement in criminal cases, and the Board's resolution for removal were discussed. The process involving the Regional Director and Company Law Board for addressing the grievance was outlined.

6. The request for replacing the Statutory Auditors with an Independent Auditor was made, citing the need for impartiality and proper conduct in the audit process.

7. The Tribunal emphasized impartiality and propriety in the audit process, aiming to prevent fabrication or incorrect certification of accounts. The involvement of Chartered Accountants in criminal cases raised concerns about fraud.

8. The decision by the Board of Directors to replace the Statutory Auditors was noted, with procedural aspects delaying its implementation.

9. The Tribunal found no justifiable grounds for resisting the replacement of Auditors, especially for appointing Independent Auditors named by the Court.

10. Compliance with the Ministry of Corporate Affairs' scheme for filing returns was deemed necessary to restore DINs, prompting the appointment of an Independent Auditor for auditing Financial Statements.

11. M/S. K.G. Somani and Company were appointed as the Statutory Auditors to audit the accounts for relevant years in a time-bound manner to facilitate compliance with the Ministry's scheme.

12. The applications CA No. 11/2018 and CA No. 142/2014 were disposed of in accordance with the decisions outlined above.