2017 (11) TMI 1890 - AT - Companies Law

Oppression and mismanagement - Appellants had made various allegations against the Statutory Auditors alleging acts of omission and commission in collusion with the Board of Directors - HELD THAT - The Company Petition filed before the NCLT, Guwahati Bench, Guwahati is under Sections 241, 242, 243 and 244 of the Companies Act. The acts of oppression and mismanagement under these Sections could be averred against the Company, Board of Directors, Shareholders or its members. The Statutory Auditors are admittedly none of these. Before NCLT petition was not under Section 245 of the Companies Act 2013, which is a new provision. There are no error with the impugned order which has recorded proper reasons - impugned order upheld - Company appeal dismissed.

Summary

Issues:
- Whether the Statutory Auditors should be parties in a Company Petition filed under Sections 241 and 242 of the Companies Act, 2013 alleging oppression and mismanagement.

Analysis:
1. The Appellants filed a Company Petition before the National Company Law Tribunal (NCLT) alleging oppression and mismanagement under Sections 241 and 242 of the Companies Act, 2013. The Statutory Auditors, Respondent Nos. 5 & 6, were added to the array of parties. The Respondents filed an application to delete them, claiming they had resigned and were not necessary parties. The NCLT deleted them, leading to the appeal by the Appellants.

2. The Appellants alleged collusion between the Statutory Auditors and the Board of Directors in the Company Petition, specifically regarding non-payment of PF contributions and suppression of information in the Annual Financial Statement for the year 2014-15. The Appellants argued that even if the Auditors were not necessary parties for oppression and mismanagement, they were proper parties to be before the Tribunal.

3. In response, the Counsel for the Auditors stated that any errors made were rectified, and the Auditors had resigned. The prayers seeking their removal and an investigation by the Institute of Chartered Accountants of India were deemed redundant as complaints were already filed. The Auditors' liability for exemplary costs was also challenged under Section 245 of the Companies Act.

4. The Tribunal analyzed the provisions of Section 245 of the Companies Act, which allows for class action against auditors for fraudulent or wrongful acts. However, since the Company Petition was not filed under Section 245 and the Auditors were not among the entities against which oppression and mismanagement were alleged, the Tribunal found no grounds to include them in the proceedings.

5. The Tribunal concluded that the Auditors were not necessary parties under Sections 241 and 242 of the Companies Act, as the allegations of oppression and mismanagement were against the Company, Board of Directors, and Shareholders. Moreover, as the Auditors' conduct was under investigation by the Institute of Chartered Accountants of India, involving them in the NCLT proceedings could lead to conflicting decisions.

6. The Tribunal upheld the NCLT's decision to delete the Auditors from the array of parties, emphasizing that the Company Petition focused on acts of oppression and mismanagement by other parties. The appeal was dismissed, with no costs imposed.