2017 (8) TMI 759 - Tri - Companies Law

Report of the Statutory Auditor contains material which tantamounts to personal vilification and character assassination and has little relevance to the financial statements of the company as prepared by him - Held that - No doubt, every member is entitled to a true and correct picture of the affairs relating to the business of the company, but not extraneous to the same. There are allegations and counter allegations made by both the parties which are subjudice before various courts. While it may be worthwhile to mention the pendency of lis at the instance of both the parties in the Auditor s/Director s report, it would not be prudent to suggest conclusive findings on facts while the matters are sub-judice. We are also unable to appreciate the Respondent s arguments that if the incorporated remarks be defamatory in nature, the recourse to seek remedial measures by way of damages or criminal action would be open to the petitioner/applicant. It does not stand to reason as to why any petitioner should not be protected by courts if they have been vigilant to take pre- emptive steps rather than first being made to suffer despite seeking protection, only to be told to suffer first and then move the court for adjudication for any cause of action that may arise after the damage has been done. That would indeed be a travesty of justice. We arc therefore of the opinion that while the respondents shall go ahead with convening of the AGM called for on the 16th July, 2017 at the appointed time, all derogatory remarks of a personal nature, having no relevance on the financial statements shall stand deleted/expunged from the Auditor s/Director s report.

Summary

Issues:
1. Petitioner's grievance regarding objectionable content in the Statutory Auditor's report.
2. Request to defer the Annual General Meeting (AGM) due to defamatory material in the report.
3. Opposition by Respondents to restraining the AGM.
4. Examination of the relevance of objectionable content in the Auditor's report.
5. Inquiry into the jurisdiction of a Chartered Accountant to include personal remarks in financial statements.
6. Statement by the Chartered Accountant regarding the disputed note in the report.
7. Request for guidance from the Institute of Chartered Accountants on the matter.
8. Respondents' argument on the duty to disclose material facts to shareholders.
9. Consideration of the sub-judice nature of allegations and counter-allegations.
10. Decision to delete irrelevant personal remarks from the Auditor's/Director's report.
11. Disposal of the case with directions for the AGM.
12. Listing for final arguments and submission of comments by the Institute of Chartered Accountants.

Analysis:
1. The petitioner raised concerns about objectionable content in the Statutory Auditor's report, alleging personal vilification and character assassination unrelated to the financial statements. The petitioner sought to defer the AGM scheduled for a specific date due to the defamatory material.
2. The Respondents vehemently opposed the petitioner's request to restrain the AGM, citing legal precedents supporting the convention of the meeting as scheduled.
3. The Tribunal acknowledged the objections raised by the petitioner regarding the Auditor's report containing character vilification. While hesitant to prevent the AGM, the Tribunal recognized the inappropriate nature of the disputed content.
4. The Tribunal decided to seek expert opinions from the Chartered Accountant and the Institute of Chartered Accountants to determine if such personal remarks should be included in financial statements presented at the AGM.
5. The Chartered Accountant confirmed that the disputed note in the report was provided by the Respondent Company and filed a disclaimer regarding its inclusion.
6. The Institute of Chartered Accountants requested time to provide guidance on whether personal disparaging remarks fall within a Chartered Accountant's purview for inclusion in an audit report.
7. The Respondents argued that the remarks were essential to provide a true picture of the company's affairs to shareholders, citing legal precedents emphasizing the duty to disclose material facts.
8. The Tribunal emphasized the importance of providing shareholders with accurate information while refraining from conclusive judgments on ongoing legal disputes between the parties.
9. The Tribunal rejected the Respondents' argument that seeking remedies for defamatory remarks should be done post-damage, emphasizing the need for pre-emptive protection against potential harm.
10. Ultimately, the Tribunal ordered the deletion of irrelevant personal remarks from the Auditor's/Director's report while allowing the AGM to proceed as scheduled.
11. The case was disposed of with directions for the AGM, and a future date was set for final arguments, with the Institute of Chartered Accountants requested to submit comments for assistance.