2018 (2) TMI 1618 - AT - Companies Law

Execution of the Investigative Audit Report was rejected by the NCLT - Held that - It was necessary for NCLT to consider the report which was available and which was treated by the Auditor as its final report for whatever it was worth and record finding whether or not the said report could be maintained. Without rejecting the said report, giving directions for further Chartered Accountants to be suggested and appointment was not proper. When the present report has not been set aside, taking fresh report if the same happens to be in conflict would create confusions. The present appeal is allowed. The impugned order is quashed and set aside. Consequently, subsequent actions taken on the basis of Impugned Order would not survive. Matter is remitted back to NCLT.

Issues involved:
1. Appeal against the order passed by the National Company Law Tribunal, Division Bench, Chennai.
2. Interpretation of the orders passed by the Company Law Board (CLB) and the High Court regarding investigative audit.
3. Conversion of the interim investigative audit report into a final report by the Chartered Accountant.
4. Rejection of the application for execution of the investigative audit report by the National Company Law Tribunal (NCLT).
5. Challenging the order passed by NCLT to appoint new Chartered Accountants without considering the final investigative audit report.

Detailed Analysis:

1. The judgment involves an appeal against the order passed by the National Company Law Tribunal, Division Bench, Chennai. The appellant, who was the original Respondent No. 6 in a company petition, challenged the order dated 20th July, 2017. The order directed the parties to provide names of three independent Chartered Accountants for the completion of an assignment specified by the CLB. The matter was posted for further hearing, leading to the appeal before the Appellate Tribunal.

2. The judgment delves into the interpretation of orders issued by the Company Law Board (CLB) and the High Court regarding an investigative audit. The CLB had initially directed an investigative audit to be carried out by a Chartered Accountant for a specific period. However, the High Court later modified the directions, instructing the Chartered Accountant to submit an interim report in a sealed cover without seeking views or responses from the parties. Subsequently, the Chartered Accountant converted the interim investigative audit report into a final report.

3. The conversion of the interim investigative audit report into a final report by the Chartered Accountant raised concerns before the National Company Law Tribunal (NCLT). The NCLT, despite the Chartered Accountant treating the report as final, was not satisfied and passed certain orders. The NCLT emphasized the need for shareholders to be heard and raised questions about the validity of the report.

4. The NCLT's rejection of the application for the execution of the investigative audit report by the appellant further complicated the matter. The rejection, coupled with subsequent actions taken by the NCLT, led to the filing of the present impugned order. The Appellate Tribunal noted that the NCLT's actions, including calling for names of new Chartered Accountants, were improper without first considering the final investigative audit report.

5. In conclusion, the Appellate Tribunal allowed the appeal, quashed the impugned order, and remitted the matter back to the NCLT. The NCLT was directed to consider the investigative audit report submitted by the Chartered Accountant, along with a letter dated 16th March, 2017. Both parties were to be given an opportunity to accept or reject the investigative audit report, with reasons to be recorded. The judgment emphasized the importance of evaluating the existing report before appointing new Chartered Accountants to avoid confusion and maintain clarity in the proceedings.

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