2018 (12) TMI 394 - AT - Companies Law

Liability to pay the audit fee of the auditors on the Company - Held that - The auditors were appointed by the Tribunal and the liability for payment of the amount of audit fee is of the Company. Therefore the Respondent company is liable to pay the audit fee of the auditors. Thus there is nothing wrong with such directions which calls for our interference with the same. Alternative methods for recovering monies to pay audit fees of auditors including auctioning of Respondent company movable assets instead of directing recovering from two companies - Held that - it is the duty of the Respondent Company to pay the audit fee of the auditors. It is not the duty of the Tribunal to direct the company to consider the other methods for recovering monies. As regards the Tribunal s observations in the impugned order that if the company has no money at present it has to realise the money which is recoverable from the two sister companies is also a possible course of action the company can. The appellant seems to be making out a case that the company does not have enough fund to pay the auditors fee but we wonder that the poverty of the company does not deter them to fight among themselves rather than concentrated on running the company for mutual benefit of all but fall out of liabilities of such behaviour is made out to be excessive. We do not appreciate this approach. Fees claimed by the auditors on higher side and also is not as per the ICAI norms and at best are entitled for a fees of 8, 00, 000/- - Held that - We have no grounds to doubt that number of days spent is 439 and number of hours spent was 3512 in auditing. As 36 lakh approx. claimed by auditor are supported by number of days spend and composition of people working on the assignment whereas there is no rational basis for suggesting that 8 lakhs is a reasonable amount for the duty to be done. It can at best be called a wild guess. We further noted that the appellant has paid nearly 62, 00, 000/- for auditing of the sister concerns for the same period as in the case of Respondent Company. Therefore we are satisfied that the fee has been claimed as per ICAI norms seems reasonable. During the course of arguments the 7th respondent has justified the fees claimed on the basis of norms of ICAI and having meticulously spent the time on the assignment and the composition of people constituting audit team. Hence 7th respondent asserted that the fees charged is reasonable looking into the context of the work which was required to do. In the course of arguments we toyed with idea if the 7th Respondent appearing in person through Mr. N.S. Sudarshan Gupta would consider voluntarily accepting to reduce the fees to some extent. The 7th respondent fairly stated that it would accept the orders of the Tribunal and another 4 or 5 lakhs may be reduced. However going through the material on record and the impugned order for which the audit was involved and the mandays which were required to be spent as well as the expenditure made on audit of sister concerns we feel it would be improper for us to reduce fees least it set a precedent and generating litigations with the hope of getting reduction through the Tribunal by agitating the fees. When the auditor is showing the fees on the basis of ICAI norms we find it improper to interfere. The appellants are also not with clean hands and plead insufficiency of money in their accounts and when the NCLT directed that they can have the money by recovering what their dues are from their sister concern the appellants come up in appeals - Appeal dismissed.

Issues Involved:
1. Fee claimed by the auditors.
2. Alternative methods for recovering audit fees.
3. Duration and scope of the audit.
4. Financial position of the respondent company.
5. Jurisdiction and procedural fairness.

Detailed Analysis:

Fee Claimed by the Auditors:
The auditors, M/s Brahmayya & Co, were appointed to audit the books of accounts of the 6th respondent for the period from 1.4.2007 to 31.3.2014. They claimed a fee of ?36,16,032/-, which the appellant argued was excessive. The Tribunal observed that the auditors had provided detailed information regarding the man-days spent (439 days) and the personnel involved. The Tribunal noted that the fees were in accordance with ICAI norms and that the appellant had paid nearly ?62,00,000/- for auditing sister concerns for the same period. Therefore, the Tribunal found the fee reasonable and directed the 1st respondent company to pay the balance amount of ?31,16,032/-.

Alternative Methods for Recovering Audit Fees:
The appellant suggested that the Tribunal should have considered alternative methods for recovering the audit fees, such as auctioning the 6th respondent's movable assets. The Tribunal held that it was the duty of the respondent company to pay the audit fee and not the Tribunal's responsibility to direct alternative methods for recovering monies. The Tribunal's observation that the company could recover money from its sister companies if it had no funds was deemed a possible course of action.

Duration and Scope of the Audit:
The appellant contended that the auditors audited the books of accounts for seven years, whereas the company's operations were spread over merely 33 months. The Tribunal noted that the auditors were appointed to audit the books and investigate related party transactions from 1.4.2007 to 31.3.2014. The Tribunal found that the auditors had spent 439 man-days and 3512 hours on the audit, justifying the fee claimed.

Financial Position of the Respondent Company:
The appellant argued that the 6th respondent had only ?13,46,800/- in its bank account and that the Tribunal erred in directing the payment of the entire audit fee. The Tribunal held that the liability for the audit fee was on the respondent company, and the appellant's financial position did not exempt it from this obligation. The Tribunal also noted that the appellant was not with clean hands, as they were fighting among themselves rather than focusing on running the company.

Jurisdiction and Procedural Fairness:
The second appeal, Company Appeal (AT) No.121 of 2018, raised concerns about the Tribunal passing orders against companies that were not party to the petition. The Tribunal found that the appellant did not have the locus standi to file the appeal as they were not affected by the impugned order. The Tribunal dismissed both appeals, stating that the impugned order did not give any cause to the appellant in Company Appeal (AT) No.121 of 2018 to file the appeal.

Conclusion:
The Tribunal dismissed both appeals, upholding the auditors' fee as reasonable and in accordance with ICAI norms. The Tribunal directed the respondent company to pay the balance audit fee and rejected the appellant's suggestions for alternative recovery methods. The Tribunal found no merit in the appellant's arguments regarding the duration and scope of the audit, the financial position of the respondent company, and issues of jurisdiction and procedural fairness.

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