In ‘R. Ravichandran V. Sree Lakshmiram Bright Bars (P) Limited and others’ – (2011) 100 CLA 264 (CLB) two company petitions were filed vide CP No. 57/2009 and CP 58/2009 under Sections 397, 398, 402 and 406 of the Companies Act, 1956 (‘Act’ for brevity). R1 is the respondent company. The relief claimed in the company petition is to set aside the Board resolution on19.07.2008 and the appointment of R4 and R5 as directors on 19.07.2008 and to appoint a nominee to administer and manage the affairs of the R1 Company. The auditor of the R1 Company and the Company Secretary has been impleaded as respondents No.6 and 7 in the company petitions. The other prayer of the petitioners is to make R2 to R7 liable for losses caused to the company.
The respondents are the majority group. Petitioners hold 14000 shares out of 70000 equity shares of Rs.10/- each. The Company Law Board had already issued orders permitting the petitioner to inspect the accounts and the report of inspection had been already filed by the petitioner. The Chartered Accountant and the Company Secretary filed applications in the said two company petitions with the prayer to delete their names from the party array. The matter was adjourned or protracted in view of the disputes raised by the petitioner regarding the inspection of the accounts as well as the objections against accepting the accounts for the year ended on 31.03.2009 by the Board. The petitioner has been delaying the filing of the rejoinder to the company petition on the pretext that the respondents are not permitting him to inspect the books of account and other documents. Till the date of hearing no rejoinder is filed by the petitioner to enable the Bench to finally dispose of the company petitions. The applicants were agreeable to post their applications along with the company petition.
The applicants contended that they are fully independent professionals. They are unnecessarily dragged into the proceedings, which has adversely affected their reputation in various professional circles. Except a bald averment that they are colluding with the other respondents, no material is placed on record to make them parties to these company petitions. They further pointed out that the petitioner himself had expressed faith and confidence in these two professionals till filing of these petitions, as evident from the documents filed. The inconsistency in the pleadings is also pointed out as another reason to suspect the bona fides of the petitioners/respondents.
The applicants put forth the further submissions-
- The main complaint in the company petition is regarding the stock reconciliation. The stock reconciliation was effectively completed as admitted by the petitioner himself in a suit filed by another group company and the very fact has been denied by him in the present company petitions;
- The petitioner sent an e-mail wherein it is stated that ‘professionals are keeping our family business interest and unity in mind’;
- The attachments to the said e-mail would further show the last item in the agenda as the review of performance of auditors and their firms and rotation of auditors amongst the firm. The name of the firm is Mani and Sridhar, but the applicant Shridhar alone is made a party;
- Even after conducting a review of performance of the auditor, no adverse remark has been communicated to him;
- The e-mail sent by the petitioner on 23.08.2008 in which the petitioner has been treating the auditor as an advisor;
- The petitioner has reposed confidence in auditor at the time of a settlement talk, and when it failed he is being treated as hostile;
- The petitioner auditor attended the Board meetings as per specific request from the Board from 1995 onwards. So long as his complicity with the directors is not proved his name is liable to be deleted from the party array;
- They were impleaded with a mala fide intention just to put pressure on the other group for settlement;
- The professional misconduct if any by Chartered Accountants and Company Secretaries will not be normally examined by the Company Law Board and the remedy of the petitioner lies elsewhere.
The petitioner to the company petitions submitted the following arguments:
- The auditor and the company secretary are necessary parties for adjudicating the complaints made in the company petitions;
- The accounts and financial statements are not circulated to him; the profit and loss account does not represent the true and fair view of the financial position of the company; the stock was not properly accounted, accounts are finalized in violation of accounting standards, there are manipulations in the inter-company reconciliation of accounts;
- The petitioner has raised several complaints directly to the auditor, that the auditor regularly attended the Board meeting of the company, that the meeting dated 01.04.2008 was not held and the records are manipulated as if a meeting is held and accounts passed, that the quantitative details in the profit and loss accounts are not furnished etc., are the allegations raised to implead the auditor and the company secretary as necessary parties to the company petitions;
- There is prima facie material on record to implead the auditor as parties to the company petitions.
The Company Law Board held as below:
- There is no prima facie record to implead the auditor as parties to the company petitions. The various details referred to by the petitioners are matters to be enquired at the time of final disposal of the company petitions;
- Those references are insufficient to suspect the complicity of auditor and company secretary with the rival group of directors;
- It is relevant to note that no specific reference or allegation is made against the company secretary;
- The petitioners are forced to implead the independent professionals as party respondents to the proceedings as they are not acting independently as is required of them and are party to the machinations of other respondents in creating and perpetuating the records in spite of repeatedly being informed about the infractions of the respondents 1 to 5 relating to the affairs of the first respondent company;
- It is relevant to note that the petitioners in the company petition had not raised any complaint against the auditors at any time before filing of the company petition;
- A review of performance of auditors and company secretary was conducted by the company and so far no adverse remark has been communicated to them;
- Not even a prima facie case is made out against the applicants and their impleadment as respondents is not necessary for deciding the disputes between the two groups in the family;
- Professional misconduct by company secretary and auditor will not be normally examined by the Company Law Board;
- The petitioner has not brought out either in records submitted or in the course of proceedings the existence of any abnormal situation warranting the impleadment of the applicants in company petitions;
- For the reasons stated above the applications are only to be allowed;
- The names of the respondents 6 and 7 (applicants) are deleted from the party array in the company petitions No. 57/2009 and 58/2009.
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