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2021 (6) TMI 1179 - HC - Companies LawApplicability of Section 140(1) of the Companies Act 2013 to the Comptroller and Auditor General of India (CAG) - Appointment of Chartered Accountant firm as the statutory Auditor of a Public Sector Undertaking owned by the State Government - removal of applicant as a statutory Auditor appointed under Section 139 of the Act 2013 without giving any opportunity of hearing or without any show cause notice - HELD THAT - The Supreme Court in Gurugobinda Basu vs. Sankari Prasad Ghosal and others 1963 (8) TMI 76 - SUPREME COURT had held in the context of a Government company that the statutory Auditor is removable by the Central Government and the Comptroller and Auditor-General of India would exercise full control over him. If the Tribunal is approached either by the Central Government or by any person concerned which includes the C AG then the NCLT has to decide such an application within 15 days as prescribed under the first proviso to sub-section (5) of Section 140 of the Act 2013. It appears that when the CAG appoints a statutory auditor it does so in accordance with the policy/guideline/conditions of appointment which is titled the Appointment of auditors of Government Company/Government controlled other company under Section 139 (5) (7) of the Companies Act 2013 - in case of violation of any of the aforesaid conditions by the appointed Auditor the C AG has the right to remove the Auditor at any point of time after following the due administrative process. What is this administrative process is not clear. Even while following the due administrative process the opportunity of hearing has to be given to the concerned Auditor before his removal. The principles of natural justice are implicit in clause 11 referred to and highlighted. However in the case on hand it is not the stance of the C AG that action against the writ applicant has been taken. Where there is nothing in the statute to actually prohibit the giving of an opportunity of being heard then having regard to the nature of the statutory duty imposed the decision maker itself implies an obligation to hear before deciding. Whenever an action of a public body results in civil consequences for the person against whom the action is directed the duty to act fairly can be presumed and in such a case the administrative authority must give an appropriate opportunity of hearing to the affected person - If there is a power to decide and decide detrimentally to the prejudice of a person the duty to act judicially is implicit in exercise of such a power and the rule of natural justice operates in areas not covered by any law validly made. The criteria for an adequate notice is that the Court s conscience must be satisfied that the concerned person had a fair chance to know the details of the case against him and of the action proposed to be taken against him. It goes without saying that any order or any decision which has civil consequences must be passed after giving an opportunity of hearing. There could be just one overriding reason to exclude the application of the principles of natural justice and that is in the case of national security. Such is not the stance of any of the respondents in the present case. The writ applicants are entitled to get themselves once again uploaded on the portal. The removal of the writ applicant No.1 as the statutory authority is hereby quashed and set aside - application disposed off.
Issues Involved:
1. Applicability of Section 140(1) of the Companies Act, 2013 to the Comptroller and Auditor General of India (CAG). 2. Procedure for removal of a statutory auditor appointed by the CAG. 3. Requirement of opportunity of hearing before removal of a statutory auditor. Issue-wise Detailed Analysis: 1. Applicability of Section 140(1) of the Companies Act, 2013 to the CAG: The court examined whether Section 140(1) of the Companies Act, 2013, which deals with the removal of auditors, applies to the CAG. The court noted that under the Companies Act, 2013, the CAG appoints auditors for government companies under Section 139(5). The court highlighted that the phrase "auditor appointed under Section 139" in Section 140(1) includes auditors appointed by the CAG. Therefore, the removal of such auditors should follow the procedure outlined in Section 140(1), which mandates a special resolution and prior approval of the Central Government, along with a reasonable opportunity of being heard. 2. Procedure for Removal of a Statutory Auditor Appointed by the CAG: The court discussed the procedure for removing an auditor appointed by the CAG. It emphasized that the CAG, if it wishes to remove an auditor on grounds such as fraud, must follow the procedure outlined in Section 140(5) of the Companies Act, 2013. This section allows the Tribunal to direct a company to change its auditor if the auditor is found to have acted fraudulently. The court noted that the CAG can approach the National Company Law Tribunal (NCLT) for the removal of an auditor if it believes the auditor has acted fraudulently. The court also referenced the Bombay High Court's interpretation in N Sampath Ganesh vs Union of India, which clarified the role of NCLT in such matters. 3. Requirement of Opportunity of Hearing Before Removal of a Statutory Auditor: The court stressed the importance of natural justice principles, particularly the right to a fair hearing, before removing a statutory auditor. It criticized the CAG for not providing the writ applicant with an opportunity to be heard before their removal as the statutory auditor. The court highlighted that even if Section 140 of the Companies Act, 2013, does not explicitly apply to the CAG, the principles of natural justice are implicit and should be adhered to. The court cited various judgments to support the view that any decision affecting civil rights must be preceded by a fair hearing unless expressly excluded by statute. Conclusion: The court concluded that the removal of the writ applicant as the statutory auditor was not in accordance with the law due to the lack of a fair hearing. It quashed the removal and directed the reinstatement of the writ applicant as the statutory auditor, allowing the CAG four weeks to take any further action in accordance with the law. The court underscored the necessity of adhering to the principles of natural justice and the statutory framework governing the removal of auditors.
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