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TMI Blog2011 (2) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... nistry of Company Affairs, Government of India according approval under section 224(7) of the Companies Act, 1956 ('Act') for removal of the Petitioner as statutory auditor of M/s. Super Cassette Industries Limited ('SCIL'). 2. The Petitioner was first appointed as the statutory auditor of SCIL in the year 1992. Thereafter, the Petitioner was reappointed as a joint statutory auditor of SCIL in the Annual General Meeting ('AGM') of SCIL held on 30-9-2003 and further reappointed as such at the AGM held on 30-9-2004. On 9-5-2005 an application was filed by SCIL before Respondent No. 1 under section 224(7) of the Act seeking approval for the removal of the Petitioner. On 10-5-2005 an Extraordinary General Meeting ('EGM') of the SCIL was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance sheet was signed by the statutory auditors on 3-9-2004 and therefore, SCIL could have summoned the AGM at a short notice to adopt the balance sheet and file it before the Copyright Board well before 15-9-2004. 7. The fifth ground that the Petitioner had misbehaved with the staff of SCIL was also disbelieved. The sixth ground that the Petitioner was not present at the time of physical verification of stocks on 31-3-2005, was also negatived. It was held that the statutory auditors were not always expected to be present at the time of physical verification of stocks. 8. After having rejected all the above grounds, the impugned order accepted the submission of SCIL that it had lost confidence in the Petitioner. Relying on the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statutory auditors. 11. The above submissions have been considered. The impugned order of the Regional Director negatived all the contentions of the SCIL regarding the conduct and competence of the Petitioner. However, the impugned order accepted the plea of the SCIL that it had lost confidence in the Petitioner and proceeded to grant approval for removal of the Petitioner on that basis. On the face of it, the impugned order is untenable in so far as it negatived all the grounds concerning the conduct and competence of the Petitioner as alleged by the SCIL before the Regional Director and yet accepted its plea that it has lost confidence. 12. Section 224(7) and section 225 of the Act which are relevant for this purpose read as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting: Provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Central Government is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Central Government may order the company's costs on such an application to be paid it in whole or in art by the auditor, notwithstanding that he is not a party to the application. (4) Sub-sections (2) and (3) shall apply to a resolution to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure has to be followed. This factors in the right of the auditor to be dealt with in a fair and objective manner. The provisions recognise that auditors are expected to function as independent professionals and not simply toe the line of the management of a company. Consequently, the reasons for which a statutory auditor is sought to be removed by a company would also be relevant. The central government will have to be satisfied that the reasons are genuine keeping in view the best interests of the company and consistent with the need to ensure professional autonomy to its auditors. 14. In the considered view of this Court, the impugned order of the Regional Director undermines the above object and spirit of section 224(7) of the Act re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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