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TMI Blog2017 (4) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... appointment of Rl Company as Auditor of R2 Company is improper. (2) We direct the R2 Company to continue the Petitioner firm as the Auditor of R2 Company till the next AGM and subsequently necessary course of action can be taken by R2 Company regarding the continuation of Petitioner firm, in accordance with law. (3) We further direct that R2 Company to take necessary steps to appoint the petitioners' firm as Auditor of R2 Company. (4) We direct the Rl Company to submit all the records available in their possession, if any, and to cooperate with the Petitioner firm to conduct the audit of books of account of R2 Company. - CP No. 21/140/HDB/2016 - - - Dated:- 17-3-2017 - Mr. Ravikumar Duraisamy, and Mr. Rajeswara Rao Vittanala, JJ. For The Petitioner : Sh. A. Nagaraj Kumar For The Respondent : Sh. S. Chidambaram, PCS, Sh. P. Jagannatham ORDER (As per Ravikumar Duraisamy, Member (T)) The present Petition is filed by SPC Associates (Petitioner herein) under Section 140 of the Companies Act, 2013 read with Rule 78 of the National Company Law Tribunal Rules, 2016, seeking inter alia following reliefs:- a. Declare that the removal of Petitioner fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urr, one of the Directors of Respondent No.2 Company, in a reply email dated 27.05.2016, to an email forwarded by one of the partners of Petitioner firm dated 27.05.2016, stated that your proposal to increase the audit fees comes to a complete surprise to us because at the time when we appointed SPCA as our auditors in August, 2014, we had a detailed discussion with Mr.Sesha Prasad and Mr.Vamshi that the audit fee will remain unchanged for a period of 5 years. In response to the above email, the Petitioner forwarded a reply substantisting the reasons and responsibilities associated with their professional services that warrant to enhance the audit fees. g. Subsequently, on 21.09.2016, Ms Anu Kashyap Durr, sent an email dated 21.09.2016 stating that they have not been satisfied working with the Petitioner firm staff since 01.01.2016 and therefore, finalized on another auditor for all of their companies and requested for resignation letter from the Petitioner firm for all their companies at the earliest. In reply, the Petitioner firm stated that Petitioner firm intimated about the implications and repurcussions in the light of appointment of Rl firm being in violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat invited Rl to issue such consent on 30th August, 2016 clinchingly proves the conspiracy between Rl and R2. c. R2's Board of Director's statement, not to ratify the re-appointment of Petitioner and to appoint Rl firm , in Director's report dated 22nd August, 2016 further substantiates R2 intention to illegally remove the Petitioner as auditor of R2 Company without complying with the requisite provisions of the Companies Act, 2013. d. R2 company failed to provide the reasons for modification of ordinary resolution for 'ratification of appointment of Petitioner as statutory auditors' at the purported AGM held on 26.09.2016 and replacement of 'appointment' key word with 're-appointment' undoubtedly proves afterthought and fabrication of purported AGM minutes of R2 Company in the form of non-ratification and adjournment of AGM. e. Purported appointment of Rl as statutory auditor of R2 Company at its alleged adjourned AGM is in violation of R2 Company's Articles of Association read with Clause 49(ii) of Table F and therefore such appointment is null and void. f. R2 stating that 'R1 is immediately accessible to R2' on 26th S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moval of auditor will become infructuous. 5. The Respondent No. 1 firm submitted their counter dated 16.01.2017 denying various allegations and averment made in the present Company Petition as false, frivolous and vexatious. a. It is submitted that the petition filed u/s 140 of the Companies Act, 2013 read with Rule 78 of NCLT Rules, 2016 seeking interim and main/final reference is not maintainable since, Petition under Section 140 of the Companies Act, 2013 arises only if the Company has violated Sections 140 and 134 of the companies Act, 2013 and prevailing Rules. But there is nothing in the petition showing violation of provisions of Sections 140 and 134 of the Companies Act and there is nothing shown on record. b. It is submitted that various facts have been suppressed in the Petition and the Petitioner has approached the Hon'ble Tribunal with unclean hands and attempted to mislead the Bench by relying upon certain allegations/documents ex facie inadmissible as evidence and further drawing references to the Respondent No.l who was proposed as Auditor of R2 company. c. That they have never accessed the confidential information and R2 on ascertaining the eligibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices Pvt Ltd) appointed the Petitioner for a block of 5 years as Statutory Auditor in the 17th Annual General Meeting (AGM) held on 28.08.2015 till the conclusion of AGM in the year 2020. However, Respondent No.2 has in the meanwhile, appointed Rl Company for a period of five years from the 18th AGM till the conclusion of AGM in the year 2021. 8. Both the counsels confirmed that though the Auditor is appointed for a block of five years under section 139(1) of the Companies Act, 2013, however, their appointment is to be ratified by Members at every AGM. The petitioner has also referred to black law dictionary for the definition of Ratification the formation of a previous act then either by the party himself or another, confirmation of voidable Act The Respondent also submitted that the petitioner was not ratified for the apparent reason for increase in audit fee. 9. The Petitioner contended that in the AGM held on 26th September, 2016 R1 was illegally appointed as Statutory Auditor by Respondent No.2 with the consent of R1 dated 30.08.2016. Further, the petitioner submitted that consent is generally issued only upon its Boards recommendation. The Petitioner also referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. Therefore, seeking increment of 10% is not agreeable for the Respondent No.2 Company and this was the main reason for the change of auditor. However, R2 Company did not submit any documentary evidence to prove the contentions that audit fee is fixed for a period of 5 years. Moreover, the Bench is of the view that 10% increase in fee sought by the Auditor is reasonable. 13. If the contentions of R2 Company is accepted, there is no guarantee that even Rl Company will be the statutory auditor of the company for a block of 5 years. Further, frequent change of auditor is also not advisable for the effective auditing, preparation of financial statement, transparency in audit policies/procedures, etc. In addition, no plausible reason is apparently made out for non-ratification/removal of Petitioner firm, which would cause grave injury to a established firm with 27 years of experience. 14. Though the Petitioner was not ratified in AGM held on 26.09.2016, Principles of Natural Justice demands that he should have been provided with sufficient opportunity before his non-ratification. Auditor acts as a bridge between management and shareholders of the Company and is an important pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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