Iv. Income Tax/Gst/Provident Fund Department/Esic Department v. Regulatory Authorities;Vi Banking Institutions

1 IN THE HIGH COURT OF MADHYA PRADESHAT GWALIOR BEFORE HON'BLE SHRI JUSTICE MILIND RAMESH PHADKEON THE 25[th] OF JULY, 2023 REVIEW PETITION No. 587 of 2023 BETWEEN:- M/S SACHIN HARI MOHAN GUPTA AND COCHARTERED ACCOUNTANT THROUGH ITS PARTNERSACHIN GUPTA S/O SHRI HARIMOHAN GUPTA R/O 32/33RIVER VIEW COLONY, MORAR, GWALIOR (MADHYAPRADESH) (BY SHRI PRASHANT SHARMA - ADVOCATE) .....PETITIONER AND 1.SENGAR SECURITY AND LABOR SERVICES PVTLTD NEW KANCH MIL BIRLA NAGAR, GWALIOR(MADHYA PRADESH) 2.UNION OF INDIA THROUGH MINISTRY OFCORPORATE AFFAIRS REGIONAL DIRECTORNORTH WEST REGION AHEMDABAD (GUJARAT) .....RESPONDENTS (SHRI S.S. KUSHWAH - GOVERNMENT ADVOCATE, SHRI VIVEK JAIN -ADVOCATE FOR RESPONDENT NO.1 AND SHRI PRAVEEN NIWASKAR -DEPUTY SOLICITOR GENERAL FOR RESPONDENT NO.2) This petition coming on for hearing this day, the court passed the following: ORDER The present review petition under Order 47 Rule 1 and 2 CPC has beenpreferred seeking review of the order dated 02.03.2023 passed in W.P.No.15758/2022 to the extent of observation made in the concluding para that"since the period of appointment of the petitioner had already expired,nothing is required to be directed in the matter" on the ground that vide order dated 02.03.2023 this Court had allowed the writ petition and had set aside theorder of Regional Director, Directorate, Ministry of Corporate Affairs, NorthWest Region, Ahemdabad and though the tenure as a Statutory Auditor ofrespondent No.1 was going to expire on 31.03.2023, it came to be observedthat the period of appointment of petitioner had expired and the saidobservation is causing an impediment in carrying out the audit of the company and non-adherence to the statutory liability, would entail penal consequences,which may jeoparadise the carrier of the petitioner. 2. Learned counsel for the petitioner while taking this Court to Annexure A, which forms part of the writ petition as Annexure P/2 submitted that videResolution dated 30.10.2018 respondent No.1 had re-appointed the petitioneras a Statutory Auditor of the company to hold office for the term of fiveconsecutive years (F.Y.01.04.2018-19 to 2022-23), under the provisions ofSection 139,141 of the Companies Act, 2013 and Rules framed thereunder andat the time of passing of the order the said tenure of five years as contemplatedin the aforesaid Resolution was still alive and was going to expire on31.03.2023, thus, it is an error apparent on the face of the record, which is verymuch visible and which needed to be rectified. 3. It was further contended that the liability of a Statutory Auditor appointed under Section 139 of the Companies Act, 2013 are as follows:- (a) to make financial audits and prepare the reports. (b) to make compliance of accounting standards while making anaudit. (c) Adherence to the code of ethics. (d) Conducting an inquiry as to whether loans and advances madeon the basis of security are properly secured. (e) financial statements comply with the relevant accounting standard. and thereafter a report is required to be prepared, which is to be shared with: i. Shareholders; ii. Security and Exchange Board of India (SEBI); iii. Central Government; iv. Income Tax/GST/Provident Fund Department/ESIC Department; v. Regulatory Authorities;vi Banking Institutions; vii. To determine bonus to the employees;viii Creditors;ix Parent/holding company;x To determine dividend to shareholders etc. (b) to make compliance of accounting standards while making anaudit. (c) Adherence to the code of ethics. (d) Conducting an inquiry as to whether loans and advances madeon the basis of security are properly secured. (e) financial statements comply with the relevant accounting standard. and thereafter a report is required to be prepared, which is to be shared with: i. Shareholders; ii. Security and Exchange Board of India (SEBI); iii. Central Government; iv. Income Tax/GST/Provident Fund Department/ESIC Department; v. Regulatory Authorities;vi Banking Institutions; vii. To determine bonus to the employees;viii Creditors;ix Parent/holding company;x To determine dividend to shareholders etc. and since the provisions of the Companies Act mandates to complete theaudit and submit its report, the petitioner is under an obligation to do the samefor the financial years for which he was appointed, else will have to face thePenal consequences as provided under the Act. It was further submitted that thesaid error occurred due to the fact that three writ petitions were heardanalogously and a common order was passed, with main order passed in W.P.No.15752/2022 in which it was observed that since the period of appointmenthad expired, nothing further was required to be directed, which inadvertentlyalso got mentioned while disposing the writ petition from which the presentreview petition had arises. Thus, it was contended that the present applicationneeds to be allowed and the said part of the order dated 02.03.2023 is requiredto be recalled and modified. 4. Per contra, learned counsel for the respondent No.1 while placingreliance in the matters of Gokaraju Rangaraju Vs. State of A.P. reported in1981 0 AIR(SC)1473; M/s Beopar Sahayak (P) Ltd. and others Vs. VishwaNatha and others reported in 1987 3 SCC 693; Kartar Singh Vs. State of Punjab and Kripa Shankar RaiVs. State of U.P. and another reported in1994 3 SCC 569; and Union of India & others Vs. S. Srinivasan & othersreported in 2012 7 SCC 683; contended that after disqualification of thepetitioner in wake of the order dated 29.06.2022 passed by the RegionalDirector, Directorate, Ministry of Corporate Affairs, North West Region,Ahemdabad a Statutory Auditor was already appointed, who has conducted theaudits for the requisite years, which were left out by the petitioner and,therefore, at this juncture allowing said review application would put therespondent No.1 on crossroads and would render the report submitted by thesaid auditor to be of no consequence. 5. Further, it was contended that the second auditor was statutorilyappointed under the provisions of the Companies Act and therefore, the auditsconducted by it was legally clothed and though later on, if the appointment isfound to be defective that would not entail the said audits conducted by himvoid or can not be declared non-est. 6. It was further submitted that though the matter was heard on02.03.2023, but the order was uploaded only on 19.05.2023, which was afterthe period of the tenure of the petitioner, appointed as Statutory Auditor hasexpired, therefore, there is no error apparent on the fact of record that wouldcompel this Court to recall that part of the order, wherein it has been observedthat since the period of appointment of the petitioner has expired, nothingfurther is required to be directed. Thus, it was prayed that the present reviewpetition being devoid of any substance be dismissed. 7. Heard counsel for the parties and perused the record. 8. Admittedly, at the time when matter was closed after hearing parties i.e. 02.03.2023 the tenure of the petitioner as Statutory Auditor was very much alive 6. It was further submitted that though the matter was heard on02.03.2023, but the order was uploaded only on 19.05.2023, which was afterthe period of the tenure of the petitioner, appointed as Statutory Auditor hasexpired, therefore, there is no error apparent on the fact of record that wouldcompel this Court to recall that part of the order, wherein it has been observedthat since the period of appointment of the petitioner has expired, nothingfurther is required to be directed. Thus, it was prayed that the present reviewpetition being devoid of any substance be dismissed. 7. Heard counsel for the parties and perused the record. 8. Admittedly, at the time when matter was closed after hearing parties i.e. 02.03.2023 the tenure of the petitioner as Statutory Auditor was very much alive and was going to expire on 31.03.2023. This Court while deciding the writpetition has found that the order passed by the Regional Director, Directorate,Ministry of Corporate Affairs, North West Region, Ahemdabad, who was thecompetent authority provided under Section 140(1) of the Companies Act,2013 to be not sustainable and accordingly, the order dated 29.06.2022 passedby it was set aside. It was in pursuance to the order dated 29.06.2022 passedby the Regional Director, Directorate, Ministry of Corporate Affairs, NorthWest Region, Ahemdabad that the petitioner was removed as a StatutoryAuditor appointed under Section 139 of the Companies Act, 2013 and as aresult of the setting aside of the said order the position of the petitioner that ofthe Statutory Auditor revived. 9. According to this Court, the position as the date of disposal of thematter i.e. 02.03.2023 is required to be reckoned though inadvertently it appearsthat said order was uploaded on 19.05.2023 but for all purposes the date ofpassing of the order would be 02.03.2023 and at the most just for the countingpurpose for limitation the said ground can be taken by either of the party, thus,the contention of respondent No.1, that after removal of the petitioner asStatutory Auditor, another auditor was appointed as a Statutory Auditor and hehad conducted the audit for the years left by the petitioner, has no force andwould be of no consequence, since this Court while allowing the writ petitionhad set aside the order of permission for removal of the petitioner as StatutoryAuditor, accorded by Regional Director, Ministry of Corporate Affairs, NorthWest Region, Ahmedabad, which had restored the position of the petitioner asa Statutory Auditor. 10. Thus, this Court finds that the observation in the concluding para that 6 "since the period of appointment of the petitioner has expired, nothing furtheris required to be directed in the matter" appears to be dehorse the record.Accordingly, review petition to that extent is allowed. 11. The said observation is hereby deleted and as a natural corollary theposition as on 02.03.2023 so far as it relates to the petitioner is said to berevived, which would mean that all the statutory requirements as provided underthe Companies Act, 2013 are to be fulfilled by both the petitioner as well asrespondent No.1. 12. So far as the judgment cited by the learned counsel for therespondent No.1 are concerned, the same are based on an analogy that when aperson has been appointed and later on his appointment is found to bedefective, then any act done by him in pursuance to his legal appointmentcannot be said to be illegal or void, which is not the case in the present matter,as it is not the appointment of second auditor which was under challenge in thewrit petition rather the petition was preferred challenging the removal of thepetitioner therein as an Statutory Auditor by an illegal order and this Court whilehearing the said writ petition on 25.08.2022 on the question of interim reliefthough had denied the interim protection but had observed that the proceedingsshall be subjected to final outcome of this petition. Thus, the said judgementsare of no help to respondent No.1. 13. Accordingly, the present review petition is allowed and disposed of