Madhya Pradesh High Court
Mpcg Mobile Private Limited vs Union Of India on 17 August, 2022
Author: Subodh Abhyankar
Bench: Subodh Abhyankar
1
IN THE HIGH COURT OF MADHYA PRADESH AT INDORE
BEFORE
HON'BLE SHRI JUSTICE SUBODH ABHYANKAR
ON THE 17th OF AUGUST, 2022
WRIT PETITION No. 1893 of 2022
Between:-
MPCG MOBILE PRIVATE LIMITED
THORUGH DIRECTOR SHRI AMANDEEP
SINGH VIRDI, PRINCESS BUSINESS PARK,
501, 5TH FLOOR, BLOCK 22-22-24, SCHEME
NO. 54, PU-3, COMMERCIAL OPPOSITE
ORBIT MALL, A.B. ROAD (MADHYA
PRADESH)
.....PETITIONER
(BY SHRI VIJAYESH ATRE, ADVOCATE)
AND
UNION OF INDIA THROUGH SECRETARY
MINISTRY OF CORPORATE AFFAIRS, 5TH
1. FLOOR, A-WING, SHASTRI BHAWAN, DR.
RAJENDRA PRASAD MARG (DELHI)
REGIONAL DIRECTOR NORTH WESTERN
REGION, MINISTRY OF CORPORATE
AFFAIRS ROC BHAVAN, OPP. RUPAL PARK
2.
SOCIETY, BEHIND ANKUR BUS STOP,
NARAYANPURA (GUJARAT)
CA RAJESH GURBANI S/O . 210, ANOOP
3. NAGAR, NEAR LIG SQUARE (MADHYA
PRADESH)
.....RESPONDENTS
(BY SHRI HIMANSHU JOSHI, ADVOCATE FOR RESPONDENT NOS.1
Signature Not Verified
Signed by: PANKAJ
PANDEY
Signing time: 17-08-2022
16:31:03
2
AND 2. )
(BY SHRI VIJAY ASUDANI, ADVOCATE FOR RESPONDENT NO.3.)
.............................................................................................................
.
Reserved on 12.07.2022
Delivered on 17.08.2022
.........................................................................................................
This petition coming on for orders this day, the court passed
the following:
ORDER
Heard finally with the consent of the parties.
2. This petition has been filed by the petitioner MPCG Mobile Private Limited a company registered under the Companies Act, 2013 seeking the following reliefs:-
"7.1 Issue the Writ of Mandamus declaring the impugned orders dated 07.09.2021 as well as Order dated 09.12.2021 passed by the Respondent No.2 in gross violation of the provisions of section 141 (3)(i) read with section 144(b) of the Companies Act, 2013 and therefore bad in law; 7.2 issue appropriate writ, order or direction declaring that the appointment of the Respondent No.3 as the Statutory Auditors of the petitioner Company is violative of the provisions of section 141 (3) (I) read with section 144 of the Companies Act, 2013 and therefore bad in law and void ab- inito;
7.3 to kindly allow the petitioner company to appoint some other qualified Chartered Accountant as the Statutory Auditors of the Company to complete the financial audit for the five financial years starting from 1st April, 2016 and ending on 31st March, 2021 and to file its revised financial statements with the Respondent No.1 Ministry of Corporate Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 3 Affairs within a period of six months from the date of the Order, without payment of late filing fee or payment of penalty or action for delay, which may be caused due to delay in complying with the provisions of the Companies Act, 2013; and 7.4 such other or further and appropriate order, with or direction which this Hon'ble Court may think appropriate considering the facts and circumstances of the case in the interest of justice."
3. In brief, the facts giving rise to the present petition are that the petitioner Company is engaged in the business of trading and sale of mobile instruments within the State of Madhya Pradesh, it was incorporated on 07.09.2015 in terms of Section 139 (6) of the Companies Act, 2013 (in short 'Act of 2013'), and the Board of Directors of the petitioner's company, vide resolution dated 13.09.2015 appointed M/s. R. K. Gurbani & Company as Chartered Accountants under firm Registration No.006551C as the first statutory Auditors of the company till the date of the first annual general meeting of the petitioner's company, and vide resolution dated 29.12.2015, it also appointed the respondent No.3 Rajesh Gurbani Chartered Accountant as the Internal Auditor of the company pursuant to the provisions of Section 138 of the Act of 2013, which was also accepted by the respondent No.3 and started internal auditing assignment.
4. The case of the petitioner is that in terms of the provisions of Section 139(1) of the Act of 2013, since the petitioner company had to appoint a regular statutory auditor for a period of five years, the petitioner company vide its letter dated 03.08.2016 requested Mr. Rajesh Gurbani whether he is qualified to be appointed as statutory Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 4 auditors of the company. The respondent No.3 vide his letter dated 14.08.2016 sent his consent and certificate under the first and second proviso to Section 139 (1) read with provisions of Rule 4 of the Companies (Audit & Auditor) Rules, 2014, to the petitioner company to the effect that his appointment shall be made in accordance with the requirements of law and also that he satisfies the criteria provided under Section 141 of the Act of 2013. Acting upon the aforesaid letter dated 14.08.2016, the company appointed respondent No.3 as its statutory auditor at the annual general meeting held on 30.09.2016 for a period of five years i.e. for the financial year ending 31st March, 2017 to 31st March, 2021. The respondent No.3 was also informed that his appointment as Statutory Auditor of the company has been confirmed by the shareholders of the company. Consequently, respondent No.3 also informed the office of the Registrar of Companies, M.P. about his appointment as Statutory Auditors of the company as per the provisions of third proviso to Section 139 (1) of the Act of 2013.
5. Further case of the petitioner company is that Form ADT-1 is required to be filled by the company and not by the Auditor himself, however, the respondent No.3 having unlawfully taken charge of corporate filing in his hands, filed ADT-1 with the Registrar of Companies on 03.10.2016 with mala fide intentions to hide the non- compliance of provisions of Section 141 (3)(i) read with provisions of Section 144(b) of the Act of 2013 from the company and its officers. The case of the petitioner is that prior to the appointment of the Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 5 Auditor at the annual general meeting held on 30.09.2016, the company at its Board meeting dated 29.12.2015 had appointed RKG & Associates as Internal Auditor of the company. Counsel for the petitioner has submitted that RKG stands for Rajesh Kumar Gurbani. The case of the petitioner is that the office of the respondent No.3 Shri Rajesh Gurbani, Chartered Accountant was situated at 56, 3rd Floor, Dawa Bazaar, RNT Marg, Indore, 452001 from where he was also working as the Internal Auditor of the petitioner company under the name and style of of RKG & Associates, 56, 3 rd Floor, Dawa Bazaar, RNT Marg, Indore 452001 which demonstrates that the Statutory Auditor and the Internal Auditor were the one and the same person. Ledger accounts of the company have also been placed on record to demonstrate that on 30.09.2016, when the respondent No.3 was appointed as Statutory Auditor, he was also discharging his functions as Internal Auditor of the company and was regularly drawing monthly salary of Rs.30,000/- per month from the company.
6. It is the further case of the petitioner company that since the respondent No.3 was getting monthly remuneration, he would be treated as an employee of the company and by virtue of provisions of Section 141 (3)(i) read with Section 144 (b) of the Act of 2013, the respondent No.3 could not have been appointed as Statutory Auditor of the petitioner company. It is further submitted that the respondent No.3 was also the Tax Consultant of the petitioner company for the financial year 2016-17, and had represented the company before Income Tax Authorities, in consideration of which he raised a bill of Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 6 Rs.1,18,000/- on the petitioner company on 31.08.2020. It is further the case of the petitioner since the respondent No.3 was also acting as a Tax Consultant and representing the petitioner company before the Income Tax Department, there was a conflict of interest in two different positions he was holding for which he was also paid for. Since the respondent No.3 was not an independent person, which is a prerequisite to act as statutory auditor, the petitioner company filed an application before the Central Government (respondent No.2 Regional Director, North Western Region, Ahmadabad) under Section 140(1) of the Act of 2013 for removal of respondent No.3 from the post of Statutory Auditors of the company. The aforesaid application came to be rejected by the respondent No.2 vide the impugned order dated 03.09.2021(dispatched on 07.09.2021), solely on the ground that the statutory auditor cannot restrain himself from commenting on the financial of the company and the grounds raised by the petitioner in its application have not been considered on merits.
7. Thus, the petitioner's grievance was that all the other grounds raised in the application filed by the petitioner company were ignored by the respondent No.2, hence, a review application was also preferred before the respondent No.2 on 29.10.2021, for reconsideration of the application filed under Section 140. However, the aforesaid application was also rejected by the respondent No.2 holding that the same to be not maintainable on account of it being hit by res judicata.
8. Shri Vijayesh Atre, counsel for the petitioner has submitted that Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 7 the appointment of the respondent No.3 as the Statutory Auditor of the company was bad in law which is in gross violation of provisions of Sections 141 and 144 of the Act of 2013. Counsel has submitted that the respondent No.2 has also not dealt with the other grounds raised by the petitioner in its application filed for disqualification of the statutory auditor and there is no reference of Sections 141 (3)(i) and 144(b) of the Act of 2013 in gross violation of the which the appointment of the respondent No.3 has been made as the statutory auditor. Section 144 (b) clearly provides that an auditor appointed under the Act of 2013 shall provide to the company only such other services as are approved by the Board of Directors or the audit committee, as the case may be, but which shall not include any of the following services (whether such services are rendered directly or indirectly to the company), company or its holding company or subsidiary company namely:-
(a) xxxxxxxxx
(b) Internal audit xxxxxxxxxxxxxx
9. Thus, it is submitted that the respondent No.3 was purely acting directly as also indirectly in the capacities of statutory auditor as well as internal auditor at the same time and as such his appointment as the statutory auditor is bad in law.
10. Counsel has also referred to the provisions of amended Section 141 of the Act of 2013, as Section 141(3)(i) provides that a person who, directly or indirectly, renders any service refer to in Section 144 Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 8 of the Company or to its holding company or its subsidiary company shall not be eligible for appointment as an auditor of a company. Thus, it is submitted that the impugned order be set aside and the relief so sought by the petitioner in his application filed before the respondent No.2 dated 29.06.2021, be allowed.
11. A reply to the aforesaid petition has also been filed by the respondent No.3, who is the main contesting party, traversing the averments made in this petition.
12. Shri Asudani, learned counsel for the respondent No.3 has raised a preliminary objection regarding the maintainability of the writ petition on the ground of availability of alternative remedy by way of filing a petition before the National Company Law Tribunal (NCLT), which is also apparent from Rule 78 of National Company Law Tribunal Rules, 2016 and it is submitted when the petitioner has equally efficacious remedy available before the NCLT, the present writ petition is liable to be dismissed on this ground only.
13. Heard counsel for the petitioner and perused the record.
14. So far as the impugned order dated 03.09.2021(dispatched on 07.09.2019) is concerned, the relevant paras of the same read as under:-
"8. Hearing in the matter was held on 24.08.2021, wherein Advocate V. N. Dubey, CS Sahive Alam Khan and CS Mahendra Sharma were authorized to represent on behalf of M/s. Rajesh Gurbani & Co., Chartered Accountant firm. During the hearing, both the parties submitted the same facts as given in writing.
9. According to the Section 143(3)(f) of the Companies Act, 2013 the auditor is under an obligation to report the observations or comments on financial transactions or matters which have any adverse effect on the functioning of the company.
Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 9Section 143(3) of the Companies Act, 2013 prescribes as under:-
"The auditor's report shall also state--
(a) Whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;
(b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
(c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company's auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;
(d) Whether the company's balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
(e) Whether, in his opinion, the financial statements comply with the accounting standards;
(f) The observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;
(g) Whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
(h) Any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
(I) whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;
(j) Such other matters as may be prescribed."
Hence, the auditor has acted within his powers and duties prescribed under the Act. A company cannot expect the auditor to restrain himself from commenting on the financials of the company. Further there is a penal provision prescribed under the Act if the auditor does the otherwise. However, the Board of directors of the company can explain the company's point of view in the Board report on the guidelines/adverse comments of the auditor. Therefore, an opportunity to explain has already Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 10 been provided to the company under the Law. It can hardly be disputed that profession of auditing is of great importance for the economy, the statement is established by the Hon'ble Supreme Court in the matter of S. Sukumar Appellat Versus The Secretary, Institute of Chartered Accountants of India & Ors. Respondents. The company is not able to substantiate the other allegations.
10. After examining the application under section 140(1) of the Companies Act and reply submitted by the auditor and company, and keeping in view the above facts, the application filed by the company for removal of auditor deserves to be rejected.
11. Hence, in exercise of powers vested with the Regional Director u/s. 140(1) of the Companies Act, 2013 as per the Notification No.S.O.4090 (E) dated 19.12.2016 and having regards to all the facts & circumstances, the application for removal of M/s. Rajesh Gurbani & Co., Chartered Accountants, under Section 140(1) is hereby rejected."
15. Whereas, the review application filed by the petitioner has been dismissed in the following manner:-
"I am directed to refer to your review application dated 29.10.2021 on the subject cited above and to inform you that the application for removal of Auditor u/s 140 of the Companies Act, 2013 was decided and communicated vide this office order dated 03.09.2021 and corrigendum vide dated 24.09.2021. The Principle of res judicata will apply and there is no question of deciding it again. Hence, it is informed that the application has already been adjudicated and can not be considered again."
16. A bare perusal of the order dated 03.09.2021 is sufficient for this court to hold that it is bereft of reasoning, as the issue raised by the petitioner herein has not been dealt with by the Regional Director in any manner. The review application has also been dismissed simply on the ground of res-judicata, which cannot be a ground to reject an application for review.
17. So far as the question of maintainability of the writ petition is concerned, the Supreme Court, in the case of Satwati Deswal v. State Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 11 of Haryana, (2010) 1 SCC 126 has held as under:-
"3. In our view, this appeal must succeed on a very short point. Before we take up the ground on which this appeal should be allowed, we may state the relevant facts leading to the filing of this appeal, which are as follows: the appellant [MA, BEd, MSc (Computer)] was appointed as a lecturer in 2003 in a recognised school in the State of Haryana and was subsequently promoted to the post of Principal on account of her seniority. Her appointment and promotion were duly approved by the authorities concerned, but by a non-speaking and unreasoned order dated 11-9-2006, her services were terminated by the Manager of the School, namely, Respondent 5 herein.
4. Admittedly, in this case no show-cause notice was issued to her nor was the order of termination passed by initiating any departmental proceeding after giving opportunity of hearing to the appellant. This order of termination was challenged by the appellant by way of a writ petition before the High Court, which was dismissed by it on the ground that the appellant had an alternative remedy to file an appeal under the rules before the appellate authority against the order of termination.
5. In our view, the High Court had fallen in grave error in rejecting the writ petition on the aforesaid ground. First, such an order of termination was passed without issuing any show- cause notice to the appellant and without initiating any disciplinary proceedings by the authorities and without affording any opportunity of hearing. It is well settled that a writ petition can be held to be maintainable even if an alternative remedy is available to an aggrieved party where the court or the tribunal lacks inherent jurisdiction or for enforcement of a fundamental right; or if there had been a violation of a principle of natural justice; or where vires of the Act were in question.
6. The aforesaid exceptions recognised by this Court were taken note of by this Court in Collector of Customs v. Ramchand Sobhraj Wadhwani in which the Constitution Bench laid down the principles of the above exceptions when writ application could be entertained even if an alternative remedy was available to an aggrieved party. The same view was expressed by this Court in L.K. Verma v. HMT Ltd. and M.P. State Agro Industries Development Corpn. Ltd. v. Jahan Khan." (emphasis supplied) Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03 12
18. In such circumstances, when the order is totally silent on the issues raised by the petitioner, despite noting the same, it is nothing but an unreasoned order, violating the principles of natural justice and thus, can be challenged before this court under Article 226 of the Constitution.
19. Resultantly, the impugned order dated 03.09.2021, being passed without assigning reasons on the issue involved is hereby set aside as also the review order dated 09.12.2021 and the matter is remanded back to the Regional Director to decide the petitioner's application afresh by a reasoned and speaking order, within a period of one month from the date of receipt of this order. It is made clear that this court has not adverted to the merits of the case and the concerned authority shall decide the case without being influenced by the order passed by this court.
20. Needless to say, if any adverse order is passed against the petitioner, he can avail the remedy of appeal as provided under the law.
21. Petition stands disposed of, accordingly.
(SUBODH ABHYANKAR) JUDGE Pankaj Signature Not Verified Signed by: PANKAJ PANDEY Signing time: 17-08-2022 16:31:03