Prohibition on auditor not economical proof to induce that such auditor acted dishonestly

  • Corporate Law

The appellant was appointed as statutory auditor of a company who issued an auditor report for financial years 2014-15 and 2015-16. Thereafter, inspection of respondent company was ordered based on a complaint. 

Based on the inspection report, a special case was filed against the company for their financial years. The NCLT passed an order prohibiting appellant to be appointed as an Auditor of any company for five years and directed appellant to refund all remuneration he received during period he acted as an auditor. 

From the financial statements, it appeared that Respondent-company had not carried out any business during relevant financial years and had also not filed any statement before ROC since its incorporation. 

It was also noticed that directors had siphoned money between 1996 and 2004 however inspection was ordered in March 2017 and real culprits were not traceable. 

Since, the act of appellant was negligent but there was no material on record to conclude that he acted fraudulently and colluded with directors of Respondent -Company or he had misused his position as statutory auditor of company, findings of NCLT were not sustainable in law as well as in facts. Therefore, the order passed by NCLT was to be set aside.