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2019 (8) TMI 1582 - Tri - Companies LawMaintainability of petition - Jurisdiction of this Tribunal to entertain and try the petition - section 140(5) of the Companies Act, 2013 - applicants contention is mainly based on the premise that petition under section 140(5) is maintainable only against the auditor of the company who has directly or indirectly acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order direct the company to change its auditors. HELD THAT:- Only literal interpretation cannot be taken to interpret the statutory provision but a pragmatic approach has to be applied. The question arises that if the person can escape the liability of section 140(5) of the Companies Act, only by resigning from the post of auditor then the entire purpose of law will be defeated. The above contention is further being supported from the bear reading of the Companies Bill, 2009 and Companies Bill, 2011 - In the Companies Bill, 2009, Chapter X section 123 is relating to the appointment of auditors and section 123(10) of this bill provides "without prejudice to any action under the provisions of this Act, or any other law for the time being in force, the Tribunal, if it is satisfied that the auditor of a company has acted in a fraudulent manner or abetted or colluded in any fraud by or in relation to, the company or its directors or its officers, it may, by order direct the company to change its auditors". Proviso to sub-section (5) was earlier not in the Companies Bill, 2009 but in 2011, this proviso was added. It is further to add that when the 2013 Act was passed, one more Explanation was added, i. e., : "It is hereby clarified that the case of a firm, the liability shall be of the firm and that of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its director or officers" - Thus it is clear that section 225 of Act No. 1 of 1956 was replaced by section 140 of the Companies Act, 2013 and second proviso to sub-section (4) and sub-section (5) of section 140 is enforced with effect from June 1, 2016 - Thus legislative intent is very much clear if we compare the Companies Bill, 2009 with the Companies Bill, 2011 and section 225 of Act No. 1 of 1956. Section 140 of the Companies Act, is not incorporated simply to compel the auditor either to resign or remove him from the duties of auditor. In the second proviso to sub-section (5) of section 140, the use of word "shall not be eligible to be appointed an auditor of any company for a period of 5 years" itself shows that the direct consequence of removal of the auditor from a company will be on his eligibility to act as an auditor in any company. Thus, by resigning from a company the auditor cannot escape from his disqualification under second proviso of sub-section (5) of section 140 of the Companies Act, 2013 - It is also important to point out that there is vast difference between the resignation and removal. If an auditor has resigned on its own, then he can be reappointed as an auditor of the same company within a period of 5 years though that was prohibited in case of the removal of the auditor. Therefore, it cannot be said that by resigning auditor during pendency of case, petition filed under section 140 shall become infructuous. Thus it is clear that while interpreting a statute, the court is to discover true legislative intent and literal interpretation should be given to a statute if the same does not lead to an absurdity. Explanation 1 to section 140(5) came to be part of the Act only in 2013 when the section came into force. This indicates that the intention of the final form of this section was not just confined to merely changing the auditor in the company but the intention of the Legislature was that the auditor be not eligible to be appointed as an auditor in any company for a period of 5 years, in case the Tribunal is satisfied that the auditor has, inter alia, acted in a fraudulent manner. In addition, the Legislature, also provided for an independent action under section 447 of the Act, by using the word "and" ahead of "shall" also be liable for action under section 447 - This interpretation cannot be accepted that if an auditor has resigned during the pendency of the petition, then he would be saved from being debarred for five years from being the auditor of any company, under second proviso to sub-section (5) of section 140 of the Companies Act, 2013. The interpretation which accords with the object of the statute in question is always better interpretation or the "creative interpretation" - In this case, it is apparent that proviso to section 140(5) (in the present form) did not feature in the Companies Bill, 2009 and was first introduced by the Companies Bill, 2011. These provisos then formed a part of the Companies Act, 2013 (as enacted). Further, Explanation 1 to section 140(5) came to be part of the Act only in 2013 when the section came into force. This indicates that the intention of the final form of this section was not just confined to merely changing the auditor in the company but the intention of the Legislature was that the auditor be not eligible to be appointed as an auditor in any company for a period of 5 years, in case the Tribunal is satisfied that the auditor has, inter alia, acted in a fraudulent manner. In addition, the Legislature, also provided for an independent action under section 447 of the Act, by using the word "and" ahead of "shall" also be liable for action under section 447. The miscellaneous applications, filed by the applicants, on the premise, that section 140(5) only deals with removal/change of an existing auditor, whose appointment is continuing on the date of the petition, cannot apply to the past auditor or the auditor who has resigned during the pendency of the petition are not maintainable and deserves to be rejected. Application dismissed.
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