TMI Blog2000 (8) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to the proposal, for removal of the statutory auditors, before expiry of their terms, being considered in the general body meeting. In the instant case, the proposal had been put up in the extraordinary general body meeting, by which the resolution dated 5-12-1998 was passed, without obtaining the previous sanction of the Central Government. 3. Before dealing with the specific submissions made by Mr. Navin Chawla, the learned counsel for the petitioners, it would be appropriate to recapitulate the relevant facts, in brief, leading to the filing of this writ petition. ( i ) Respondent No. 3 company, Gangeshwar Ltd., incorporated in 1932, was being managed by the Sawhney family since inception. Petitioner No. 1 being a firm of chartered accountants, were appointed the statutory auditors in the year 1932 for the first time. Petitioners since then were being re-appointed every year. There was a family partition in the year 1972, and Mr. P.C. Sawhney, acquired management and control of Triveni Engg. Works Ltd. Eventually, in 1992, Mr. Dhruv Sawhney son of Mr. P.C. Sawhney, acquired majority share and control of Triveni Engg. Works Ltd. on retirement of Mr. D.C. Sawhney. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 claim that the Chairman had initiated a note dated 28-10-1998, which was pushed through in the extraordinary general meeting held on 5-12-1998, for approving the removal of the petitioner No. 1 as the statutory auditors. In the notice calling the extraordinary general meeting on 5-12-1998, two reasons were mentioned for removal of the petitioner No. 1 as statutory auditors, viz., (1) TEIL stipulating that their auditors should be appointed as statutory auditors of the company; and (2) that in the meeting held on 4-11-1998, the Board had formed an opinion that it would not be in the interest of the company that the petitioner No. 1 be continued as statutory auditors and that they no longer inspired confidence. ( v )In the said meeting, a resolution was passed, authorising the Board to make an application to the Central Government in terms of section 224(7) for granting its approval. Respondent No. 3, in pursuance of the said resolution, on 17-12-1998, applied to the Regional Director, Government of India, for granting of permission to remove the statutory auditors. ( vi )Petitioner No. 1 by Writ Petition No. 1589 of 1999, questioned the passing of the resolution in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 3 as of 31-3-2000. 4. The learned counsel for the petitioner, Mr. Navin Chawla, in support of the writ petition, submitted that the petitioners had been functioning as statutory auditors since 1952. He has submitted that there were serious allegations of misappropriation and defalcation and diversion of funds against the management. The respondents were finding the statutory auditors, i.e., petitioner No. 1, to be a thorn in their functioning and the proposed merger. Therefore, they were sought to be removed. Respondent Nos. 1 and 2 have by their non-application of mind in passing the impugned order by relying on irrelevant and extraneous consideration granted the statutory approval for the same. He submits that the basic duty of the statutory auditors was to protect the interest of the company s shareholders and creditors, financial institutions and as such the permis- sion for their removal should have been considered in this perspective. This the respondents failed to do. The learned counsel by way of illustration submitted that 40,751 bags of sugar, with a value of over Rs. 3 crores were shown to be in stock, which were not found hypothecated and the sale considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f respondent No. 3 company in terms of section 224(7). The impugned order giving sanction for removal becomes operative only after the approval by the shareholders. 6. The learned counsel has pointed out that the shareholders in their meeting have approved the same with overwhelming majority of shareholders holding more than 95 per cent of the equity stock. There is no merit in the contention that simply because in the extraordinary general meeting on 5-12-1998, a resolution was passed authorising the Board to submit an application for obtaining sanction of the Central Government, the entire process or the impugned order gets vitiated. In the instant case, subsequent to the grant of permission, the shareholders have approved the same and objection in this regard, therefore, must fail. 7. There is also considerable merit in the submission of respondent No. 3 that the transactions, which are sought to be questioned and labelled as misappropriation and defalcation of funds and those which were mentioned in the letter dated 10-10-1993 of the statutory auditors, were prior to the present management of respondent No. 3 taking over. The petitioners, who were the statutory auditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent No. 3, pursuant to the Audit Committee s recommendation, as accepted by the board of directors. The learned counsel for the petitioner sought to urge that the above report/endorsement had been given on the petitioners being assured that answer to each of their query would be provided in due course. This plea does not inspire any confidence. 10. I find merit in the contention of the respondents that the statutory auditors had lost the confidence of the management. This is also apparent from the chequered history of the litigation that had ensued between the petitioners or by their associates at their behest. Year after year in the reports, the statutory auditors did not raise any objection but kept on making/repeating the observation with regard to the matter being under investigation and had finally in their report of 11-2-1998 accepted the recommendation. The petitioners raised this objection belatedly on 11-11-1998 after they had fallen foul with management and with a view to resist the action for their removal. 11. In these circumstances, I find that the impugned order passed was fully justified and in accordance with law. No ground is made out for interference in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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