TMI Blog2020 (4) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... has been given a power to issue a direction to change the CA. It is also apparent that NCLT has not been given power to debar or disqualify or impose any punishment on such CA - Proviso to S. 132(4)(a) of 2013 Act shows that after NFRA initiates investigation into the professional misconduct, the Institute of Chartered Accountants looses that jurisdiction - NCLT does not can not inquire into a professional misconduct by the CA as it is not conferred with power to choose the nature of punishment or its quantum. Section 140(5) is part of the provision (S.140) which deals with the removal of CA or his resignation. Need of special resolution to remove CA or grant of opportunity to him in that connection are part of this scheme. The concerned CA though removed by special resolution or due to his resignation, is not visited thereby with any action for professional misconduct or prosecution for crime or any disability because of that removal or resignation. Chartered accountant Act takes care of the professional misconducts by CA while 2013 Act vide S. 132, also deals with type of the said misconducts and vide S. 447, takes care of criminal offences. In this backdrop, it is absur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11) obliges SFIO to submit an interim report when so directed by the Central Government. S. 212(12) obliges him to submit the investigation report after completing the investigation. The section does not speak of said report as final report . Parties have for convenience coined that phrase since S. 212 (11) uses the word interim report . There is nothing in S. 212 of 2013 Act to demonstrate that interim report under S. 212(11) can not be an investigation report. When the Central Government calls for the interim investigation report, there is nothing in S. 212(14), which prohibits the Central Government from considering it - As the respondents do not plead on affidavit and bring on record the basic facts to indicate a possibility of due application of mind by the authority granting direction to prosecute, no disputed question in relation to such process under S. 212(14) of 2013 Act arises before us. As such, there is no scope for claiming that arguments of the petitioners about non-application of mind raise a disputed question which can be examined during trial. Thus, section 140(5) of the Companies Act, 2013 is not unconstitutional - Direction under S. 212(14) of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evergreening of debts extended to its subsidiary Companies third parties/companies by IL FS Financial Services Limited (hereinafter referred to as IFIN ) and alleged dubious role played by its CAs ie company auditors before National Company Law Tribunal ie NCLT and orders passed therein, gives rise to the present bunch of petitions. Petitioners state that said S. 140(5) is unconstitutional and in any case, can not be invoked against the ex-statutory auditors. In WP 5263 of 2019, direction to lodge prosecution issued under S.212(14) of 2013 Act is questioned. Since only law points are argued, we need not refer to the facts which are not crystallized as yet. 2. In Writ petition No.4144 of 2019, petitioner is a partner of M/s. BSR and Associates which is a Limited Liability Partnership (LLP) of Indian Chartered Accountants. He has questioned validity of section 140(5) of the Companies Act, 2013. He has also challenged the order dated 9/8/2019 passed by the National Company Law Tribunal, Mumbai Bench whereby his objection to maintainability of Company Petition No. 2062 of 2019 raised by him vide Misc Application No. 2506 of 2019 has been dismissed and that company petition is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so prays to quash and set aside the criminal complaint Case No. 20 of 2019 initiated against it. 6. Writ Petition No. 5035 of 2019 is filed by one Kalpesh Mehta who is chartered accountant and he has questioned the constitutionality of section 140(5) supra, direction dated 29/5/2019 supra and Criminal Case No. 20 of 2019 instituted on its basis. 7. Writ Petition No. 5036 of 2019 is filed by Mr. Udayan Sen, Chartered Accountant assailing constitutional validity of section 140(5) supra, direction dated 29/5/2019 and Criminal Complaint Case No. 20 of 2019 supra. 8. Writ Petition No. 5263 of 2019 is filed by Mr. Hari Shankaran who claims to be Director of Company against whom direction dated 29/5/2019 has been executed and thereafter complaint has been filed on 30/5/2019. 9. Parties have argued Criminal Writ Petition No. 4144 of 2019 and 4145 of 2019 as the lead petitions. 10. The discussion below will show that we are not required to record any finding on factual dispute. The facts below necessary to explain the legal dispute are borrowed mostly from the order of NCLT dated 09/08/2019 which is impugned herein. This order is a common order on Misc. Application No. 2258 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14. In this connection only on 30/09/2018 the Union of India through its Ministry of Corporate Affairs appointed inspectors with the Director SFIO to inquire into the affairs of the company namely Infrastructure Leasing and Financial Services Limited and its subsidiary companies. The inspectors were given time of three months to submit the report to Central Government. 15. The SFIO accordingly submitted a report which was looked into by the Union of India, Ministry of Corporate Affairs (MCA) and on 29/5/2019 in exercise of the powers available to it under section 212 (14) of the Companies Act, 2013, it directed the SFIO and Regional Director (Western Region) to proceed further. This communication recommends prosecution of petitioners under various provisions and SFIO has been directed to file a complaint by next day i.e. 30/05/2019 without fail and to submit the compliance report. This order has been questioned on the ground that the report which runs into more than 750 pages has annexures running into 32,000 pages, has been alleged to be examined in about 30 hours by Union of India and filing of prosecution has been ordered. Petitioners submit that this shows non applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 140(5) of the Act in Company Petition No. 2062 of 2019. No coercive action shall be taken qua the Petitioners in Criminal Complaint filed before the Special Court, being CC No. 20/2019 titled SFIO vs. IL FS Ltd Ors. In the Court of Ld. Additional Sessions Judge-cum-Special Judge (Companies Act) at Greater Mumbai. 18. Aggrieved by this order of High Court dated 4/9/2019, the petitioners moved SLP before the Hon ble Apex Court. The Hon ble Apex Court on 26/9/2019 passed the following order : Mr. Mehta, learned Solicitor General submitted that after the resignation of the original writ petitioners, the Company had passed a resolution on 11.07.2019 appointing M/s. Mukund M. Chitale Co., Chartered Accountants as Statutory Auditors of the Company, to fill the resultant vacancy but said M/s. Mukund M. Chitale Co., Chartered Accountants have expressed their inability to take up the assignment which would in turn mean that fresh appointment is required to be made to fill up the vacancy. We see no reason why steps in that behalf could not be undertaken with promptitude so that the interest of the company is not prejudiced on any count. Learned Solicitor Ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extended to that sub section would vitiate the entire scheme of the chapter of Companies Act and also the purpose of section 140. 22. Our attention is drawn to the fact that the company auditor must be Chartered Accountant and as such is already regulated by the Institute of Chartered Accountants and its disciplinary rules in so far as professional conduct or misconduct is concerned. There proper procedure has been prescribed in accordance with the principles of natural justice before the Chartered Accountant is punished for his professional misconduct. 23. Apart from the provisions of IPC under which delinquent Chartered Accountant can always be prosecuted, it is submitted that in Companies Act there exists special provision in the shape of section 447. The Directors or the other office bearers of the company or other persons found to have indulged in financial irregularities or fraud can be punished thereunder. It is submitted that the words any person employed in explanation (I) thereto also includes the auditor of the company. Such auditor is debarred from functioning as company auditor for two terms. Thus for fraud under section 140(5) the punishment of debarring the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval during further proceedings so that the concerned company can substitute him by new auditor and its functioning can continue smoothly. 27. Mr. Khambata states that the petitioners M/s. BSR became auditor of IFIN company on 27/11/2017 jointly with its earlier auditor Deloite till 31/3/2018. After 01/04/2018 petitioner BSR continued as sole company auditor for about 16 months when it resigned on 19/06/2019. 28. In this backdrop, it is submitted that the SFIO who was conducting enquriy of M/s. IFIN submitted second interim report in terms of section 212 (14) and on that basis section 447 of Companies Act has been invoked. It is submitted that the Government Order dated 29/05/2019 is based upon the report of which copy is not given to the petitioners despite demand. The new Board of Directors is looking after the affairs of M/s. IFIN since 1/10/2018 and second interim report has been submitted under section 212 on 28/5/2019. This second interim report runs into 32732 pages out of which 732 pages is actual report while the remaining 32000 pages are relevant annextures. This huge report has been looked into by two officers one after the other in the period of less than thirty h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to him in proceedings before NCLT there is no scope for such cross examination. To explain relevance of the need to supply documents and to cross examine witnesses he cites P. Sanjeeva Rao vs. State of Andhra Pradesh:(2010) 6 SCC 1 (2012) 7 SCC 56. He also explains impact of non-supply of vital documents denial of opportunity to cross-examine since such report might have influenced NCLT. 32. Senior Advocate Seervahi adopting arguments of advocate Khambata has raised additional contentions in Writ Petition No.4144/2019. He pointed out that removal of any company auditor results in irrevocable and irreparable damage to his reputation. In support he relies upon Institute of Chartered Accountants Of India vs. L.K. Ratna Others. (1986) 4 SCC 537 para 18. The consequences resulting from said removal are very drastic for company auditor, his firm and also for his family. State of Rajasthan v. Mukan Chand,-AIR 1964 SC 1633 paragraph Nos.4,7 and 8 are pressed into service to show how twin test needs to be used for the purpose of Article 14. This ruling is followed in Leelabai Gajanan Pansare vs. Central Insurance Company (2008) 9 SCC 720, paragraph 75. Inviting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edure to deal with such misconduct. Rule 9 of Rules framed under Chartered Accountants Act for said purpose is also relied upon. 38. He contends that when misconduct is looked into by NFRA or by the Institute of Chartered Accountants, because of settled and established uniform procedure known beforehand, the company auditor gets effective opportunity. This provision therefore safeguards his right to practice and also his reputation. Rules 14 and 18 are cited for this purpose. To explain importance of a settled and uniform procedure he draws support from Maneka Gandhi vs. Union Of India. 1978(1) SCC 248 paragraph No.1 179, 180, 143 and 147, 5,6 , 201, 202, 82, 84 and 173. 39. He has submitted that under section 140(5) direction is to be issued to Company to change auditor and the final order envisaged therein needs to be understood accordingly. To explain how said proviso needs to be interpreted he has relied upon Union of India vs. Sanjay Kumar Jain-(2004) 6 SCC 708 paragraph No.11. He has also submitted that AIR 1961 SC 794 Jeahnanda Sona vs. State of U.P. also throws light in this respect. 40. He invited our attention to section 212 of 2013 Act. He submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 212 of the Companies Act, they have taken a plea that the investigation is complete by way of afterthought. Section 212(12) of the Companies Act envisages final report and therefore, it is deviation from Cr.P.C. Unlike Cr.P.C. the Companies Act does not contemplate the final report. He submits that it is after section 212(14) stage that the investigation can be carried by SFIO. 46. He in this backdrop, relies upon the judgment of the Hon ble Apex Court reported at State of Punjab and Anr. vs. Gurdial Singh and Ors.: (1980) 2 SCC 471 paragraph 9 to point out what is fraud on power and its impact. He submits that the order dated 29/5/2019 therefore, does not exist and it is void. 47. Inviting attention to letter dated 29/5/2019, he states that the purpose behind it is debarment of the company auditor and it is the hidden motive. Briefly he explains the three procedures in 2013 Act which are aimed at debarring the company auditor. 48. Again inviting attention to the investigation report of SFIO he points out that therein the recommendation is about removal of existing auditor. He submits that there is distinction between the existing auditor and those who have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No. 4145 of 2019 particularly paragraph 17 to 19. 53. To stress the Indian Law on the point, he draws support from AIR 1953 SC 325 : Maqbool Hussain Versus State of Bombay, paragraph 3, 11 and 17, (2015) 3 SCC 779 : Union of India and another Vs. Purushottam, paragraphs, 7,8 and 9. The later judgment also considers the above mentioned judgment of the United States Supreme Court. 54. He submits that the NCLT is a judicial tribunal. Paragraph 54 and 57 in Writ Petition No. 3250 of 2019 are relied upon by him to buttress his submission. Section 408, 409, 419, 420, 424(4), 425, 430 and 432 of the Companies Act are also pointed out by him. Union of India vs. R. Gandhi, Madras Bar Association (2010) 11 SCC 1 paragraphs, 106, 121 are relied upon by him to show that the NCLT is a judicial tribunal. 55. NCLT rules particularly rule 34, 39, 40,47 and 52 are pressed into service to point out the powers akin to court given to NCLT for this purpose. ( 2015) 8 SCC 583 : Madras Bar Association Vs. Union of India and another , paragraphs 15 and 16 are also relied upon to show that the NCLT constituted under 2013 Act is also held to be a tribunal by the Ho ble Apex Court. 56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, they have decided to act upon interim report. He contends that section 212 (12) also envisages final report only. It is further submitted that if report under section 212 (14) is received, it is open to the Central Government to order further investigation by SFIO. 62. State of Punjab and Anr. vs. Gurdial Singh and Ors.: (1980) 2 SCC 471 paragraph 9 is relied upon to urge that order dated 29/5/2019 is void and non existent since power is abused or its colourable exercise is apparent, 63. Our attention is invited to said communication dated 29/5/2019 to state that debarment i.e. punishment to said auditor is real but hidden motive. There are total three proceedings that can be initiated against the auditor for debarment i.e. one by the Institute of Chartered Accountant, other under section 447 of the Companies Act and the third under section 140(5) of the Companies Act. The investigation report received by the Ministry of Corporate Affairs shows that recommendation of removal can be acted upon if it is issued against existing auditor. The law makes distinction between auditors who are retired and those who are existing auditors. Letter dated 28/5/2019 shows that no ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at proceedings are quasi criminal in nature and accordingly standards and procedure relevant in criminal jurisprudence are required to be used while debarring the auditors also. For Article 20 of the Constitution of India and S. 26 of General Clauses Act, nature of proceeding is irrelevant. (1998) 4 SCC 409- Supreme Court Bar Association vs. UOI another and Institute of Chartered Accountants Of India vs. L.K. Ratna Others. (1986) 4 SCC 537 are relied upon by him to substantiate this contention. Judgment of S.C. of Unites States in case of Hudson vs. United States 522 US 93 (1997) followed by Indian Courts in (2015) 3 SCC 779 : Union of India and another Vs. Purushottam other cases is also relied upon for this purpose. 70. Reply affidavit filed by MCA is relied upon to explain how measure of debarment came to be added to section 140(5) as punishment and as an interim measure. 71. The recent judgment dated 29/11/2019 delivered at Mumbai in Writ Petition No. 3250 of 2019 and paragraphs 54 and 57 therein are relied upon to urge that NCLT is a judicial tribunal. ( 2010) 11 SCC Page 1 : Union of India Vs. R. Gandhi is also pressed into service to show that und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly filed another petition. 77. He adopted the arguments advanced by others but clarified that this partner has also questioned the order of NCLT before the appellate tribunal and hence, the question raised in Writ Petition is only about the constitutional validity of section 140(5) of Companies Act and about violation of Article 14 and 21 of the Constitution of India. 78. To add to the arguments already advanced on Article 14 of the Constitution of India, learned counsel has invited our attention to the provisions of section 167 (ii)(e) and (f) of 2013 Act as also proviso thereto. He states that this section and provisions gives the Director of Company time of thirty days after the order to his prejudice is passed. If in the meanwhile such director files an appeal, he cannot be removed and protection statutorily granted continues for the period of seven days more after the appeal is dismissed. Thus the Director has been treated differently than the company auditor. Section 164 which prescribes disqualification for the company director is also relied upon to urge that the disqualification specified therein arises after the conviction and sentencing. Thus the company auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortance of the procedure in such matters and relevance of Article 21 of the Constitution of India, he draws support from the observations of the Hon ble Apex Court in paragraph 21 and 266 in AIR 1950 SC 27 : A.K. Gopalan Vs. State of Madras. 82. Advocate Ponda appearing for the petitioner Director in WP No. 5263 of 2019 submits that the said petitioner is not concerned with the provisions of section 140 of the Companies Act. He states that the said Director has been made accused no. 3 in Criminal Complaint instituted after report of SFIO. He submits that he has been arrested on 01/04/2019 and the period of 60 days expired on 30/05/2019. 83. Learned counsel submits that at several places in its reply the Ministry of Corporate Affairs has accepted the report of SFIO as an interim report and also the need of further investigation. The provisions of section 212 of the Companies Act do not permit initiation of action against the petitioner on the basis of such interim report. With the aid of judgment of the DB of Allahabad High Court reported at 1975 SCC Online All 195 Lakshmi Brahman another vs. State, paragraphs 9 10; he submits that the power to remand under S. 309 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use there action is envisaged within 15 days of receipt of application and hence, consequential final order is also envisaged in second proviso. Said auditor against whom final order has been made therefore can not be reappointed for next 5 years as auditor in the company. This provision is remedial as also preventive in nature and must be construed accordingly to further its object. 88. Accordingly, he has relied upon judgment of Hon ble Apex Court to urge that it is not a rule that proviso must be seen as subservient to main section. Clear language of said provision can establish that it is not a qualifying clause but a substantive provision in itself. Commissioner of Commercial Taxes vs. Ramkrishan Shrikrishan Jhaver- AIR 1968 S.C. 59 paragraphs No.8 9 are pressed into service for this purpose. He adds that clear language in second proviso to section 140(5) shows that it is not controlled by substantive part of section 140(5). 89. He further submits that in view of clear scheme, interpretation of section 140(5) cannot be controlled by the heading of section 140 and plain language and substantive proviso needs to be given full effect. He submits that the judgment in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not make proceedings in NCLT, a criminal proceeding. He relies upon Director of Enforcement vs. M.C.T.M. Corp. (P) Ltd. - (1996) 2 Supreme Court Cases 471 for this purpose. 93. Sr. Advocate also states that judgment reported at An Advocate vs. Bar Council of India -1989 (supp) 2 SCC 25 supra has been rendered without looking into the larger Bench judgment reported at P.J. Ratnam vs. D. Kanikram-AIR 1964 SC 244, and other judgments like S.A. Venkataraman vs. Union Of India. AIR 1954 SC 375, Pandurang Dattatraya Khandekar vs. Bar Council of Maharashtra (1984) 2 SCC 556, Gulabchand vs. Kudilal. AIR 1966 SC 1734. 94. He draws support from judgment in the case of Hudson vs. United States to explain why proceedings under section 140(5) cannot be seen as prosecution and punishiment. He also pointed out that this judgment has been cited by Supreme Court of India in Union of India vs. Purushottam (2015) 3 SCC 779. 95. He submits that the procedure stipulated in NCLT Rules 2016 is not arbitrary does not result in any or violation of Articles 14, 19 and 21. Union of India vs. Madras Bar Association. (2010) 11 SCC 1 is cited in support. 96. To urge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4145 of 2019 to order dated 9/8/2019 passed by the NCLT, learned senior counsel points out that the petitioner has resigned as an auditor 9 days after the NCLT issued notice to it. The Union of India filed Company Petition No.2062 of 2019 for his removal under section 140(5) and for further action as per its proviso, on 9/6/2019 which came to be admitted by the NCLT on 10/6/2019. It was to be placed again on 21/06/2019 and on 10/06/2019, advocate for the BSR was present before the NCLT. On 19/06/2019, petitioner BSR and Associates submitted their resignation as an auditor of IFIN. IFIN appointed M.M. Chitale Co. as its statutory auditors on 11/07/2019 wef 19/06/2019. Thereafter on 14/07/2019, BSR filed Misc. Application No. 2505 of 2019 and prayed for dismissal of the company Petition No.2062 of 2019 contending that the NCLT had no jurisdiction since BSR and Associates were no longer company auditors of IFIN. Learned senior counsel submits that in this backdrop, the reasons recorded by NCLT that by subsequent resignation, the jurisdiction invoked earlier could not have been taken away, are valid. He submits that the BSR and Associates exercised option and chose to raise their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to undertake audit work of any company. This object also will be defeated if the interpretation of petitioner is accepted. The strategy adopted by the petitioners is against the public interest and should not be countenanced to. 105. While dealing with the order dated 18/10/2019 by NCLT under first proviso to section 140(5), learned senior counsel submits that the contention about the NCLT loosing jurisdiction since M/s. BSR Associates had resigned and IFIN accepted that resignation and appointed M/s. M. Chitale as its auditors is liable to be discarded. 106. He points out the provisions of section 140(5) to urge that resignation of auditor proceeded against or any appointment purported to be made to substitute him is legally inoperative and cannot be pressed into service before the NCLT to deny it the jurisdiction. 107. While dealing with the submission that the first respondents could not have on 29/05/2019 directed SFIO to initiate prosecution under section 212(14) of the Companies Act, 2013, he submits that the act of respondents in using the words interim report while describing the report of SFIO is legally irrelevant since it is not interim report at all as en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Criminal Case No.20 of 2019 instituted by SFIO before the competent court. 111. According to him, this prayer and writ petition is not maintainable to that extent as that court ie trial court has still not taken cognizance and the process has still not been issued. He submits that after report to police or Investigating Officer and till accrual of right, if any in favour of the accused, the matter proceeds through three stages. He has relied upon ( 2014) 3 SCC 92 : Hardeep Singh Vs. State of Punjab and Ors. to demonstrate this. The accused like petitioner can intervene only when the cognizance is taken and till then, he has no right to challenge the proceedings. He also draws support from ( 2012) 10 SCC 517 : Manharibhai Muljibhai Kakadia and another Vs. Shaileshbhai Mohanbhai Patel and Ors. for this purpose. Petitioner is not entitled to be heard on the question whether process should be issued against it or not. 112. Our attention is also invited to the judgment of the Hon ble Apex Court reported in AIR 1963 SCC 1430 : Chandra Deo Singh Vs. Prokash Chandra Bose alias Chabi Bose and another to contend that when the court of learned JMFC cannot hear or extend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of framing of the charge. This limited fiction cannot be enlarged further. He draws support from (1998) 6 SCC 183 : State Bank of India Vs. D. Hanumantha Rao and another paragraph 5. 116. Dealing with the issue of sanction/direction under section 212(14) he submits that in all the petitions filed before this court, the grounds assailing it show that the same accept existance of order/sanction dated 28/05/2019. In view of this position and as such document exists, all grounds raise the questions of facts and therefore, cannot be considered by this court. The same need to be answered by the trial court when the trial proceeds. 117. According to Shri Venegaonkar, all precedents cited by the petitioners in this respect deal with the cases of no sanction and hence, are not relevant. He has relied upon (2007) 1 SCC 1 : Prakash Singh Badal and another Vs. State of Punjab and another, (2012) 1 SCC 532 : Dinesh Kumar Vs. Chairman, Airport Authorty of India and another, (2015) 16 SCC 163 : Director, Central Bureau of Investigation and another Vs. Ashok Kumar Aswal and another and (1974) 3 SCC 72 : The State of Rajasthan Vs. Tarachand Jain . On the strength of last 2 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07/03/2019 but it has not been supplied. Hence, the adverse inference that it contains direction of central Government to SFIO as per section 212(11) needs to be drawn. He relies upon (1973) 3 SCC 581 : Union of India and Ors. Vs. Messrs. Rai Singh Dev Singh Bist and Ors (paragraph 6). 122. He also reads out certain portions of the said report to show that the report itself points out need for the further investigation. There is express observation to that effect and respondents have not filed any reply on oath to urge that the said investigation has not been undertaken. According to him there is no scope in the scheme of section 212 for such further investigation. If it is a further investigation, the report dated 28/05/2018 is not a complete report under section 212 (12) of 2013 Act. 123. Advocate Khambata submits that when the Ministry of Corporate Affairs applied to NCLT on 10/06/2019, they have approached it on the basis of interim report and MCA has not filed any affidavit in the present matter to explain that in their pleadings there, words interim report are loosely used. The deponent who submitted said plea before NCLT has not even chosen to file any reply aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI to hold internal inquiry has also been ignored. According to him, this implies some participation in collusion even by RBI officers. In this situation, the petitioner who worked as Chartered Accountant for about 4 months could not have been seen as involved in any fraud. Section 212(14) makes provision for legal advise and respondents ought to have procured it in present facts. 127. While dealing with contention of advocate Venegaonkar that challenge to prosecution is premature, he distinguishes judgments relied upon by advocate Venegaonkar with submission that even those judgments support the view in favour of the petitioner. 128. He submits that section 141 (3) of Companies Act 2013 envisages 9 contingencies in which the Chartered Accountant may be disqualified to become Company Auditor. Section 140 (5) cannot be seen as an additional ground. He urges that substantive part of section 140(5) uses word may and discretion conferred thereby cannot be lost sight of. 129. Commenting upon order of NCLT rejecting objection raised by the petitioner, he submits that line of argument before this Court in present challenge and reasons recorded in said order are inconsistent. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utional validity has been questioned. 132. He submits that before the petitioner became auditor, RBI had already entered into correspondence with IFIN and this correspondence was going on for 2 years. Annual report contains necessary disclosures and as such; taking action against petitioner under section 140(5) is unwarranted. Our attention is invited to scheme of section 241, 242 and 243 of Companies Act 2013 to urge that the action is possible if very higher degree of implicating material exists and only after rigorous preconditions are complied with. The adverse order against the director therefore cannot be obtained easily. As against this, for invoking action under section 140(5) there are no such pre-condition of higher degree compliances. Section 140(5) therefore permits authorities to pick and choose between even company auditors (CA) and this discretion conferred upon authorities is constitutionally unsustainable. 133.Advocate Seervai urged that bar of alternate remedy cannot operate when jurisdictional issues are to be decided Competition Commission of India vs. Bharti Airtel Limited and Ors.:(2019) 2 SCC 521, (paragraph 115 to 120) and Arun Kumar and Ors. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tates with Limited Liability Partnership Act and therefore it needs to be construed properly in the wake of substantive provision in S. 140(5). 138. He further argues that the contention that second proviso is lenient since the CA is not debarred from continuing with ongoing work of other companies and has been disqualified only for fresh term or continuation; is erroneous since the stigma cast is final and cannot be avoided anywhere. The punishment possible after full trial under section 447 is imposed highhandedly and unilaterally under S. 140(5) with undue haste. Once order is passed by NCLT, other companies of repute may be induced to initiate steps for removal of such CA. The second proviso to section 140(5) therefore cannot be seen as an independent provision. 139. Mr. Desai, Sr. Advocate contended that criminal case No.20/2019 moved by MCA and more particularly paragraph Nos.4, 62 and 63 show that it is not based upon completed investigation and therefore on a complete report. Leave to produce additional material reserved therein supports this. Our attention is invited to the fact that report of SFIO indicates collusion even by bank officers. In prosecution, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 721, (paragraph 6), Bhupinder Kumar Sharma vs. Bar Association, Pathankot: (2002) 1 Supreme Court Cases 470, State of Punjab vs. Davinder Pal Singh Bhullar and Ors.: (2011) 14 Supreme Court Cases, paragraph Nos.107 to 111 and Nirmala J. Jhala vs. State of Gujrat and Another:(2013) 4 Supreme Court Cases 301, (paragraph 11 to 17) to demonstrate that when question is of misconduct by professionals, higher degree of proof is always envisaged and it is not preponderance of probability. He states that An Advocate vs. Bar Council of India -1989 (supp) 2 SCC 25 (paragraph 4) also follows same law. Pandurang Dattatraya Khandekar vs. Bar Council of Maharashtra, Bombay and Ors. (cited supra) relied upon by Advocate Chinoy has not considered said 4 Judges view. He also distinguishes other judgments cited by Advocate Chinoy on the ground that they consider burden of proof in suit for specific performance or in civil proceedings. 146.. Ram Singh and Ors. vs. Col. Ram Singh: 1985 (Supp) Supreme Court Cases 611 , (paragraph Nos. 222, 223) and Ram Sharan Yadav vs. Thakur Muneshwar Nath Singh and Ors.: (1984) 4 Supreme Court Cases 649 , (paragraph Nos.2 and 3) are relied upon by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. State Of Maharashtra (2009) 5 SCC 787. 150. To explain what constitutes prejudice, he takes help of M.S. Sheriff vs. State of Madra AIR 1954 SC 397 He submits that in such matters under section 140(5) issue of embarrassment to Chartered Accountant proceeded against definitely arises. He draws support from Capt. M. Paul Anthony vs. Bharat Gold Mines. (1999) 3 SCC 679 He further submits that Union of India and Another vs. Purushottam (cited supra) by Advocate Chinoy does not look into professional misconduct and it deals with departmental proceedings. 151. Advocate Robin Jaisinghani has in rejoinder submitted that NCLT has no fixed procedure and in its absence prejudice caused is apparent. Suraj Mall Mohta and Co. vs. A. V. Visvanatha: AIR 1954 SC 545 , (paragraph Nos.2, 14 and 15) is relied upon to highlight importance of uniform procedure. He also states that in petition filed before NCLT, institution of Chartered Accountant is already a respondent and a direction to it to proceed against Chartered Accountant sought to be removed, has also been sought. 152. Thus, in this backdrop he explains importance of provision like S. 167 of the Companies Act and its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 in rejoinder. 157. Because some judgments were cited while advancing arguments in rejoinder, Advocate Chinoy has also submitted written submissions in rejoinder. He has explained the same in brief and contended that the steps taken need to be understood in the context in which the same became necessary. He also explained the purpose and object of the proceedings. He submitted that the alleged admissions of Government cannot be seen as final and determinative. On incomplete investigation, he has reiterated his contentions and submitted that the final report submitted by the SFIO here may be followed by further final report. For that purpose he has drawn support from PMC Mercantile Pvt. Ltd, vs. State(2014) 3 MWN (Criminal) 454 (paragraph 11 and 18). 158. He has substantiated the order of the central government dated 29/5/2019 directing prosecution under section 212(14) and also attempted to distinguish the judgment reported at (1973) 3 SCC 581 : Union of India and Ors. Vs. Messrs. Rai Singh Dev Singh Bist and Ors. relied upon by the petitioners and (1997) 7 SCC 622 : Mansukhlal Vithaldas Chauhan Vs. State of Gujarat. He submits that the approach of NCLT in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n reiterated the defences in brief. 164. Before proceeding with the discussion, we find it suitable to enumerate the questions which arise for determination. Those questions are. A. Whether S. 140(5) of 2013 Act is unconstitutional? --. Whether it is bad as it singles out only the Company Auditors and excludes the directors or the office bearers of the companies from its scope ? Whether it is arbitrary since it does not carry adequate procedural safeguards as contained in Indian Chartered Accountants Act or in S. 132 of the 2013 Act? B -- Whether it violates the principle of double jeopardy? C. Whether other prayers in these writ petitions can be entertained if the answer to any of the above questions is in negative? i.e. whether the petitions are maintainable as the alternate remedy of appeal to NCLAT is available? D. Whether NCLT can exercise the jurisdiction under S. 140(5) of the 2013 Act after the CA to be removed has resigned or ceased to be the statutory auditor of the concerned Company? E. Whether the Central Government could have moved the application in stayed proceedings? F. Whether the direction to prosecute is after due applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed: Provided that the terms and conditions and the manner of appointment of the chairperson and members shall be such as may be prescribed: Provided further that the chairperson and members shall make a declaration to the Central Government in the prescribed form regarding no conflict of interest or lack of independence in respect of his or their appointment: Provided also that the chairperson and members, who are in full-time employment with National Financial Reporting Authority shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment. (4) Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall- (a) have the power to investigate, either suo moto or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949 (38 of 1949): Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (11) The Central Government may appoint a secretary and such other employees as it may consider necessary for the efficient performance of functions by the National Financial Reporting Authority under this Act and the terms and conditions of service of the secretary and employees shall be such as may be prescribed. (12) The head office of the National Financial Reporting Authority shall be at New Delhi and the National Financial Reporting Authority may, meet at such other places in India as it deems fit. (13) The National Financial Reporting Authority shall cause to be maintained such books of account and other books in relation to its accounts in such form and in such manner as the Central Government may, in consultation with the Comptroller and Auditor-General of India prescribe. (14) The accounts of the National Financial Reporting Authority shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and such accounts as certified by the Comptroller and Auditor-General of India together with the audit report thereon shall be forwarded annually to the Central Government by the National Financial Reporting Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, the company shall, unless the representation is received by it too late for it to do so,- (a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and (b) send a copy of the representation to every member of the company to whom notice of the meeting is sent, whether before or after the receipt of the representation by the company, and if a copy of the representation is not sent as aforesaid because it was received too late or because of the company s default, the auditor may (without prejudice to his right to be heard orally) require that the representation shall be read out at the meeting: Provided that if a copy of representation is not sent as aforesaid, a copy thereof shall be filed with the Registrar: Provided further that if the Tribunal is satisfied on an application either of the company or of any other aggrieved person that the rights conferred by this sub-section are being abused by the auditor, then, the copy of the representation may not be sent and the representation need not be read out at the meeting. (5) Without prejudice to any action under the provisions of this Act or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners has already approached. In Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai and Ors. (supra) Hon. Apex Court in para 15 has observed that when vires of an enactment are challenged, the writ petition is maintainable. Similarly Isha Beevi on behalf of the minor Umaiben Beevi and Others vs. The Tax Recovery Officer and Addl. P.A. to Collector, Quilon and Ors.:( paragraph 5) and Bengal Immunity Company Limited vs. State of Bihar and Ors.: , (paragraph 8) disclose that all orders passed in the matter by NCLT can be assailed before this Court since constitutional validity has been questioned. 168. In Competition Commission of India vs. Bharti Airtel Limited and Ors (2019) 2 SCC 521 , in para 119, the Apex Court relies on Carona Ltd. Apex Court holds (SCC pp. 569 571, paras 26-28 36) that the fact as to paid-up share capital of rupees one crore or more of a company is a jurisdictional fact and in absence of such fact, the court has no jurisdiction to proceed on the basis that the Rent Act is not applicable. The fact or facts upon which the jurisdiction of a court, a tribunal or an authority depends can be said to be a jurisdictional fact . If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are put together from others left out of the group, and (2) that the differentia must have a rational relationship to the object sought to be achieved by the statute in question. Hon. Apex court holds that condition 2 above was clearly not satisfied in case before it. The object sought to be achieved by the Rajasthan Jagirdars Debt Reduction Act,1957, was to reduce the debts secured on jagir lands which had been resumed under the provisions of the Rajasthan Land Reforms and Resumption of Jagirs Act. The Jagirdar s capacity to pay debts had been reduced by the resumption of his lands and the object of the Act was to ameliorate his condition. The fact that the debts were owed to a Government or local authority or other bodies mentioned in the impugned part of Section 2(e) had no rational relationship with this object sought to be achieved by the Act. Further, no intelligible principle underlies the exempted categories of debts. The Hon. Apex Court found the reason why a debt advanced on behalf of a person by the court of wards is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 13 14, states that the Legislature inserts every part of statute with a purpose the legislative intention is that every part thereof should be given effect to. If the words used are capable of only one construction, it is not open to court to adopt any other hypothetical construction on the ground that it finds it more consistent with the alleged object and policy of the Act. 175. Shri Khambatta has relied upon (1991) 3 SCC 442 Tribhovandas Haribhai Tamboli vs. Gujrat Revenue Tribunal another which in paragraph 8 points out the effect of a proviso which excluded the lands held on lease from the local authority from application of Bombay Tenancy Agricultural Lands Act, 1948. (1975) 2 SCC 791 . Carew and Company vs. Union of India, 4 judges bench of Hon. Apex Court explains how an undertaking for the purposes of Monopolies Restrictive Trade Practices Act, 1969 needs to be understood is also cited. There the Hon. Court in para 24 to 28 states that if two views are possible, one which advances the remedy and suppresses the evil must be adopted. 176. Shri Seervai relied upon (1976) 1 SCC 128. Dwaraka Prasad vs. Dwaraka Das Saraf . where the Hon. 4 Judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Committee, which has been authorised to adjudge all aspects. I may hasten to add that I am not at all delving into the sphere of suitability of a candidate or the eligibility, for in the case at hand the issue in singularity pertains to total non-compliance with the statutory command as envisaged under Section 85(5). 49. It is seemly to state that the aforementioned provision employs the term recommendation . While dealing with the concept of recommendation, a three-Judge Bench of this Court in A. Panduranga Rao v. State of A.P.28 has stated that the literal meaning of the word recommend is quite simple and it means suggest as fit for employment . In the present case the Selection Committee as per the provision was obliged to satisfy itself when the legislature has used the word satisfied . It has mandated the Committee to perform an affirmative act. There has to be recording of reasons indicating satisfaction, may be a reasonable one. Absence of recording of satisfaction is contrary to the mandate/command of the law and that makes the decision sensitively susceptible. It has to be borne in mind that in view of the power conferred on the State Commission, responsibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral public, .....-. 60. Section 18-AA(1)(a), in terms, requires that the satisfaction of the Government in regard to the existence of the circumstances or conditions precedent set out above, including the necessity of taking immediate action, must be based on evidence in the possession of the Government. If the satisfaction of the Government in regard to the existence of any of the conditions, (i) and (ii), is based on no evidence, or on irrelevant evidence or on an extraneous consideration, it will vitiate the order of take-over , and the court will be justified in quashing such an illegal order on judicial review in appropriate proceedings. Even where the statute conferring the discretionary power does not, in terms, regulate or hedge around the formation of the opinion by the statutory authority in regard to the existence of preliminary jurisdictional facts with express checks, the authority has to form that opinion reasonably like a reasonable person. 61. While spelling out by a construction of Section 18-AA(1)(a) the proposition that the opinion or satisfaction of the Government in regard to the necessity of taking immediate action could not be the subject of judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 3(2)(e) of the Indian Electricity Act 9 of 1910 as amended by the U.P. Act 30 of 1961, where the language used is similar to Section 10(3)(c) of the Passports Act, this Court held that when the Government exercises its power on the ground that it deems such supply necessary in public interest if challenged, the Government must make out that exercise of the power was necessary in the public interest. The Court is not intended to sit in appeal over the satisfaction of the Government. If there is prima facie evidence on which a reasonable body of persons may hold that it is in the public interest to supply energy to consumers the requirements of the statute are fulfilled. In our judgment, the satisfaction of the Government that the supply is necessary in the public interest is in appropriate cases not excluded from judicial review. The decisions cited are clear authority for the proposition that the order passed under Section 10(3)( c ) is subject to a limited judicial scrutiny. An order under Section 10(3)( c ) though it is held to be an administrative order passed on the subjective satisfaction of the authority cannot escape judicial scrutiny. The Attorney-General fairly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers will clash. It would be defeatism to take the view that in our country men would not be available to work these powers smoothly and in the best interests of the people and without producing friction. I sincerely hope that what has happened will never happen again and our Constitution will be worked by the different organs of the State amicably, wisely, courageously and in the spirit in which the makers of the Constitution expected them to act. 184. Observations of Hon. Apex Court in Subhash Popatlal Dave vs. Union of India (2014) 1 SCC 280 show that. 35. This Court consistently held that preventive detention does not partake in any manner of the nature of punishment but taken by way of precaution to prevent mischief to the community 14. Therefore, necessarily such an action is always based on some amount of suspicion or anticipation . Hence, the satisfaction of the State to arrive at a conclusion that a person must be preventively detained is always subjective. Nonetheless, the legality of such subjective satisfaction is held by this Court to be amenable to the judicial scrutiny in exercise of the jurisdiction conferred under Articles 32 and 226 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act,3 of 1911. In matter before us, the object of S. 140(5) is not the same as in S. 132 of the 2013 Act. 186. We find the arguments by the petitioners on classification between the Company Auditors on one hand the Directors or Officers of the company on the other hand misconceived because of unique position of CA qua the Company and status of the Directors or the office bearers of such Company. The directors or the officers of such company must identify themselves with its affairs while the CA has to be aloof neutral. 187.- In A.N. Parsuraman and another vs. State of Tamilnadu (1989) 4 SCC 683, in para 8, the Hon. Apex Court finds that the executive was given wide discretion in the matter of choice of competent authority in picking and choosing an institution for exemption from the Tamilnadu Private Educational Institutions (Regualation) Act, 1966. It can not be said about S. 140(5) where the power to order the change to CA is conferred upon NCLT a quasi-judicial Tribunal which has to follow the 2017 Rules. There the norms for refusing or grant of permission were also not prescribed and every thing depended upon the executive's whim caprice. Here, NCLT has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, notwithstanding the widest scope provided to an appeal. In such a case, after the blow suffered by the initial decision, it is difficult to contemplate complete restitution through an appellate decision. And, therefore, there is manifest need to ensure that there is no breach of fundamental procedure in the original proceeding, and to avoid treating an appeal as an overall substitute for the original proceeding. 190. Opportunity to Cross-Examine and supply of Documents is also a relevant facet. Adv. Khambatta has relied upon (2012) 7 SCC 56. P. Sanjeeva Rao vs. State of Andhra Pradesh and (2010) 6 SCC 1- Sidartha Vashissht vs. State (NCT of Delhi) to press imporatnce of supplying the documents of cross-examination in such matters. As we find debarment or disqualification under S.140(5)- second proviso, getting attached automatically due to the statutory scheme, we find this argument unwarranted at this stage. NCLT has its own Rules rule 34 also enables it to devise suitable procedure to meet the principles of natural justice. 191. To understand why doctrine of double jeopardy is not attracted, difference between the disqualification punishment also need to be bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r private like cooperative societies. Prosecution for the conduct leading to such disqualification may also be additionally provided for in same law or other law. 193. We find that the Companies Act, 2013 sets out one more disqualification for the Chartered Accountant who has volunteered become a Company Auditor. When there are already provisions therein for disciplinary action and for offences, this measure for disqualification needs to be strictly construed in the perspective in which it finds place in the scheme of 2013 Act. The Companies Act, 2013 itself contains a provision like S. 132 for disciplinary proceedings against such CAs in appropriate cases. Not only this the criminal prosecution is also prescribed vide its S. 447. But considering the important position which such CA ie company auditor occupies, in deserving cases, the Parliament has found it necessary to provide for his immediate removal. It is like an employer suspending the employee whenever the facts warrant it. It may also be compared with a private litigant replacing his lawyer if he doubts anything. Vide S.140(5), an interim arrangement has been made and the Company can be asked to change such company au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds. He can resign though company hiring him may attempt to oppose NCLT thereby rendering the objections of the company in NCLT nugatory. Because of this salutary object in adding S. 140(5) to the 2013 Act, procedure as elaborate as followed by NFRA is not prescribed there. Though NCLT Rules give same powers as NFRA to NCLT, very rarely there should be or would be an occasion to take recourse to it as any self respecting CA or Company will find themselves not free to raise frivolous or false pleas in defence and the selfesteem would force them to honorably part company with each other. 197. In the light of the above, we find it appropriate to mention the relevant findings which crystalize out of our deliberations in the matter. I. Thus one can not overlook the fact that the Parliament in 2013 Act made provision for NFRA to consider the cases of professional misconduct and for a criminal trial under its S. 447, an agency like NCLT formed under S. 408 has been given a power to issue a direction to change the CA. It is also apparent that NCLT has not been given power to debar or disqualify or impose any punishment on such CA. II.. Proviso to S. 132(4)(a) of 2013 Act shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses to pass a special resolution is not prohibited from resigning after following the prescribed procedure. That option is not denied to also available to CA when NCLT initiates the exercise towards directing the company to change him. XII. In legal disputes or controversies, NCLT is better placed or then superior authority in the scheme of 2013 Act when compared with NFRA. Purpose of this power given to it is not to expose the CA to one more disciplinary measure. The power under S.140(5) is more of curative nature. XIII. When the 2013 Act recognizes ICA (Institute of the Chatered Accountants) as the disciplinary body to regulate the profession of CA and its power to punish erring CA, and then gives power to NFRA to proceed against CA in specified cases as also to punish, it is difficult to hold that very same power can be read in S. 140(5) with NCLT. The Parliament can not be presumed to have created multiple agencies with same power. However as NCLT steps in to break the unholy nexus between the company CA, the Parliament has felt need to give effect to it immediately. Parliament has therefore restricted the debarment only in matters where the CA does not realize th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that considering the consequences emanating from scheme of S. 140(5), it needs to be strictly construed. It contemplates change of CA as a final order. The order therefore must be executable (executory) and if the CA has already ceased to be such CA, that final order can not be passed as he can not be or need not be changed. XXII. If despite such CA ceasing to be the CA of concerned Company, need for passing of a final order to change him is read into scheme of S. 140(5), it would overlook the absence of need to pass final order and violate its language. NCLT has been given the discretion whether to pass that final order or not, even after reaching the satisfaction and legislative wisdom behind it will be lost. It will introduce a discordant note in the scheme of S. 140 itself. XXIII. Second proviso speaks of a final order and question is whether it needs to be construed in contradistinction with first proviso which contemplates passing of an urgent order within 15 days on application of Central Government prohibiting the suspect auditor to continue with audit work thereby enabling the Central Government to substitute him. This order under first proviso, accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial expertise, and not to NFRA. While looking into other disputes relating to oppression, mismanagement, amalgamation, merger etc it may come across instances where the company the CA have colluded together and hence, the company may not remove him under S.140(1) CA may not resign under S.140(2). Thus NCLT may also force such unwilling partners to part company in appropriate cases. XXXI. Threat of disqualification is only to expedite the change of CA as the satisfaction which triggers said jurisdiction is of a superior authority like NCLT. Intention is not to punish, but to prohibit a CA with prima facie dubious record to continue and to see that concerned Company appoints another CA of its choice as per law. XXXII. Satisfaction of NCLT which triggers direction to change CA under section 140(5) is not of same standard as required by the words where professional or other misconduct is proved in S. 132 which exposes the CA to punishment for professional misconduct. XXXIII. Proof under S. 132(4)(c) obliges a finding reached in adherence to well settled principles after due procedure which can be objectively evaluated. Satisfaction under S. 140(5) may not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive part of S. 140(5) does not imply that once the satisfaction is reached by NCLT, it has to mechanically pass the final order in every case and a direction to change the CA must be issued. This word may can not mean shall . Only situation in which the final order may not be passed is ceasing of the subject CA as company auditor of that particular company. XXXVII. Second proviso to S. 140(5) needs to be construed in this background. It accepts the fact that NCLT may not be required to pass final order in all cases. It therefore only operates when NCLT after giving an opportunity to effect change, is required to pass final order against CA ie over-rule his objection direct the Company before it to change him. If this hearing and order is avoided, said second proviso will never be attracted at all. This debarment is a more stringent measure since it is qua all other companies and not restricted to one company before NCLT. Additionally, such final order also exposes him to possibility of prosecution under S. 447. XXXVIII. In suitable cases, even after such change of CA, the earlier CA, Company its directors or the officers can be proceeded against under S. 132, S.44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or CA to meet the subjective satisfaction but it comes at the risk of disqualification for CA as stipulated in second proviso. XLIV. Operation of the second proviso is not controlled by the NCLT whose job is over after it passes final order of changing the CA. Parliament has devised a mechanism to expedite that action and chosen to fasten the disqualification its period, both statutorily, without leaving any scope for discretion in any body. It therefore is not like a punishment which can be imposed at the end of the disciplinary proceedings for an established professional misconduct or for a proved criminal offence, at he end of trial. There the disciplinary authority or the Court has choice to select the nature or quantum of punishment. XLV. It is obvious that as CA is not to be dealt with or punished under S. 140(5), he is being replaced only in case of a company where the NCLT is satisfied about the need to replace. While devising a mechanism to accelerate the change, the Parliament could not have forced companies not party before NCLT to change such CA and it could not have ordered CA to give up all existing assignments. Therefore only the debarment or disqualific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, can not resign. Such resignation does not lead to any debarment or disqualification in his practice as CA. L. Submission of Shri Khambatta that NCLT being creature of statute must act within four corners of law can not exercise jurisdiction in its excess and also it can not assume the jurisdiction by taking recourse to the deeming fiction about the Company Auditor continuing in office and available for disqualification of debarment despite being rotated out or having resigned, also appears to be well founded. Judgment of Hon. Apex Court in B. Himmatlal Agrawal vs. Competition Commission of India 2018 SCC online SC 574 in para 8 supports this contention. LI. The very fact that subjective satisfaction reached by NCLT is not expected by the Parliament to always translate itself into an order of change of CA, points out the necessity to consider the intervening events like the resignation of subject CA. If conduct which led NCLT to reach its satisfaction are only determinative liability on the CA gets fastened on said date, there was no reason for the Parliament to confer such discretion. Contentions revolving round the date of initiation of that action by NCLT, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to contend that such provisions prescribing the detailed procedure are mandatory even before NCLT. Power given to NCLT is extraordinary, calls for exercise expeditiously and NCLT has its own Rules to govern the proceedings before it. The CA concerned can always make appropriate prayers demand such opportunity as felt fit by him. Grievance about the difference in procedure prescribed for misconducts in 2013 Act or the Chartered Accountants Act on one hand and the procedure under S. 140(5) on the other hand, therefore is misconceived. The CA aggrieved by denial of any opportunity, can always point out the prejudice suffered. We therefore do not find it necessary to dwell upon the details of other procedures including the charts comparing it made available by the Petitioners to drive home their contention. Contention that High-Court while functioning as company court had the statutes like CPC, Company Court Rules or the Appellate Side Rules to guide it while NCLT does not have the same, is not at all relevant. Suraj Mall Mohta and Co. vs. A. V. Visvanatha:(supra-paragraph Nos.2, 14 and 15) relied upon by Advocate Robin Jaisinghani to highlight importance of uniform procedure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon. Apex Court states that the order can be final if it affects the rights of the parties to dispute. We find that the lis which is required as precondition in such case and its adjudication is lacking in the scheme of S. 140(5). Debarment is the mandate of law and NCLT does not have any control on it. NCLT proceeding as if the debarment is the object behind S. 140(5) and using the theory of deemed continuation of the CA though he had been rotated out or resigned, therefore is an error apparent which must be corrected in exercise of its extraordinary jurisdiction by this Court. 198. Discussion undertaken by us our findings supra show the object behind enacting S.140(5) of 2013 Act. It is sufficient to see that effort to work out inconsistency between S. 140(5) of 2013 Act the Limited Liability Partnership Act, 2008 by one of the petitioners can not be countenanced. The petitioners themselves point out that the Company Law Committee set up by MCA in its report issued on 14.11.2019 explained that debarment of a firm has to be an exception rather than a rule. 199. The submissions on double jeopardy that the other proceeding need not be before the court of law, judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out the Directors of the Company or its office bearers? Is it bad since it allows pick choose between the CAs and the Directors of the Company or its office bearers? Is it arbitrary as it does not contain procedural safeguards?, are also answered supra by us. It is seen that debarment under S. 140(5)-2nd proviso can not be seen as quasi-criminal. 201. Normally as per S. 210 of 2013 Act, the investigation into affairs of the company can be conducted by the Central Government through the Inspectors appointed by it. For the present controversy following sections in the 2013 Act assume importance. Section-211. Establishment of Serious Fraud Investigation Office.- (1) The Central Government shall, by notification, establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company: Provided that until the Serious Fraud Investigation Office is established under sub-section (1), the Serious Fraud Investigation Office set up by the Central Government in terms of the Government of India Resolution No. 45011/16/2003-Adm-I, dated 2nd July, 2003 shall be deemed to be the Serious Fraud Investigation Office for the purpose of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation has already been initiated, it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act to Serious Fraud Investigation Office. (3) Where the investigation into the affairs of a company has been assigned by the Central Government to Serious Fraud Investigation Office, it shall conduct the investigation in the manner and follow the procedure provided in this Chapter; and submit its report to the Central Government within such period as may be specified in the order. (4) The Director, Serious Fraud Investigation Office shall cause the affairs of the company to be investigated by an Investigating Officer who shall have the power of the inspector under Section 217. (5) The company and its officers and employees, who are or have been in employment of the company shall be responsible to provide all information, explanation, documents and assistance to the Investigating Officer as he may require for conduct of the investigation. (6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), [offence covered under Section 447] of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, having jurisdiction: Provided that the period of twenty-four hours shall exclude the time necessary for the journey from the place of arrest to the Magistrate s court. (11) The Central Government if so directs, the Serious Fraud Investigation Office shall submit an interim report to the Central Government. (12) On completion of the investigation, the Serious Fraud Investigation Office shall submit the investigation report to the Central Government. (13) Notwithstanding anything contained in this Act or in any other law for the time being in force, a copy of the investigation report may be obtained by any person concerned by making an application in this regard to the court. (14) On receipt of the investigation report, the Central Government may, after examination of the report (and after taking such legal advice, as it may think fit), direct the Serious Fraud Investigation Office to initiate prosecution against the company and its officers or employees, who are or have been in employment of the company or any other person directly or indirectly connected with the affairs of the company. (15) Notwithstanding anything contained in this Act or in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... government has to examine investigation report it may then direct the IO to initiate prosecution. VI. Under S.212(15) such investigation report filed in Special Court by SFIO is deemed to be a report filed by the police officer under S. 173 of CrPC. VII. In this backdrop, it will not be proper to appreciate the situation in the light of S. 173 CrPC. There is nothing in S. 212 of 2013 Act to demonstrate that interim report under S. 212(11) can not be an investigation report. When the Central Government calls for the interim investigation report, there is nothing in S. 212(14), which prohibits the Central Government from considering it. VIII. Though our attention has been drawn to the portions of report which states that investigation into affairs of other companies or into cross-check or cross linkages in their accounts is still not over, that by itself does not mean that said report is incomplete not conclusive on any facet of the crime. If there are large number of accounts/entries to be verified, a report after investigation into some entries stating that the fraud has been committed, can not be viewed as incomplete or inconclusive. If such few instances of fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one after the other, which appears to be highly improbable. The processing note would not absolve the concerned officer of his obligation to apply mind personally therefore verify the correctness of the appreciation in the processing note itself. Again, the respondents do not plead that the officer(authority) who acted on behalf of the Central Government, was already associated with the investigation and hence, was in position to appreciate the SFIO's interim report fast with the help of other officer who is alleged to have prepared a processing note. XV. Superior nature of responsibility cast upon that officer/authority degree of care to be taken is demonstrated by the provision made by the Parliament for obtaining the legal advise before taking such decision on the report of the SFIO. XVI. It therefore follows that report perused by the Central Government and persuading it to issue the direction , therefore only must be filed for framing of charges. XVII. Respondent SIFO admits that the Court has not taken cognizance of the report. In these facts, if cognizance is not taken, the Court may not have power to remand the detention of the Petitioner direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in less than 30 hours after receipt of a 732 page report of SFIO with about 32,000 pages as annextures, can be examined in the light of observations of Hon. Apex Court in para 18 of ( 2018) 6 SCC 676 K.K. Mishra vs. State of Madhya Pradesh. Paragraphs 10 to 15 of (1995) 5 SCC 302 Aniruddhasinghji Jadeja vs. State of Gujrat also show an instance of non-application of mind. (1997) 7 SCC 622Mansukhlal Vithaldas Chauhan vs. State of Gujrat, paragraphs 17 to 19 show the effect of non-application of mind and how it vitiates the sanction itself and the prosecution has to fall to ground. 1948 ILR 316 PC-Gokulchand Morarka vs. King Emperor at pages 326 328 are also relied upon to urge that the sanction is a condition precedent for prosecuting the petitioners. If sanction is defective, the trial court does not become a court of competent jurisdiction. Support is also drawn from AIR 1949 PC 264. Yusofalli Mulla vs. King Emperor para 15. (1979) 4 SCC 172. Mohd. Iqbal Ahmed vs. State of A.P. para 3 to urge that case without proper sanction is void ab initio , (2000) 8 SCC 500- Abdul Wahab Ansari vs. State of Bihar, para 7 8 which is case of no sanction, (2005) 8 SCC 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming of charge as report under S. 173 CrPC. Hence, this precedent or other judgments need not be gone into. 207. We find that effort made to distinguish the cases of no sanction and defective sanction or reliance upon (2007) 1 SCC 1- Praksh Singh Badal by Adv. Venegaonkar is misconceived here. State of Punjab and Anr. vs. Gurdial Singh and Ors.: (1980) 2 SCC 471 paragraph 9, shows that whenever power is abused or the colourable exercise is appearent, that exercise must be seen as non-existent. Order dated 29/5/2019 is therefore void and therefore it is not existing. Action initiated on the basis is therefore void and unsustainable. 208. Adv. Ponda for the petitioner Director has submitted that the sanction or approval sought by SFIO is not to the final report but to an interim report and this step by SFIO as also respondent no. 1 Union of India through MCA is fraud on S. 212 (12) (14). The fact that a report has been prepared by SFIO and made over to the MCA is not in dispute. Respondent no. 1 Union of India claims that it has considered it and directed SFIO to lodge the prosecution. This direction dated 29.5 2019 is also on record. 209. Report made over to UOI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IO would of its own, file any report of incomplete investigation. Alleged processing note prepared by somebody to facilitate its consideration is also not given to the petitioners despite demand. These documents are not produced before us also to help us to understand the situation. Petitioners therefore have rightly argued asked this Court to draw adverse inference against the respondent no. 1. In proceedings before NCLT, the MCA has described this report as an interim report. Various judgments have been cited to demonstrate that this admission of the status of report is conclusive while the respondents argue otherwise. SFIO states that description of his report by MCA does not estopp him from urging that it is not an interim report and from placing the truth before any Court or Tribunal. 211. Above rather confusing state of affairs shows the unwillingness on part of the respondents to bring on record the best evidence viz. material which will result in clarifying the facts and instead, an attempt to project the same using some adjudicatory principles. It is humanly impossible to read appreciate such a large report of the SFIO, apply mind give the appropriate directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rPC to the proceedings before such special Court and it reds- 438. Application of Code to proceedings before Special Court.- Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be 1[deemed to be a Court of Session or the court of Metropolitan Magistrate or a Judicial Magistrate of the First Class, as the case may be,] and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor. It is seen that such proceedings before the special court commence here after the directions u/s. 212 (14) to SFIO when SFIO files a report in such special court. This report shall be after completion of investigation by SFIO. Such report shall make out a case for framing of charge. CrPC applies to proceedings before the Court and there is no express provision extending it to the investigation by SFIO in Chapter XIV of 2013 Act. 216. Chapter XIV in 2013 Act deals with Inspection, Inquiry Investigation. Powers conferred thereunder to call for information, to inspect book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt had occasion to review the entire case law on the subject in Union of India v. Nirala Yadav 11 . In that decision, reference was made to Uday Mohanlal Acharya v. State of Maharashtra 12 and the conclusions arrived at in that decision. We are concerned with Conclusion (3) which reads as follows: (Nirala Yadav case 11, SCC p. 472, para 24) 13. (3) On the expiry of the said period of 90 days or 60 days, as the case may be, an indefeasible right accrues in favour of the accused for being released on bail on account of default by the investigating agency in the completion of the investigation within the period prescribed and the accused is entitled to be released on bail, if he is prepared to and furnishes the bail as directed by the Magistrate. ( Uday Mohanlal case12, SCC p. 473, para 13 ) 38. This Court also dealt with the decision rendered in Sanjay Dutt9 and noted that the principle laid down by the Constitution Bench is to the effect that if the charge-sheet is not filed and the right for default bail has ripened into the status of indefeasibility, it cannot be frustrated by the prosecution on any pretext. The accused can avail his liberty by filing an appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held in Bairam Muralidhar case . Hon. Court observed that therefore the conviction of the appellant-K.K. Mishra and the sentence imposed would not have any legs to stand. As the very initiation of the prosecution was found to be untenable in law, merely because the trial ended in the conviction of the appellant and the appeal was pending before the High Court, it would not come in the way of Supreme Court interdicting the same. The special and extraordinary jurisdiction under Article 142 of the Constitution of India was used to quash the impugned prosecution/proceedings including the appeal pending before the High Court. 220 . Aniruddhasinghji Jadeja vs. State of Gujrat (supra) is the case where the DSP did not exercise the jurisdiction vested in him by the statute and did not grant approval to the recording of information under TADA in exercise of his discretion but it was found to be a clear case of exercise of power on the basis of external dictation. 221. Mansukhlal Vithaldas Chauhan vs. State of Gujrat, paragraphs 17 to 19 show the effect of non-application of mind and how it vitiates the sanction itself and the consequential prosecution has to fall to ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. 224. We have considered all the relevant arguments advanced before us by the respective learned counsel with the necessary case law. Parties have argued at length orally have also, in addition, placed the brief written notes with case-law. We have also narrated their arguments to the extent necessary and attempted to avoid prolixity in the backdrop of our findings. As the prayers in the writ petitions are not identical, we proceed to pass the final orders. 225.. :ORDER:. In the light of this discussion, we proceed to pass the following orders in these writ petitions:. WP 4144 4145 OF 2019. A. S. 140(5) of the Companies Act, 2013 is not unconstitutional and hence, prayer cl. (a) is rejected. B. Company petition no. 2062 of 2019 filed by Union of India (MCA) before NCLT on 10th June 2019 is held not tenable qua these petitioners after M/s BSR resigned as statutory auditors of IFIN on 19/06/2019. C. Order dated 09/08/2019 passed by the NCLT rejecting the objection of the petitioner dated 14/07/2019 is quahed set aside to that extent. MA 2505 2506 of 2019 filed by these Petitioners in NCLT are accordingly allowed. D. Direction under S. 212(14) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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