Stigmatic discontinuance of a statutory auditor requires prior hearing before adverse allegations are acted upon.

Discontinuance of a statutorily appointed auditor based on allegations of delay, lack of professionalism, or adverse conduct is stigmatic where it affects reputation and goodwill. In that situation, the Reserve Bank of India must act fairly and reasonably and give the affected auditor a meaningful opportunity to respond before acting on the allegations. The text notes that acting on the bank's adverse letter without supplying it to the auditor for comment violates the principles of natural justice and renders the discontinuance unsustainable. The matter also indicates that future consideration for appointment remains subject to the applicable norms.

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Issues: Whether the discontinuance of the petitioner firm as statutory central auditor for the limited quarterly review was stigmatic and, if so, whether it could be sustained without compliance with the principles of natural justice.

Analysis: The appointment and discontinuance of statutory central auditors of public sector banks is controlled by the Reserve Bank of India under the Banking Regulation Act and the banking acquisition statutes, and the process is intended to secure competent and independent audit. Where discontinuance follows a bank's complaint alleging delay, lack of professionalism, and adverse conduct, the decision cannot be treated as a routine administrative adjustment if the language used carries a stigma affecting reputation and goodwill. In such a case, the Reserve Bank of India is bound to act fairly and reasonably and to afford the auditor a meaningful opportunity to meet the allegations before acting on them. Here, the adverse allegations in the bank's letter were accepted and acted upon without supplying that letter to the petitioner for comment.

Conclusion: The discontinuance was stigmatic and was violative of the principles of natural justice. It was therefore illegal and could not be sustained.

Final Conclusion: The impugned action was set aside, and the petitioner's future consideration for appointment as statutory central auditor was left to be decided under the applicable norms.

Ratio Decidendi: Discontinuance of a statutorily appointed auditor on the basis of allegations touching competence or integrity is invalid unless the affected auditor is first given a fair opportunity to answer the accusations.

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