2019 (10) TMI 1329 - Tri - Companies Law

Tribunal appoints Mukund M. Chitale & Co. as Statutory Auditor for IL&FS Financial Services Ltd

Union of India, MCA Versus Deloitte Haskins & Sells LLP and Ors.

The Tribunal allowed the application, appointing Mukund M. Chitale & Co. as the Statutory Auditor for IL&FS Financial Services Ltd for the ... Appointment of statutory auditor - Section 140(5) of the Companies Act, 2013 - HELD THAT:- IFIN had itself inadvertently initiated the process for appointment of M/s. M. M. Chitale & Co as Statutory Auditor of IFIN under Section 140(5), but later company accepted its fault and requested the Statutory Auditor that inadvertently letter was issued regarding engagement of M. M. Chitale & Co., whereas letter should have been sent to MCA and the Union of India ,MCA was only authorized to submit an application to NCLT under Section 140(5) of the Act, and after getting sanction of NCLT, Union of India was authorized to appoint statutory auditor. It is also clear from the email correspondence dated 21.7.2019 8:38:05 p.m. that statutory Auditor firm sent a mail to IFIN informing that considering the facts brought out by the email dated 18.7.2019 Statutory Auditor firm submitted that it would be appropriate for the company to obtain a letter from MCA for our firm as statutory auditor for IL&FS Financial Services Ltd for the FY 2018-19 as per Section 140(5) of the Companies Act, 2013. Thus, it is clear that when statutory Auditor got to know that power for the appointment of new auditor under Section 140(5) lies with the Union of India and the Company has inadvertently issued engagement letter instead of suggesting the name to the Ministry of Corporate Affairs. The Statutory Auditor firm suggested the company to obtain an appointment letter from MCA for its firm to be appointed as Statutory Auditor for IL&FS Financial Services Ltd. It is crystal clear that IFIN which had itself initiated the procedure for appointment of Statutory auditor and after that appointed M.M. Chitale & Co as Statutory Auditor, has not started the job and suggested to the company to obtain appropriate letter from MCA for being appointed as the Statutory Auditor - the Statutory Auditor even though appointed under Rules could not start functioning as Statutory Auditor of IFIN on account of legal hurdles of Section 140(5) of the Companies Act, which only empowers Union of India to appoint Statutory Auditor. It is pertinent to mention that R2 contends that after filing the Company Petition No.2062/2019, R2, BSR & Associates LLP, who were the Statutory Auditors for IFIN for the year 2019-2020, resigned on 19.6.2019 and prior to appointment of BSR & Associates, earlier auditor Deloitte Haskins & Sells LLP retired automatically after 2017-18 as per statutory provisions. It is undisputed that first proviso to Section 140(5), authorises Union of India to change or appoint the auditor. It is also clear that company initiated the proceedings for appointment of Mukund M Chitale & Co as statutory auditor of the company and procedure was finalised for appointment. However, Statutory Auditor appointed by Company showed its inability to take up the assignment for want of sanction from Union of India. It is also important to mention that under first proviso to Section 140(5), only Union of India is authorised to appoint statutory Auditor of the company. Since the Statutory Auditor appointed by the Company on account of vacancy created by BSR & Associates has expressed its inability to take up the assignment, without getting the consent of Union of India. In the situation which has arisen on account of Showed inability by the Statutory Auditor, the Union of India got liberty to appoint Statutory Auditor of the Company. There are sufficient grounds for appointment of M/s. M. M. Chitale & Co. as Statutory Auditor of the Company - the appointment of Statutory Auditor made by the company shall be considered as an appointment of Statutory Auditor under first proviso to Section 140(5) of the Companies Act 2013. Application allowed. Issues Involved:1. Appointment of Statutory Auditor for IL&FS Financial Services Ltd (IFIN) under Section 140(5) of the Companies Act, 2013.2. Maintainability of the Company Petition No.2062/2019.3. Compliance with interim orders from the Hon'ble High Court of Bombay and the Hon'ble Supreme Court of India.4. Jurisdiction and authority under Section 140(5) of the Companies Act, 2013.5. Contempt of court allegations regarding the appointment process.Issue-wise Detailed Analysis:1. Appointment of Statutory Auditor for IL&FS Financial Services Ltd (IFIN) under Section 140(5) of the Companies Act, 2013:The applicant sought the appointment of Mukund M. Chitale & Co. as the Statutory Auditor for IFIN for the Financial Year 2018-19 onwards, under the First Proviso to Section 140(5) of the Companies Act, 2013. This request was based on the resignation of BSR & Associates LLP, the previous auditors, and the need to fill the resultant vacancy. The Hon'ble Supreme Court had granted liberty to move an application for such an appointment, recognizing the necessity to avoid prejudice to the company's interests.2. Maintainability of the Company Petition No.2062/2019:The Tribunal had previously upheld the maintainability of Company Petition No.2062/2019, despite challenges from some respondents. This decision was affirmed via an order dated 9.8.2019. The respondents subsequently appealed to the Hon'ble NCLAT, which allowed the Tribunal to proceed with the petition but restrained it from passing any orders against the appellants during the pendency of the appeals.3. Compliance with interim orders from the Hon'ble High Court of Bombay and the Hon'ble Supreme Court of India:The Hon'ble High Court of Bombay, via an interim order dated 4.9.2019, restrained further proceedings under Section 140(5) against the petitioners and prohibited coercive action. The Hon'ble Supreme Court, in its order dated 26.9.2019, acknowledged the need for a fresh appointment of auditors and granted liberty to move an appropriate application before the NCLT. The Tribunal noted that compliance with these orders did not constitute contempt, as the steps taken were within the scope of the liberty granted by the Supreme Court.4. Jurisdiction and authority under Section 140(5) of the Companies Act, 2013:The Tribunal emphasized that under the First Proviso to Section 140(5), only the Union of India is authorized to appoint or change the auditor. The company's initial appointment of Mukund M. Chitale & Co. was invalidated due to the lack of Union of India's sanction. The Tribunal clarified that the Union of India had the authority to appoint the auditor, and the company's actions were corrected to align with legal provisions.5. Contempt of court allegations regarding the appointment process:The respondents argued that any order appointing a new auditor would violate the interim orders of the Hon'ble High Court and the Hon'ble Supreme Court. However, the Tribunal found that the Supreme Court's order explicitly allowed for the appointment process to continue, provided it was done promptly and in accordance with the law. Therefore, the Tribunal concluded that there was no contempt of court in proceeding with the appointment.Conclusion:The Tribunal allowed MA 3254/2019 in CP 2062/140(5)/2019, thereby appointing Mukund M. Chitale & Co. as the Statutory Auditor for IL&FS Financial Services Ltd for FY 2018-19. The appointment was validated under the First Proviso to Section 140(5) of the Companies Act, 2013, as authorized by the Union of India. The Tribunal ensured compliance with the orders of the Hon'ble High Court and the Hon'ble Supreme Court, thereby addressing all legal and procedural concerns.