Vicarious criminal liability of audit partner requires firm arraignment and specific allegations; complaint quashed for lack of particulars.

Gujarat HC held that criminal prosecution of a partner of an audit firm under the Companies Act, 2013 cannot proceed on a bare complaint where the firm is not arraigned and the pleadings do not contain specific averments of the partner's personal involvement, fraudulent conduct, abetment, or collusion. Alleged non-disclosure of related party transactions in the audit report, even with reference to Accounting Standard 18, was insufficient to sustain vicarious criminal liability against the partner in his individual capacity. The court also noted that the accounting standard itself defined the relevant relationship concept, and the prosecution's demand for a separate articulation of the degree of relationship was not warranted. The complaint was therefore quashed.

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Issues: Whether criminal complaints against a partner of an audit firm, without arraigning the firm as an accused and without specific allegations of personal role or fraudulent conduct, disclose a prosecutable offence under the Companies Act, 2013; whether the alleged non-disclosure in the audit report concerning related party transactions, viewed in light of Accounting Standard 18, warrants criminal prosecution under Sections 143 and 147 of the Companies Act, 2013.

Analysis: The complaint and the show-cause material showed alleged non-compliance in the audit reporting of related party transactions, but the proceedings were initiated against the partner in his individual capacity and not against the audit firm. Liability of a partner of an audit firm under the Companies Act requires the statutory basis for fastening such liability and the complaint must contain specific allegations showing the partner's personal involvement, fraudulent conduct, abetment, or collusion. In the absence of arraignment of the firm and in the absence of particularised averments against the petitioner, the complaint could not sustain vicarious criminal liability. The court also noted that the relevant accounting standard defined the expression relating to relatives, and the audit disclosure did not require separate articulation of the degree of relationship in the manner suggested by the prosecution.

Conclusion: The complaint against the petitioner was not maintainable and was liable to be quashed.

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