TaxTMI 
TaxTMI 
2010 (9) TMI 217
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....ana Bhagwat Singhji Mewar who was the promoter of two companies, namely, Lake Palace Hotels & Motels Pvt. Ltd. (LPHM) and Lake Shore Palace Hotels Pvt. Ltd. (LSPH). LSPH holds 49% equity shares in LPHM. The appellant is a shareholder of LSPH as well as LPHM and, therefore, claims to be interested in the affairs and management of both the said companies. The respondent No.2, a Chartered Accountant, is the auditor of LPHM. 2. The appellant-petitioner ("the appellant") filed a Company Petition No.1/1991 in the High Court of Rajasthan at Jodhpur under sections 397 and 398 of the Companies Act, 1956 (for short "the 1956 Act"). On 23-11-1994, the company court appointed Maharaj Kumar Raj Singhji and Maharaj Kumar Samar Singhji as Directors of ....
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....plaint under section 21 of the Chartered Accountants Act, 1949 (for brevity 'the CA Act') against the respondent No.2 before the Council of the Institute of Chartered Accountants of India (ICAI) alleging that the respondent No.2 had violated the Code of Conduct of Chartered Accountants as formulated by the ICAI as well as the circular No.14/51/62-PR of the Department of Company Affairs. It was alleged that the partnership firm of the respondent No.2 was the statutory auditor of LPHM which was a subsidiary of LSPH and, therefore, while continuing to be an auditor of LPHM, he could not have acted as a Director of LSPH. It was urged that the said continuance constituted 'professional misconduct' as specified in the First and Second Schedules t....
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.... the respondent No.2 stood disqualified to continue as an auditor of LHPM in view of clause (11) of Part I of the First Schedule of the CA Act. The learned Single Judge referred to the said provision and, after interpreting the same, came to hold that the respondent No.2 is an auditor of LHPM which is a separate corporate entity although a subsidiary of LSPH and, therefore, the respondent No.2 is not an auditor of LSPH. Since the respondent No. 2 is not an auditor of LSPH, there is no bar to be appointed as Director of LSPH in terms of the proviso to clause (11). Being of this view, she concurred with the order passed by the ICAI. Quite apart from the above, the learned Single Judge referred to the circular of the Department of Company Affa....
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....as an auditor of LPHM in view of clause (11) of Part I of the First Schedule of the CA Act. The said clause reads as under : "(11) engages in any business or occupation other than the profession of chartered accountants unless permitted by the Council so to engage : Provided that nothing contained herein shall disentitle a chartered accountant from being a director of a company, unless he or any of his partners is interested in such company as an auditor." 8. The learned Single Judge, in paragraph 13, has held thus: "13. The substantive portion of Clause 11 is attracted if a chartered accountant 'engages in any business or occupation' other than 'profession of chartered accountants' without the permission of the council. The app....
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.... to Clause 11. Consequently, the ICAI was not in an error in coming to the prima facie conclusion that Respondent No. 2 was not guilty of any professional misconduct." 9. We have reproduced the said paragraph to understand and appreciate the approach of the learned Single Judge. On a perusal of clause (11), it is quite vivid that the respondent No.2 was not a whole-time director of LSPH; he was not engaged in any business or occupation and, therefore, the First part of the clause does not get attracted to his case. As far as the proviso is concerned, a Chartered Accountant is not disentitled from becoming a director of a company. The only rider is that he should not be interested in such company as an auditor. The terms which have been l....