TaxTMI 
TaxTMI 
2017 (4) TMI 674
X X X X Extracts X X X X
X X X X Extracts X X X X
....esent application is filed against the illegal removal of Petitioner, who was originally appointed as auditor of Respondent No.2 Company under Section 139 of the Companies Act, 2013 by Respondent No.2, in collusion with Respondent no. 1 and in gross violation of Sections 140 and 134 of the Companies Act, 2013 and prevailing rules thereunder. 3. The brief facts of the case as averred in the petition are as follows:- a. Respondent No.2 Company was originally incorporated under the Companies Act, 1956 on 26.08.1998 with Registration No.01-30017 (CIN U72200TG1998PTC030017). b. The main objects of the R2 Company are to carry on and to design and develop for export software programs, databases and computer related products in any media or medium for various organisations including business organisations, government agencies, etc. c. The Respondent No.2 Company originally appointed the Petitioner firm as an auditor of Respondent No.2 Company at the Extra-ordinary General Meeting held on 07.11.2014 for the financial year 2014-15 and filed notice of such appointment Form ADT-1 SRN S34241471 on 02.12.2014 with the RoC, Hyderabad. d. Further, the R2 Company appointed the Petiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sought 'no objection' from the Petitioner firm to enable them to accept the said appointment. i. It is submitted that Rl firm committed breach of trust, unethical professional practices by misusing the confidential information and taking undue advantage of relationships gained and developed with the clients of Petitioner firm while working for the Petitioner firm, clinchingly proves the mala fide intention and wilful default of violating the Section 140 of the Companies Act, 2013 and in collusion and connivance with R2 company, for illegal removal of Petitioner firm as auditor of R2 Company and appointment of Rl firm as auditor of R2 Company, even though seeking NOC from the existing auditors of R2 company. Some of the material submissions of the Petitioner firm are as follows: 1. there is no special resolution passed by the R2 Company at the 18th Annual General Meeting of the Company held on 26.09.2016 for the removal of Petitioner firm. 2. R2 Company has not obtained previous approval of the Central Government (Regional Director) for removal of Petitioner firm's existing auditor of R2 company 3. The R2 company approved at ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....intment at the AGM, is negligence, abuse and disregarding the law of land. h. Explanation II(b) to Rule 6 to the Companies (Audit and Auditors) Rules, 2014 states that - if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of 5 years. In the present case, CA Vamsi Krishna signed on behalf of Petitioner the financials of R2 Company for the financial year 2014-15. i. Rl firm is having not even 6 months experience, whereas Petitioner firm is having 27 years of impeccable reputation and experience in audit services. j. Petitioner sought 10% minimum increase of remuneration to cover inflation cost and the R2 made baseless allegations as to not happy with the staff of Petitioner (i.e. R1) whom they appointed as auditors. In order to retain self-esteem, the Petitioner has not tendered resignation as against R2 baseless allegations. k. The petitioner has also referred to Hon'ble Delhi High Court Judgment in M.S. Kabli Vs Union of India & Ors [W.P.(C) 14341 OF 2005 & C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dering the ratification of the appointment of auditors as per proviso to Section 139 of the Companies Act, 2013 and Rl firm was informed that in the AGM, the shareholders did not think fit to pass the resolution for ratification of the petitioner firm and defeated the resolution for ratification of the appointment of Petitioner firm e. It is not a case of removal of the auditor and that it is a case of non- ratification of the appointment by the Director/shareholders of the Company holding 100% shareholding as per proviso to Section 139 of the Companies Act, 2013. f. Rl firm's appointment was made in the vacancy caused by non- ratification as per Rule 3(7) of the Companies (Audit and Auditors) Rules, 2014 and hence, there was no collusion or mala fide intention on the part of Rl. 6. Respondent No.2 has also filed a counter dated 16.01.2017 denying the allegations and averments made in the petition on similar grounds as stated in the counter of Rl and also written submissions dated 8.3.2017: a. The petitioner admitted that he was insisting for increase of audit fee and the Respondent No.2, much before the AGM, wherein his appointment was not ratified, has clarified t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le High Court has observed that the provisions of the Companies Act, 1956 underscore that statutory auditor cannot lightly be removed and the statutory procedure has to be followed to the provisions recognized that Auditors are expected to function as independent professionals and not simply toe the line of the management of a company. The Central government will have to be satisfied that the reasons are genuine keeping in view the best interest of the company and consistent with the need to ensure professional autonomy to its auditors. The 3 tier statutory protection is given to Auditors. 10. When analysed the facts of R1 Company, it is observed that R1 Company is a new firm with just six months of experience. The partners namely Sri Vamshi Krishna Borra and Sri N. Dilli Kumar were earlier working with Petitioners' firm and started a new firm in the name and style of DVAK & Co. whereas the petitioners' firm had an experience of 27 years in the field with impeccable track record and no disciplinary action was taken against the petitioner by ICAI as per the information submitted in the Petition. From the records the reason for non-ratification/removal of the petitioners&#....