As per NCLAT order auditor cannot be debarred If Fraudulent Intention is not Proved

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The National Company Law Tribunal (NCLAT), New Delhi held that the auditor cannot be debarred for 5 years under The Companies Act, 2013 in the absence of any evidence supporting fraudulent intentions.

Facts of the case:-

In the case of Mukesh Maneklal Choksi vs. Union of India and Zen Shaving Ltd., the court allowed the appeal and held that though the auditor was negligent, however, there was lack of the material on record so as to believe that the auditors had the fraudulent intentions in the case.

The respondent namely M/s  Zen Shaving Ltd. introduced the public offer and thereby issued a prospectus to raise public funds. The appellant namely Mukesh Maneklal Choksi was appointed as an auditor of the company.

The auditor in the pursuit of his work issues an auditor report. On the complaint against the company, the investigation was undertaken. The complaint pertained to alleged irregularities in the Statutory compliances which included non-listing of the company with the Pune Stock Exchange and non-issuance of financial statement.

Interpretation of Law and Conclusion:-

National Company Law Tribunal (NCLT) after taking into consideration the contention of both the parties debarred the auditor for 5 years under Section 140(5) of Companies Act, 2013 and ordered the auditor to refund the whole amount of remuneration received by him. The issue raised in this case was whether the National Company Law Tribunal’s order can be set aside or not to resolve the case?

The National Company Law Tribunal (NCLAT) comprising of Justice Jarat Kumar Jain, a Judicial member held that in spite of the fact that it was the duty of the auditor to take into account the frauds, which were committed by the company or its directors and bring them forward. However, there was the absence of material evidence on record supporting the fraudulent intentions of the auditors.

 

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