UNION OF INDIA AND ANOTHER versus DELOITTE HASKINS AND SELLS LLP & ANR

Citation: [2023] 5 S.C.R. 949 · Decided: 03-05-2023 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Disposed off

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Judgment (excerpt)

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949
   [2023] 5 S.C.R. 949
949
UNION OF INDIA AND ANOTHER
V.
DELOITTE HASKINS AND SELLS LLP & ANR.
(Criminal Appeal Nos.2305-2307 of 2022)
MAY 03, 2023
[M. R. SHAH AND M. M. SUNDRESH, JJ.]
Companies Act, 2013 – s.140(5) – Analysis and Interpretation
of – Maintainability of proceedings u/s.140(5) after resignation of
the auditors – s.140(5) empowers the Tribunal (NCLT), either suo
motu or on an application made to it by the Central Government or
by any person concerned, to take action against the auditor who
has acted in a fraudulent manner or is abetting or colluding in
fraud with the management of a company – If on completion of an
enquiry it is found by the Tribunal that an auditor of a company
has, whether directly or indirectly, acted in a fraudulent manner or
abetted or colluded in any fraud by, or in relation to, the company
or its directors or officers, it may by order direct the company to
change its auditors – By the impugned judgment, the High Court
held that once the auditor resigns as an auditor or is no more an
auditor on his resignation, thereafter s.140(5) proceedings are no
longer maintainable – Whether after resignation of the auditors,
proceedings u/s.140(5) are maintainable – Held: The view taken by
the High Court is absolutely erroneous and is unsustainable –
Application / proceedings u/s.140(5) of the Act, 2013 is maintainable
even after the resignation of the concerned auditors – Enquiry/
proceedings initiated under the first part of s.140(5) has to go to its
logical end and subsequent resignation and/or discontinuance of
an auditor shall not terminate the enquiry/proceedings u/s.140(5)
– If interpretation given by High Court that once an auditor resigns,
proceedings u/s.140(5) stand terminated and are no longer further
required to be proceeded, in that case, an auditor to avoid the final
order and the consequence of final order as provided under the
second proviso to s.140(5) may resign and avoid any final order by
the Tribunal – That cannot be the intention of the legislature – NCLT
to pass final order on such application after holding enquiry in
accordance with law and thereafter on basis of such final order,
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SUPREME COURT REPORTS
[2023] 5 S.C.R.
further consequences as provided under second proviso to s.140(5)
shall follow.
Companies Act, 2013 – s.140(5) – Constitutional validity of
– s.140(5) empowers the Tribunal (NCLT), either suo motu or on an
application made to it by the Central Government or by any person
concerned, to take action against the auditor who has acted in a
fraudulent manner or is abetting or colluding in fraud with the
management of a company – If on completion of an enquiry it is
found by the Tribunal that an auditor of a company has, whether
directly or indirectly, acted in a fraudulent manner or abetted or
colluded in any fraud by, or in relation to, the company or its directors
or officers, it may by order direct the company to change its auditors
– Held: s.140(5) is neither discriminatory, arbitrary and/or violative
of Arts. 14, 19(1)(g) of the Constitution – NCLT exercises quasi-
judicial powers u/s.140(5) with all the powers akin to civil court –
Ample opportunity is given by NCLT before passing any final order
– Plea that s.140(5) discriminates against the auditors unfairly in
comparison to similarly placed alleged perpetrators, such as
directors, management etc. not tenable, as the role of auditors cannot
be equated with directors and/or management – Acting in a
fraudulent manner, directly or indirectly, by an auditor is a very
serious misconduct and therefore the necessary consequence of
indulging into such fraudulent act shall follow – Merely because
the auditor can be removed as an auditor of a company under the
other provisions, s.140(5) which has been enacted with a special
object and purpose cannot be said to be arbitrary and/or ultra vires
– Constitution of India – Arts. 14 and 19(1)(g).
Companies Act, 2013 – s.140(5), first proviso – Powers under
the first proviso to s.140(5) – Nature of – Held: It can be said to be
interim or pro tem measure to prevent an existing auditor from
continuing and substitute him with an auditor based on a prima
facie satisfaction that a fraud has been perpetrated and when
circumstances warrant the substitution – Such an order can be said
to be an interim order akin to a temporary suspension during the
pendency of the detailed enquiry as provided in s.140(5) and before
any final order is pass

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