HEBRON PHARMACEUTICALS (PVT.) LTD. vs M. JOHANEN

THE complaint has been filed with the following allegations: THE complainant is a registered S.S.I. Unit engaged in Pharmaceutical business. It availed loan for its business from the Tamil Nadu Indus trial Investment Corporation Ltd., Chengleput Branch. On 11.4.90 the Company entrusted with the Opposite Party the responsibility of dealing with the Tamil Nadu Industrial investment Corporation. In the normal course of activities the complainant handed over all his account books, ledger and journals, all related documents and typewriter to the Opposite Party for preparing a Statement of Accounts. Till date the Opposite Party has not prepared the Statement of Ac counts, and it has also refused to return the account books to the complainant. THE Opposite Party refused to issue a ''No Objection Certificate, for appointment of new auditors. Because of the negligence and failure in performing the duties on the part of the Opposite Party the complain ant is facing problems from the Tamil Nadu Industrial Investment Corporation and apprehends legal action from the Registrar of Companies and the Income tax Department for non submission of the returns. THE complainant sent notices to the Opposite Party. But the Opposite Party replied denying responsibility. THE complaint given to the Institute of Chartered Accountants and also the Police have been of no use. THErefore, the Opposite Party may be ordered to pay compensation of Rs.7,00,000/ for the inconvenience caused, the loss of business and dam ages suffered by the complainant and mental agony and further may be ordered to return the account books, ledgers and documents and type writer of the complainant.

THE Opposite Party Company in their written version submits that they were never appointed as auditors of the complainant. THEy further submit that the Complainant Company was not functioning properly for several years and the Directors of the Company approached the Opposite Party to help to get out of the difficulties that they were facing. Accordingly the Opposite Party rendered certain services to the complainant like negotiating and dealing with Tamil Nadu Industrial Investment Corporation, Sales Tax Authorities etc. Later the complainant requested the Opposite Party to pre pare the account books of the complainant Company but the necessary details were not furnished to them. Since the Opposite Party had no adequate staff at that time it was not in a position to accept that job. THErefore, Mr. Varghese, one of the Directors of the complainant Company handed over the work of account writing to a part time accountant. This part time accountant was permitted by the Opposite Party to utilise their office premises in view of the good relation they had with the complainant. THE account books were never left with the custody of the Opposite Party. THE typewriter was left in the office of the Opposite Party by the complainant on their own volition. During March, 1994, Mr. Kuruvilla and Dr. Sam Mathew, Directors of the complainant Company approached the Opposite Party and tried to persuade them to prepare the account books and certify them even in the absence of the necessary details and supporting documents. THE Opposite Party refused to oblige this illegal request. THErefore, the said Directors were infuriated against the Opposite Party. From that point of time the complainant has been harassing the Opposite Party in all possible ways with a view of to wreak vengeance. THE question of giving no Objection Letter to enable the complainant to entrust the work to some other auditor does not arise since the Opposite Party was never the duly appointed auditor of the complainant and the complainant is always at liberty to entrust the work to another auditor. THEre fore, for these reasons the complaint is liable to be dismissed. The points that arise for consideration are: 1. Whether there was any deficiency in service on the part of the Opposite Party vis a vis the complainant as alleged; 2. What compensation if any that can be awarded to the complainant?

Point No.1 : The case of the complainant Company is that the Opposite Party Company was the auditors of the complainant Company. The Opposite Party Company would contend that they were never appointed as auditors of the complainant Company. The Opposite Party would contend that they were requested to do by the complainant some specific work relating to the dealings of the complainant with the TamilNadu Industrial Investment Corporation Ltd., (T.I.I.C). But the complainants have not given any assistant to them by supplying details of the accounts and, therefore, they could not do the work as requested by the complainant. Now, a close reading of the complaint itself would show that there is truth in the contention of the Opposite Party and not in the case of the complainant. In para 3 of the complaint instead of saying that the Opposite Party was appointed as auditor of the complainant, it is merely stated that the complainant has engaged the Opposite Party as the auditors and the Opposite Party has accepted the same. When it is the definite case of the Opposite Party that they were never appointed as auditors of the complainant, the complainant could have easily proved that the Opposite Party were appointed as auditors with evidence. They have not filed any copy of the appointment order or any receipts for money received by the Opposite Party as auditors or any accounts showing that any money has been credited or debited in the accounts of the Opposite Party as auditors. However, the complainant Company have filed Ex. A2 Resolution of theirs and Ex.A3 Balance Sheet of theirs as on 31.3.89 which according to them would show that the Opposite Party were appointed as their auditors. The relevant portion of Ex.A2 Resolution reads as follows: "The Board discussed a way to save the situation and it was decided that the TIIC work may be entrusted with Mr. John Mathew our Auditor and the other duties to Miss. Leena Verghese until another person is found and hence it was resolved. That Mr. John Mathew our auditor shall be entrusted with the responsibility of dealing with TIIC Limited, Madras."

From the words used "our auditor" in the Resolution it is argued that it is apparent that the Opposite Party had been appointed as the auditors of the complainant Company. But a close reading of the said portion (in Ex. A2) would show that quite possibly as contended by the Opposite Party in their version, the complainant Company had some problem with the TIIC and in connection with that the Opposite Party was entrusted with the responsibility of dealing with the TIIC Ltd. This supports the case of the Opposite Party that they were only asked to do a specific work that related to TIIC. From the only words "our auditors" in the Resolution we can not come to the conclusion that in fact the Opposite Party have been appointed as the auditors of the complainant Ex. A3 of course purports to be a balance sheet of the complainant Company prepared by the Opposite Party as on 31.3.1989. As regards this the Opposite Party would submit that this was only a Provisional Balance Sheet prepared as requested by the complainant for the purpose of dealing with the TIIC and it is not an authentic Balance Sheet. This Balance Sheet Ex. A3 is not annexed with any Profit & Loss Account or Auditor''s Report. Therefore, in these circumstances, the fact that the Opposite Party have signed Ex. A3 as auditors is not enough evidence to hold that the Opposite Parties were appointed auditors to the complainant Company. The contention of the Opposite Party that Ex. A3 is only a Provisional Balance Sheet stands proved by the complainant''s own document Ex. A4 letter dated 5.4.94 written by them to the Opposite Party. Therein it is mentioned "(Rs. 500/ by cash towards service charges for provisional Balance Sheet)". According to the complainant the Opposite Party has not prepared another Balance Sheet. The said sentence in Ex. A4 highly probabilise the contention of the Opposite Party that they were requested to do a particular work regarding TIIC and for that they had been paid Rs. 500/ and it is in this connection Ex.A3 Balance Sheet has been prepared as a provisional Balance Sheet. As already stated the complainant have not let in any evidence to show that the Opposite Parties were paid any amount as their auditors. As per Ex.A4 letter the complainant paid Rs. 2,500/ by cash on 20.4.90, Rs. 3,000/ by cheque dated 20.5.91 and Rs. 2,000/ by cheque dated 3.4.92. As regards this the Opposite Party in their reply Ex. A5 dated 15.4.92 have written that the sum of Rs. 500/ received was for preparing the provisional Balance Sheet, the sum of Rs. 2,500/ paid was towards service charges and expenses for obtaining the complainant''s Company''s sales tax registration, the cheque for Rs. 3,000/ was received as service charges for preparing statements for TIIC. ICCI and for the banks, and no cheque for Rs. 2,000/ dated 3.4.92 was received.

THE learned Counsel appearing for the Opposite Party brought to our notice Section 224 of the Companies Act which deals with appointment and remuneration of auditors. This section reads as follows: "Appointment and remuneration of auditors. 224. Every company shall, at each annual general meeting, appoint an auditor or auditors to head office from the conclusion of that meeting until the conclusion of the next annual general meeting and shall, within seven days of the appointment, give intimation thereof to every auditor so appointed. (Provided that before any appointment of re appointment of auditor or auditors is made by any company at any annual general meeting a written certificate shall be obtained by the company from the auditor or auditors proposed to be so appointed to the effect that the appointment or re appointment, if made, will be in accordance with the limits specified in Sub section (1B). (1A) Every auditor appointed under Sub section (1) shall within thirty days of the receipt from the company of the intimation of his appointment, inform the Registrar in writing that he has accepted, or refused to accept, the appointment.) (1B) On and from the financial year next following the commencement of the Companies (Amendment) Act, 1974, no Company or its Board of Directors shall appoint or re appoint any person (who is in full time employment elsewhere) or firm as its auditor if such person or firm is at the date of such appointment or reappointment holding appointment as auditor of the specified number of companies or more than the specified number of companies. (Provided that in the case of a firm of auditors "specified number of companies" shall be construed as the number of companies specified for every partner of the firm who is not in full time employment else where): Provided further that where any partner of the firm is also a partner of any other firm or firms of auditors, the number of companies which may be taken into account, by all the firms together, in relation to such partner shall not exceed the specified number, in the aggregate. Provided also that where any partner of a firm of auditors is also holding office, in his individual capacity, as the auditor of one or more companies, the number of companies which may be taken into account in his case shall not exceed the specified number in the aggregate. (1C) For the purposes of enabling a company to comply with the provisions of Sub section (1B), a person or firm holding, immediately before the commencement of the Companies (Amendment) Act, 1974, appointment as the auditor of a number of companies exceeding the specified number, shall, within sixty days from such commencement, intimate his or its unwillingness to be reappointed as the auditor from the financial year next following such commencement, to the company or companies of which he or it is not willing to be re appointed as the auditor; and shall simultaneously intimate to the Registrar the names of the companies of which he or it is willing to be re appointed as the auditor and forward a copy of the intimation to each of the companies referred to therein.

Explanation This section prescribes as to when and how an auditor of a Company can be appointed, and it also mandates that within 7 days of appointment the Company shall give intimation thereof to the auditor appointed and it shall also obtain a Certificate from that auditor as required in the section. This being the case when the Opposite Parties contend that they were never appointed a auditors of the complainant Company, only from Ex. A2 Resolution, Ex. A3 Provisional Balance Sheet, it cannot at all be held that the Opposite Parties were the auditors of the complainant Company. The contention of the Opposite Party is that the complainant never made available to it the details for preparation of accounts. The complainant have not adduced any evidence as to what were the account books handed over to the Opposite Party and what other documents were given and what particulars were furnished in the circumstances of the case, the case of the Opposite Party that the complainant have left a type writer in the Opposite Party''s office on their volition appears to be true. This being the case there is no point in the complainant stating that the Opposite Party failed to return the account books and the typewriter. No question of the Opposite Party giving No Objection Certificate for appointment of another auditor also arises. Thus considering it is not possible to hold that there was any deficiency in service on the part of the Opposite Party as alleged by the complainant.

POINT No. 2 : In view of our finding on point No. 1 no question of giving any relief to the complainant arises. In the result, the complaint is dismissed. However, there will be no order as to costs. Complaint dismissed. ______________