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Judgment
R. Banumathi, J.—In this intra Court Appeal, Appellants challenge the order in Company Application No. 744 of 2010 whereby the learned
single Judge dismissed the Application holding that the letter dated 30.10.2009 sent by the auditors is in consonance with the direction issued by
the Division Bench in the order dated 17.04.2009 in OSA. No. 71 of 2009.
Respondents 1 to 3 are the shareholders in the first Appellant company. Alleging that the affairs of the company is not properly managed and
that the shareholders are kept in darkness, Respondents 1 to 3 have filed Company Petition in C.P. No. 198 of 2007 u/s 237(a)(ii) of Companies
Act, 1956 read with Rule 11(9) of Companies (Court) Rules, 1959. In the Petition, Respondents 1 to 3 prayed for declaration that the affairs of
the first Appellant company ought to have been investigated by the Inspector or Inspectors appointed by the Central Government and to give
further directions to the Central Government to appoint as many Inspectors as required to investigate into the affairs of the first Appellant company.
By the interim order dated 10.12.2008, the learned single Judge appointed the auditors Annamalai Associates -4th Respondent for verification
of the correctness of accounts of the first Appellant company for the years from 2004 to 2007 and to submit a report.
Being aggrieved by the interim order dated 10.12.2008, Appellants moved O.S.A. No. 71 of 2009. One of the main ground in the appeal
[OSA. No. 71/2009] was that by that interim order dated 10.12.2008, the learned single Judge virtually granted the main relief as prayed for in the
Company Petition viz., investigation into the affairs of the first Appellant company. While disposing the appeal on 17.04.2009, the Division Bench
has observed that verification of the correctness of balance-sheet would not arise at this stage and directed the Chartered Accountant to peruse the
accounts relating to the balance-sheet for the years 2004 to 2007. The relevant portion of the judgment of the Division Bench in OSA. No. 71 of
2009 reads as under:
... Hence, we are of the considered view that the order under appeal would entitle the named Chartered Accountant to peruse the accounts
relating to the balance-sheet for the years 2004 to 2007 and file a report as to the actual statement of accounts reflected in the balance-sheet and
any other report, which may require for the court to dispose of the company petition finally. The question of verification of the correctness of the
accounts does not arise at this stage, as it is for the Court to finally consider the same at the time when the company petition is disposed of.
Before the same Division Bench, first Appellant company had filed M.P. No. 3 of 2009 for clarification on the ground that at the guise of the
directions contained in Paragraph (7), the Chartered Accountant might go into the verification of the correctness of the balance-sheet. By the order
dated 07.8.2009, the Division Bench has dismissed M.P. No. 3 of 2009 stating that the apprehension of first Appellant is on total misconception
and that verification of correctness of the balance-sheet does not arise and directed the Chartered Accountant to submit a report as stated in the
earlier order dated 17.04.2009.
After the dismissal of M.P. No. 3 of 2009, there was correspondence between the first Appellant and the Chartered Accountant. The Auditor
has sent a letter dated 30.10.2009 giving checklist of items required for verification of records for the period from 2004 to 2007. Being aggrieved
by those checklist of items, first Appellant had filed Company Application in C.A. No. 744 of 2010 alleging that the said letter is contrary to the
direction issued by the Division Bench. Application was to restrain the auditors from verifying the correctness of the accounts as it was not to be
done as per the order of the Division Bench. Observing that by the letter dated 30.10.2009, 4th Respondent only requires a list of books of
accounts, complete set of accounts for the four years, printed copy of the ledger account etc. which are in consonance with the direction issued by
the Division Bench in the order dated 17.4.2009, learned single Judge dismissed C.A. No. 744/2010 stating that the letter cannot be termed as
investigation by the auditors as apprehended by the first Appellant.
After the dismissal of the Application by the learned single Judge, there was correspondence between the first Appellant and the auditor. By the
letter dated 02.09.2010, first Appellant has stated that due to bulkiness of the records required by the auditors, first Appellant requires three
weeks time to produce the same. Thereafter, challenging the order of learned single Judge dated 07.04.2010 in C.A. No. 744 of 2010, the
Appellants have come forward with this Appeal.
Mr. R. Veeraraghavan, learned Counsel for Appellants contended that the intention in the letter of the auditors dated 30.10.2009 was to verify
the correctness of the accounts of first Appellant company which the Division Bench has clearly held that auditors was not entitled to do so. It was
further submitted that because statutory auditors have already audited the accounts of the 1st Appellant and while so, in violation of the order of
the Division Bench, 4th Respondent cannot verify the previously audited accounts whether they are correct or not. Learned Counsel for Appellants
would contend that the checklist of items called for by the auditors is rather re-audit of the accounts of first Appellant company and the learned
single Judge was not right in saying that the checklist of items called for by the auditors is in consonance with the direction issued by the Division
Bench.
Mr. R. Venkatavaradhan, learned Counsel appearing for Respondents 1 to 3 submitted that the checklist of items called for by the auditors is
well within the direction of the Division Bench. Drawing Court''s attention to the letter of the first Appellant dated 02.09.2010, learned Counsel for
Respondents 1 to 3 would contend that having taken time from the auditors to produce the records, Appellants are not justified in challenging the
order of learned single Judge in C.A. No. 744 of 2010 dated 07.4.2010.
No doubt by the order dated 17.04.2009, the Division Bench has stated that the Chartered Accountant to peruse the accounts relating to the
balance-sheet for the years 2004 to 2007 and to file a report as to the actual statement of accounts reflected in the balance-sheet and any other
report which may require for the Court to dispose of the Company Petition finally. While perusing the accounts relating to the balance-sheet, the
auditors cannot just ask to peruse only the books of accounts and ledger. While looking into the books of accounts and vouchers, the auditors
need necessarily to look into the corresponding documents. While he is making the report to the Court, the auditor is not merely confined to the
mechanics of checking the vouchers and making a report merely with computation of figures. It is a vital task to take care to see that the auditor
does not commit an error in submitting the report to the Court. To prepare a comprehensive report relating to the entries in the balance-sheets, it is
necessary that the auditors need to look into the supporting entries, break up figurers etc. Checklist of items are required only to look into the
accounts and to give a comprehensive report to dispose of the Company Petition. The checklist of items is only to look into the supporting
materials and not for verification. First Appellant is not right in contending that the Auditor is calling for various documents for the purpose of
verification.
As pointed by the learned Counsel for Respondents 1 to 3, after the order came to be passed in C.A. No. 744 of 2010 on 07.4.2010, first
Appellant corresponded with the auditors. In their communication dated 02.9.2010, first Appellant has stated that due to bulkiness of the records
required by them, they requested the auditors to bear with them and to give them time of three weeks to produce the same. Having taken the time
to produce the documents before the auditors, Appellants cannot turn round and contend that the documents and the split up figures are called for
verification of the records. In our considered view, the learned single Judge has rightly held that the checklist of items called for by the auditors is in
consonance with the direction issued by the Division Bench and it cannot be termed as investigation by the auditors as apprehended by the
Appellants.
In the result, the Appeal is dismissed. Consequently, connected M. Ps. are closed. No costs.