Facts of the Case

The complainant, CA V. Radhakrishna Pillai, was the statutory auditor of M/s Uniserve Distributors Private Limited for a continuous period from Financial Year 2015–16 to 2019–20. It was alleged that the respondent, CA Vijaya Mohan Valiathan, accepted appointment as statutory auditor of the company for FY 2019–20 without the complainant being removed in accordance with Section 140(1) of the Companies Act, 2013, which mandates a special resolution for removal of an auditor before expiry of term.

It was further alleged that the respondent accepted the audit assignment without first communicating in writing with the complainant and completed the audit and signed the audit report even before obtaining No Objection Certificate from the previous auditor.

Issues Involved

Whether the respondent Chartered Accountant was guilty of professional misconduct under Items (8) and (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949 for accepting statutory audit without prior written communication with the outgoing auditor and for failing to verify the legality of removal and appointment under the Companies Act, 2013.

Petitioner’s Arguments

The complainant contended that he was validly appointed as auditor for a five-year term commencing from 30.09.2015 and was never removed by a special resolution as required under Section 140(1). It was argued that the respondent accepted audit and issued consent letters in August and September 2019 without obtaining NOC and without verifying the complainant’s continuing appointment. The complainant further alleged that the respondent relied on a tampered board resolution showing a shorter tenure and failed to verify original minutes of the company.

Respondent’s Arguments

The respondent submitted that he attempted to deliver a communication letter personally and later sent it by speed post when the complainant’s office was found closed. He contended that there was no intention to bypass professional requirements and that he relied on documents provided by the company regarding appointment and tenure of the previous auditor. The respondent pleaded that the lapse was procedural and sought leniency.

Court Order / Findings

The Board of Discipline examined the documentary evidence, timelines and submissions of both parties. The Board noted that the respondent provided consent for appointment in August and September 2019 but sought No Objection Certificate only on 27.11.2020, more than one year after accepting the audit assignment. The Board further observed that the audit report was signed on 08.12.2020, whereas the NOC was received by the complainant only on 19.12.2020, rendering the communication ineffective and non-compliant with Item (8).

With respect to Item (9), the Board noted discrepancies between the complainant’s appointment resolution dated 30.09.2015 providing a five-year term and the respondent’s version indicating a three-year term with visible signs of tampering. The Board held that the respondent had a professional obligation to verify the original minutes book and authenticity of the resolution before accepting the audit. Failure to do so amounted to lack of due diligence and violation of statutory requirements under Section 139 and Section 140 of the Companies Act, 2013.

Important Clarification

The Board clarified that prior written communication with the outgoing auditor is mandatory and must be effective before acceptance and completion of audit. Further, a Chartered Accountant must independently verify the legality and authenticity of appointment and removal resolutions and cannot rely on doubtful or tampered documents furnished by the client company.

Final Outcome

The Board of Discipline, ICAI, held that CA Vijaya Mohan Valiathan was GUILTY of Professional Misconduct under Items (8) and (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949. In exercise of powers under Section 21A(3), the Board imposed a fine of ₹10,000 upon the respondent by order dated 25.09.2024, pursuant to its findings dated 27.08.2024.

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