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Union of India (UOI) and Ors. Vs. Deloitte Haskins and Sells LLP and Ors. - (Supreme Court) (03 May 2023)

Proceedings under Section 140(5) of Companies Act are maintainable even after the resignation of the auditors

MANU/SC/0518/2023

Company

In present appeals, common question of law pertaining to the interpretation of Section 140(5) of the Companies Act, 2013 and the Investigation Report dated 28th May, 2019 ('IFIN SFIO Report') in respect of IL&FS Financial Services Limited ('IFIN') is raised.

On true interpretation and scheme of Section 140(5) of the Act, 2013, even on resignation by an auditor of a company even during the enquiry/proceedings under Section 140(5) of the Act or even prior to that, there shall not be any termination of the proceedings under Section 140(5) of the Act as observed and held by the High Court.

The intention of the legislature while enacting Section 140(5) of the Act is very clear and the powers conferred upon the Tribunal under Section 140(5) of the Act shall be without prejudice to any action under the provisions of the Companies Act, 2013 or any other law for the time being in force. Therefore, irrespective of any other provisions of the Act, 2013, the Tribunal is vested with the powers under Section 140(5) of the Act to pass a final order against the auditor on the allegation that such an auditor of the company has, directly or indirectly, acted in a fraudulent manner.

Section 140(5) is neither discriminatory, arbitrary and/or violative of Articles 14, 19(1)(g) of the Constitution of India, 1950 as alleged. The impugned judgment and order passed by the High Court quashing and setting aside the application/proceedings under Section 140(5) of the Act, on the ground that as the auditors have resigned and therefore thereafter the same is not maintainable is quashed and set aside. The application/proceedings under Section 140(5) of the Act, 2013 is held to be maintainable even after the resignation of the concerned auditors. It is ultimately for the NCLT/Tribunal to pass a final order on the application filed by the Central Government Under Section 140(5) of the Act, 2013.

The impugned judgment and order passed by the High Court quashing and setting aside the direction under Section 212(14) of the Act, 2013 issued by the Union of India to SFIO is quashed. The impugned judgment and order passed by the High Court quashing and setting aside the prosecution lodged by the SFIO vide Criminal Complaint is also quashed. Now the said Criminal Complaint be proceeded further by the concerned Trial Court in accordance with law and on its own merits. Appeals allowed.

Tags : APPLICATION   PROVISIONS   APPLICABILITY  

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