Ratnesh Rai
Asked September 30, 2016

Auditor not returning the documents

  • 1 Answer
  • 598 Views

Dear Sir, I am a director of a Pvt. Ltd. Company (Manufacturing Unit) based in Delhi. I and my wife are Directors of the Company. My current (2015-16) turn over is 32,00,000/-. Company is 8 years old. Now, My auditor is trying to exploit us. He does not give us data (Books of Accounts) of the company except Balance Sheet and P & L. He has not completed our sales tax assessment even FY 2009-10, 2010-11 , 2011-12 and till date. He had not even filled Balance Sheet in ROC for FY 2014-15. We are under small scale industries. Now, we do not want to let him do our work. We asked him to return our all documents and his resignation so that we can appoint a new auditor. Now, he demanded 1 Lac (approx) rupees as fees. We got shocked because we have already cleared all his dues whatever was earlier decided. He told that the amount is outstanding in the financial of 2014-15. The balance sheet that he had given us there was written a word 'Other Liabilities' that covers his outstanding balance. His firm name was not mentioned over there. I am a technical person (Engineer) and do not have such knowledge. Even that I agreed to pay this amount (not paid yet). But even after that he is not ready to return our file and give resignation. Please give us proper guidance. We are not able to understand what to do. Thanks & Regards, Ratnesh kr. Rai M. 9312888875

Answer 1

There are 2 simultaneous courses of actions that you can take.

  • File a complaint/Latter/representation of Professional Misconduct with the Institute of Chartered Accountants of India (www.icai.org).  Send a letter by “registered” post with “Acknowledgment due”.
  • Search out the name and membership number of the Chartered Accountant (auditor)in www.icai.org – members section by putting his name or DOB. You can get his membership number also from the signed annual accounts.

    Section 22 of the Chartered Accountants Act,1949 defines professional or other misconduct as follows:- For the purposes of this Act, the expression “professional or other misconduct” shall be deemed to include any act or omission specified in any of the Schedules, but nothing in this section shall be construed to limit or abridge in any way the power conferred or duty cast on the Director (Discipline) under sub-section (1) of Section 21 of the Act to inquire into the conduct of any member of the Institute under any other circumstances. What constitutes `misconduct under any other circumstances’ has to be determined on case to case basis keeping in view the facts of the circumstances of each case. Fraud, intention to deceive and committing an act which affects the public or society at large could be in the ambit of such misconduct.

    Following are few examples of `misconduct under any other circumstances’ by a member as given in the ICAI website:-

  • Conviction by a competent Court for an offence involving moral turpitude punishable with imprisonment or for an offence not of a technical nature committed by a member in his professional capacity.
  • Retention of books and documents of the client and failure to return these to the client on request without a reasonable cause.
  • Material misrepresentation e.g. misrepresenting to a firm, while seeking employment as an accountant, that he has worked for three years as a senior assistant with another firm.
  • Publishing an advertisement in a newspaper with malafide intention to malign any person.
  • Using objectionable, derogatory and abusive language or/and making irrelevant, incoherent irresponsible and insane statements in his correspondence with a person.
  •  

    Your case falls squarely in point ii and iii of the professional misconduct as described in ICAI (Institute of Chartered Accountants of India) website.

     

  • The second recourse you can have is to initiate action under the Companies Act 2013 for removal of auditor. Section- 140 of Companies Act 2013 talks about Removal of Auditor: - This section corresponds to Section 225 of the Companies Act 1956. The Section seeks to provide for the provisions for removal of auditor before the expiry of his term.
  • The Board of Directors of the company has no power to remove an auditor (Individual or Firm) appointed by the company in General meeting before the expiry of his term.

    Removal by Special Resolution and previous approval of the Central Government: [Sec 140(1)]:

    Sub-Section (1) provides that the removal of an Auditor before the expiry of his term requires-

    •      The previous approval of Central Government (CG). Form of Application will be made in form-ADT-2. Form ADT-2 and shall be accompanied with fees as provided for this purpose under the Companies (Registration offices and Fees) Rules, 2014.

    [Rule 7(1) of the Companies (Audit and Auditor) Rules, 2014} (Attached in form GNL-2).

    • The auditor appointed under section 139 may be removed from his office before the expiry of his term only by a SPECIAL RESOLUTION of the company,
    • Before taking any action, the auditor concerned shall be given a Reasonable Opportunity Of Being Heard.
    • The application to Government shall be filed within 30 days from the date of resolution of the Board along with fees;
    • The company need to hold General Meeting (EGM) within 60 (Sixty) days of the approval of Central government.

    The auditor may be removed by the company before the expiry of his term. However, the removal of the auditor will require some steps.

    Hence, you may pursue both options simultaneously i.e. file a complaint of professional misconduct AND as well as initiate the removal of auditor before expiry of the term.

     

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