National Company Law Appellate TribunalN. Sankaranarayanan vs Aruna Theatres & Enterprises Pvt. Ltd. & ... on 23 January, 2018NATIONAL COMPANY LAW APPELLATE TRIBUNAL
                         NEW DELHI

                  Company Appeal (AT) No. 340 of 2017

 IN THE MATTER OF :
 N. Sankaranarayanan                                               ... Appellant

     Versus

Aruna Theatres & Enterprises Pvt.
Ltd. & Ors.                                                      ... Respondents

Present:      Shri Soaumik Ghosal with Shri Gaurav Singh, Advocates
              for the Appellant.

              Shri S. Gowthaman and Ms. M. Venmani, Advocates for
              Respondent No. 1.

              Shri Ramakrishnan Viraraghavan, Senior Advocate with
              Ms. Uttara Babbar, Advocate for Respondent No. 2.


                                    ORDER23.01.2018          Counsel for the appellant seeks pass-over.Later on2.    The appellant (Original Respondent No. 6) in TCA/11/2016

(Company Petition No.64 of 2006 in Company Law Board) has filed this

appeal against order dated 20th July, 2017 passed by the National

Company Law Tribunal, Division Bench, Chennai (hereinafter referred to

as 'NCLT'), which order reads as under :"Counsel for Applicant/R2 present. Counsel for R4, R8,

              R10 and R19 present. R11 and R18 reported expired.

              No representation on behalf of the other Respondents in

              the CA/115/2017. As directed by this Bench, Mr. R.


                            Company Appeal (AT) No. 340 of 2017 - 23.01.2018.....Page 2/--2-Aghoramurthy       (Chartered       Accountant),       auditor

concerned in this matter, appeared in person. He

submitted that whatever report he has prepared is in

line with the direction of the Hon'ble High Court of

Madras. He stated that other than the interim report,

he has no other report to submit, as there is no

requirement to make additions and deletions in the

same as no new material is found. To a query raised by

this Bench as to what happened about the opportunity

to be given to the parties, the Chartered Accountant

answered that it is the Board of Directors who has to

raise objections because they are legally bound to take

care of the day to day affairs of the Management of the

Company. Therefore, there is no requirement to give any

Opportunity to the shareholders. From the submissions

made by the Chartered Accountant, it is quite clear that

he has completed his assignment of preparing a

preliminary report as per the direction of the Hon'ble

High Court. In fact, he has not followed the procedure

that was devised by the CLB vide its order dated

25.02.2009. This has already been observed by this


             Company Appeal (AT) No. 340 of 2017 - 23.01.2018   ....Page 3/--3-Bench in a detailed order dated 20.01.2017. In the

              circumstances,     Mr.    R.      Aghoramurthy,     Chartered

              Accountant is relieved of his duties. The parties are

              directed to give names of three independent Chartered

              Accountants to this Bench for appointment of one

              among them in order to complete the assignment that

              was specified by the CLB vide its order dated

              25.02.2009. The parties shall submit the names within

              one weeks. Matter is posted for further hearing. Put up

              on 11.08.2017 at 10.30 A.M."2.    Learned counsel for the appellant and Respondents Nos. 1 and 2

have been heard. It is pointed out that the Company Law Board (CLB in

brief) vide order dated 25th February, 2009 had initially directed

investigative audit. The relevant important paragraph in that regard is

12(ii), which reads as under :-"(ii)   Shri R. Aghoramurthy, Chartered Accountant, Chennai

              (Mobile No. 9444322347) is authorized to carry out an

              investigative audit of the accounts of the Company for

              the   period   from      01.04.2000     to   31.03.2005      by

              scrutinizing the books of account, vouchers and other

              connected records of the Company and on hearing



                             Company Appeal (AT) No. 340 of 2017 - 23.01.2018 .....Page 4/--4-submissions of all the connected parties.                The

            Chartered Accountant will submit a report of the

            financial transactions of the Company for the relevant

            period, which shall include all the receipts, payments,

            expenses incurred on behalf of the Company together

            with the fund utilization thereof and irregularities, if

            any, and serve copies of the report on all the parties,

            who are bound by the report of the Chartered

            Accountant. The whole process shall be completed by

            30.04.2009.   The Company will bear the Chartered

            Accountant's remuneration and towards this end, an

            initial amount of Rs. 50,000/- may be paid by

            31.03.2009. The matter will be heard on 15.05.2009

            at 02:30 PM for issue of appropriate consequential

            directions, after hearing the parties concerned, to

            safeguard the interests of the Company and its

            members."3.    It appears that against this order, Respondent No. 2 in this appeal

had filed an application to the High Court. The High Court passed certain

orders on 21st April, 2009, relevant part of which reads as under :-"3.   Having regard to the rival contentions, this

            Court feels that an Interim measure it is suffice if the


                          Company Appeal (AT) No. 340 of 2017 - 23.01.2018 ...Page 5/--5-appointed    Chartered     Accountant      is   directed    to

           scrutinize the books of account and vouchers and other

           concerned records of the company and make an interim

           report on his findings about the various transactions

           and submit the interim report in a sealed cover to this

           Court on or before 11.6.2009. Such course of action will

           not cause any prejudice to the rights of the appellants

           herein pending consideration of the appeal before this

           Court.4.    It is hereby made clear that the Chartered

           Accountant shall not part with the interim report to the

           parties in the appeal. In view of the orders of this Court,

           there shall be an order of interim stay of the order dated

           25.2.2009 passed by the Company Law Board till

           22.6.2009. It is further made clear that while preparing

           the report, the Chartered Accountant shall not call for

           the views or response from any of the parties on this

           matter."4.   Subsequently, it appears that Chartered Accountant submitted

Interim Investigative Audit Report in a sealed cover to the High Court in

the Company Appeal No. 6 of 2009. The High Court first analysed the

appeal on its merits and then proceeded to open the report and made


                         Company Appeal (AT) No. 340 of 2017 - 23.01.2018 ...Page 6/--6-certain observations in paragraph 120 of the judgement and proceeded to

find that the Interim Investigative Audit Report also does not favour the

Appellant (present Respondent No. 2) in many aspects.5.    Copy of the said Interim Investigative Audit Report has been filed in

the present appeal and is available at Page 122 of the paper-book. It

appears that the Auditor filed letter dated 16th March, 2017 in NCLT and

after referring to certain facts mentioned in Paragraph 3 of that letter as

under :-"3.   Thus, it would be noticed that no fresh or

            additional    material       has     come      in     requiring

            reconsideration of any of my findings and conclusions

            in my Interim Report. I, therefore, reiterate my findings

            and conclusions record-ed in my Interim Investigative

            Audit Report filed before this Hon'ble Tribunal on

            21.12.2016 and pray that this Hon'ble Tribunal may

            be pleased to treat the same as my "Final Investigative

            Audit Report".The Auditor converted his own interim report into Final Investigative Audit

Report.6.    The NCLT, however, was not satisfied and although it appears from

the order of the CLB that it had not clarified anything as regards

'Connected Parties', the NCLT was of the view that the shareholders

should have been heard. It passed certain orders on 20th January, 2017.Company Appeal (AT) No. 340 of 2017 - 23.01.2018... Page 7/--7-Learned counsel for Respondent No. 2 is pointing out that the application

of the appellant for execution of the Investigative Audit Report was

rejected by the NCLT by order dated 3rd July, 2017.7.    The NCLT has subsequently passed the present impugned order

and the same has been challenged.          We find that when the Auditor

converted his Investigative Audit Report into the final report, without

going into the merits of the report and without setting the same aside, the

present impugned order calling for names of the new Chartered

Accountants could not have been passed. We are told that subsequently

new Chartered Accountant have even been appointed by order dated 23rd

August, 2017.8.    In our view, it was necessary for NCLT to consider the report which

was available and which was treated by the Auditor as its final report for

whatever it was worth and record finding whether or not the said report

could be maintained. Without rejecting the said report, giving directions

for further Chartered Accountants to be suggested and appointment was

not proper. When the present report has not been set aside, taking fresh

report if the same happens to be in conflict would create confusions.9.    For the above reasons, the present appeal is allowed. The impugned

order is quashed and set aside. Consequently, subsequent actions taken

on the basis of Impugned Order would not survive. Matter is remitted

back to NCLT. The NCLT is directed to consider the Investigative Audit

                          Company Appeal (AT) No. 340 of 2017 - 23.01.2018 ....Page 8/--8-Report submitted by the Chartered Accountant read with letter dated 16th

March, 2017 and giving opportunity to both sides either accept the

Investigative Audit Report or may reject the same for reasons to be

recorded.With these directions, the present appeal stands disposed of. No

order as to costs.[ Justice A.I.S. Cheema ]
                                                         Member (Judicial)




                                                          [ Balvinder Singh ]
                                                          Member (Technical)




/ng/nn                               Company Appeal (AT) No. 340 of 2017 - 23.01.2018