There is no requirement to obtain NOC from previous auditor under CA Act 1949- High Court

There is no requirement to obtain NOC from previous auditor. Dissuading other CAs from taking up audit not object of CA Act 1949- HC

ABCAUS Case Law Citation:
ABCAUS 3134 (2019) (09) HC

The petitioner, a chartered accountants firm had filed a petition impugning the order passed by the Board of Discipline of the Institute of Chartered Accountants of India (‘ICAI’) whereby the Board of Discipline (‘the Board’) had found the incoming auditor not guilty of professional misconduct within the meaning of Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 and accordingly, closed the case of misconduct instituted at the instance of the petitioner.

The petitioner Chartered Accountants firm claimed that it was appointed as an auditor to audit the accounts of a company and it continued to be its statutory auditor as the firm had neither resigned nor had it been removed. The petitioner claimed that it did not complete the audit for the relevant financial year since it did not receive complete records for finalising the accounts.

The Hon’ble High Court observed that there were certain disputes and differences between the petitioner and the company and the petitioner had sent a letter to the company calling upon it to send the complete records for finalising the accounts. However, by that time, the period for holding an Annual General Body Meeting of the company for acceptance of the final accounts had already expired.

In view of the above, the Hon’ble High Court opined that the claim made by the petitioner that it continued to be the statutory auditor of the company, was incorrect. Also on being pointedly asked whether the petitioner had any letter of appointment for the succeeding financial year and thereafter, the response was in the negative.

The final accounts of the company for the three year had not audited by the Petitioner but the company had filed return with ROC showing by some other statutory auditor. The Hon’ble High Court observed that on becoming aware that the company was proposing to pass a resolution to appoint another auditor (the incoming auditor), the petitioner sent a letter to the company, asserting that the it continued to hold office as an auditor and alleging that appointment of any statutory auditor would be illegal.

The petitioner alleged that the incoming auditor had accepted the auditor’s assignment without communicating with it being the earlier auditors and the same amounted to professional misconduct. The petitioner also called upon the incoming auditor to tender its resignation, failing which the petitioner would file a complaint with ICAI.

Since the incoming auditor did not cower to the threat held out by the petitioner and therefore, it filed a complaint with ICAI of misconduct on account of not obtaining a NOC from the petitioner.

The Board examined the complaint and had concluded that the copies of the returns filed by the company with the Registrar of Companies (RoC) indicated that final accounts for the three intervening financial years had been audited by some other CA firm. The Board also noted that the company had paid the professional fees to the said auditor for the intervening three years and he had not lodged any complaint with either the Registrar of Companies, Income tax authorities or the police alleging that they had actually not audited the accounts.

In view the above, the Board held that the incoming auditor was not guilty of any professional misconduct as alleged, as the petitioner was not the previous auditor with which he was required to communicate before accepting the assignment to audit the accounts of the company.

There is no requirement to obtain NOC from previous auditor.

The Hon’ble High Court pointed out that under Clause (8) of the First Schedule of the Chartered Accountants Act, 1949, there is no requirement for an auditor to secure a no objection from the previous auditor. The only requirement is that the Chartered Accountant, who accepts the position as an auditor, must communicate with the previous auditor about the same.

The Hon’ble High Court noted that the Petitioner was not the previous auditor in the instant case and the incoming auditor had duly communicated with the previous statutory auditor who had audited the accounts of the company for intervening three years,

The Hon’ble High Court noted that the complaint filed by the petitioner was, essentially, motivated on account of inter se disputes between the petitioner and the company. The entire correspondence clearly indicated that the petitioner had made all efforts to dissuade other Chartered Accountants from taking up the assignment to audit, which , clearly, was not the object of requiring an auditor to correspond with the previous auditor.

The Hon’ble High Court opined that the actions of the petitioner were directed to pressurise the company. The language of the letters sent by the petitioner and the threats held out did no credit to the profession.

Accordingly the Hon’ble High Court dismissed the Petition with costs quantified at ₹25,000/-.

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