Bombay HC dismisses NCLT plea to ban Deloitte and BSR for 5 years

N Sampath Ganesh Vs Union Of India (Bombay High Court)

Conclusion: Bombay High Court had upheld the constitutional validity of Section 140(5) of the Companies Act but held that it would not apply to auditors who had resigned and also squashed the prosecution or the criminal complaints filed by the Serious Fraud Investigation Office (SFIO) against the erstwhile auditors of Infrastructure Leasing and Financial Services Ltd (IL&FS) and its non-bank lending arm for alleged collusion in falsifying books terming it to be’ bad in law’.

Held: A prayer made under S. 140(5) of the Companies Act,2013 Act against the statutory auditors by the Union of India through Ministry of the Corporate Affairs (MCA) in an investigation/dispute regarding constant ever-greening of debts extended to its subsidiary Companies & third parties/companies by IL & FS Financial Services Limited (hereinafter referred to as “IFIN”) and alleged dubious role played by its CAs ie company auditors before National Company Law Tribunal ie NCLT and orders passed therein. Union of India was  sought a declaration under section 140(5) that the Deloitte Haskins be deemed to be removed as statutory auditor of IL & FS (IFIN) Financial Services Limited for the year 2012-13 to Financial Year 2017-18 in the light of its vacation of the office on rotation at the end of Financial year 2017-18.It also requested for declaration that M/s. BSR & Associates ceased to be statutory auditors of IL & FS (IFIN) with immediate effect. Permission was also sought to appoint independent auditor for IL & FS (IFIN) so as to replace M/s. BSR & Associates in terms of first proviso to section 140(5) of the Companies Act read with explanation (ii) thereto. Union of India also sought relief in terms of the said second proviso read with explanation (I) that Deloitte Haskins was not eligible to be appointed as an auditor of any company for the period of five years from the order passed by NCLT in view of serious fraud committed which required intervention of the MCA to prevent the destabilization impact on the company at the request of the department of Economic Affairs and sought debarment for the period of five years. Similar relief was sought for against M/s. BSR & Associates. Union of India through its Ministry of Corporate Affairs appointed inspectors with the Director SFIO to inquire into the affairs of the company namely Infrastructure Leasing and Financial Services Limited and its subsidiary companies. The inspectors were given time of three months to submit the report to Central Government.Auditors contended that when the statutory auditor had factually ceased to be company auditor ie CA of the particular company and another auditor namely M/s.M.M. Chitale & Co. had stepped into the shoes and assumed that responsibility, provisions of section 140(5) could not have been invoked. They had challenged the central government’s move to bar them for five years, and the SFIO’s decision to initiate criminal proceedings invoking Section 447 of the Companies Act, among others. High Court quashed the criminal complaint against Deloitte Haskins & Sells and BSR Associates, an affiliate of KPMG, filed by Serious Fraud Investigation Office (SFIO) terming it to be “bad in law”. However, the court upheld the constitutional validity of Section 140 (5) of the Companies Act 2013, it said that it was not applicable to auditors who have already resigned. BSR & Associates resigned in June 2019, while Deloitte’s term ended in 2018.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1 A prayer made under S. 140(5) of the Companies Act,2013 or 2013 Act against the statutory auditors by the Union of India through Ministry of the Corporate Affairs (MCA) in an investigation/dispute regarding constant ever-greening of debts extended to its subsidiary Companies & third parties/companies by IL & FS Financial Services Limited (hereinafter referred to as “IFIN”) and alleged dubious role played by its CAs ie company auditors before National Company Law Tribunal ie NCLT and orders passed therein, gives rise to the present bunch of petitions. Petitioners state that said S. 140(5) is unconstitutional and in any case, can not be invoked against the ex-statutory auditors. In WP 5263 of 2019, direction to lodge prosecution issued under S.212(14) of 2013 Act is questioned. Since only law points are argued, we need not refer to the facts which are not crystallized as yet.

2. In Writ petition No.4144 of 2019, petitioner is a partner of M/s. BSR and Associates which is a Limited Liability Partnership (LLP) of Indian Chartered Accountants. He has questioned validity of section 140(5) of the Companies Act, 2013. He has also challenged the order dated 9/8/2019 passed by the National Company Law Tribunal, Mumbai Bench whereby his objection to maintainability of Company Petition No. 2062 of 2019 raised by him vide Misc Application No. 2506 of 2019 has been dismissed and that company petition is held to be maintainable under section 140(5). Objection raised vide Misc Application No. 2505 of 2019 filed by M/s. BSR Associates challenging said maintainability also came to be rejected. M/s. BSR Associates has challenged it vide WP 4145 of 2019. Misc. Application No.2258 of 2019 was filed by Petitioners in WP No. 5023 of 2019 M/s. Deloitte Haskins & Sells, another (LLP), Misc. Application No.2506 of 2019 was filed by the Chartered Accountant Sampat Ganesh, Misc. Application No. 2268 of 2019 was filed by Chartered Accountant Udayan Sen and Misc. Application No. 2270 of 2019 was filed by Chartered Accountant Kalpesh J. Mehta. All these Misc. Applications questioning the maintainability of Company Petition No. 2062 of 2019 were dismissed by common order and the company petition filed by Union of India through Ministry of Corporate Affairs was held maintainable. The petitioners mainly stated that because of resignation tendered by the Chartered Accountants, proceedings under section 140(5) do not survive. The other persons/concerns have filed criminal petitions for challenging the rejection of preliminary objection vide WP No.4145 of 2019, WP No. 5023 of 2019, WP No.5035 of 2019, WP No. 5036 of 2019.

3. The NCLT has also passed an order on Misc. Application No. 3254 of 2019 filed in connection with Company Petition No. 2062 of 2019 under section 140(5) of the Companies Act, 2013 for appointment of statutory auditors for IL & FS Financial Services Limited (“IFIN”) under first proviso to section 140(5) of the Companies Act,2013. This application was moved by the Union of India through its Ministry of Corporate Affairs, the NCLT has found that under section 140(5) only, the Union of India is authorized to appoint or change the auditor. The auditor appointed by the Company IFIN namely Mukund M. Chitale & Co. (MMC) has been treated as appointment of statutory auditors under section 140(5) by NCLT on 18.10.2019.

4. The other order or direction challenged in this group of petitions is dated 29/5/2019. By this order, the Assistant Director, Legal and Prosecution has asked the SFIO to file complaint ie prosecution under S. 212(14) of 2013 Act by 30/05/2019 without fail and to submit compliance report.

5. In Criminal Writ Petition No. 5023 of 2017, the petitioner DeoLitte Haskins & Sells (LLP) has questioned the constitutionality of section 140(5) supra and also prays to quash and set aside the criminal complaint Case No. 20 of 2019 initiated against it.

6. Writ Petition No. 5035 of 2019 is filed by one Kalpesh Mehta who is chartered accountant and he has questioned the constitutionality of section 140(5) supra, direction dated 29/5/2019 supra and Criminal Case No. 20 of 2019 instituted on its basis.

7. Writ Petition No. 5036 of 2019 is filed by Mr. Udayan Sen, Chartered Accountant assailing constitutional validity of section 140(5) supra, direction dated 29/5/2019 and Criminal Complaint Case No. 20 of 2019 supra.

8. Writ Petition No. 5263 of 2019 is filed by Mr. Hari Shankaran who claims to be Director of Company against whom direction dated 29/5/2019 has been executed and thereafter complaint has been filed on 30/5/2019.

9. Parties have argued Criminal Writ Petition No. 4144 of 2019 and 4145 of 2019 as the lead petitions.

10. The discussion below will show that we are not required to record any finding on factual dispute. The facts below necessary to explain the legal dispute are borrowed mostly from the order of NCLT dated 09/08/2019 which is impugned herein. This order is a common order on Misc. Application No. 2258 of 2019 filed by Deloitte Haskin & Sells LLP, Misc Application No. 2505 of 2019 filed by M/s. BSR and Associates LLP, Misc. Application No. 2506 of 2019 filed by Chartered Accountant Sampath Ganesh, Misc. Application No. 2268 of 2019 filed by Chartered Accountant Udayan Sen and Misc. Application No. 2270 of 2019 filed by Chartered Accountant Kalpesh J. Mehta.

11. Company Petition No.2062 of 2019 was filed by the Union of India against the above mentioned applicants along with others It was under section 140(5) and sought a declaration that the Deloitte Haskins be deemed to be removed as statutory auditor of IL & FS (IFIN) Financial Services Limited for the year 2012-13 to Financial Year 2017-18 in the light of its vacation of the office on rotation at the end of Financial year 2017-18.

12. It also requested for declaration that M/s. BSR & Associates ceased to be statutory auditors of IL & FS (IFIN) with immediate effect. Permission was also sought to appoint independent auditor for IL & FS (IFIN) so as to replace M/s. BSR & Associates in terms of first proviso to section 140(5) of the Companies Act read with explanation (ii) thereto. The Union of India also sought relief in terms of the said second proviso read with explanation (I) that respondent no.1 in those proceedings namely Deloitte Haskins was not eligible to be appointed as an auditor of any company for the period of five years from the order passed by NCLT in view of serious fraud committed which required intervention of the MCA to prevent the destabilization impact on the company at the request of the department of Economic Affairs and sought debarment for the period of five years. Similar relief was sought for against the other respondents i.e. applicants mentioned supra.

13. The maintainability of these proceedings was questioned on various grounds including contention that when the statutory auditor had factually ceased to be company auditor ie CA of the particular company and another auditor namely M/s.M.M. Chitale & Co. had stepped into the shoes and assumed that responsibility, provisions of section 140(5) could not have been invoked. We are required to refer to this contention and other allied grounds little later in the body of this judgment. NCLT has by impugned order rejected these objections and held Company Petition No. 2062 of 2019 presented by Union of India to be maintainable.

14. In this connection only on 30/09/2018 the Union of India through its Ministry of Corporate Affairs appointed inspectors with the Director SFIO to inquire into the affairs of the company namely Infrastructure Leasing and Financial Services Limited and its subsidiary companies. The inspectors were given time of three months to submit the report to Central Government.

15. The SFIO accordingly submitted a report which was looked into by the Union of India, Ministry of Corporate Affairs (MCA) and on 29/5/2019 in exercise of the powers available to it under section 212 (14) of the Companies Act, 2013, it directed the SFIO  and  Regional Director (Western Region) to proceed further. This communication recommends prosecution of  petitioners under various provisions and SFIO has been directed to file a complaint by next day i.e. 30/05/2019 without fail and to submit the compliance report. This order has been questioned on the ground that the report which runs into more than 750 pages & has annexures running into 32,000 pages, has been alleged to be examined in about 30 hours by Union of India and filing of prosecution has been ordered. Petitioners submit that this shows non application of mind. It is also contended that the report submitted by SFIO was not a final report but an interim report and as such prosecution cannot be filed on its strength.

16. By later order dated 18/10/2019, the NCLT has allowed Misc. Application No. 3254 of 2019 filed by Union of India. Misc. Application No. 3254 of 2019 was filed after liberty was given to it by Hon’ble Apex Court.for appointment of statutory auditor for IFIN under section 140(5). The NCLT has after considering the facts presented to it, found that Mukund M. Chitale & Co. (MMC) was already appointed by IFIN as its statutory auditor. But in the proviso to section 140(5) only, Union of India is authorized to appoint or change the auditor. MMC had shown its inability to accept the assignment without sanction of Union of India and IFIN could not have remained without the statutory auditor. NCLT therefore, declared that the appointment of MMC as statutory auditor made by the company shall be considered as an appointment of statutory auditor under the first proviso to section 140(5) of the Companies Act, 2013. The facts disclosed in this order show that the order of NCLT dated 9/8/2019 dismissing the objection to maintainability of Company Petition No. 2062 of 2019 was questioned by respondent nos. 3, 4 and 1 before NCLAT in Company Appeal No. 222 of 2019, Company Appeal No. 223 of 2019 and Company Appeal No. 224 of 2019. In those appeals, NCLAT permitted NCLT to proceed with the hearing of the petition to restrain it from passing any order against the appellants before it.

17. After filing of the Company Petition No.2062 of 2019, respondent no.2 therein viz. M/s. BSR and Associates who were statutory auditors for IFIN for the year 2019-20 resigned on 19/6/2019. Respondent nos. 2 and 5 in Company Petition No. 2062 of 2019 moved High Court in Criminal Writ Petition No.4144 of 2019 (present petition) as also Criminal Writ Petition No.4145 of 2019 challenging the vires of section 140(5). High Court on 4/9/2019 while issuing notice passed the following order :

“14. In above circumstances, we defer the hearing on the writ petitions. Stand over to 3rd October, 2019. Till next date, by way of ad-interim relief we pass the following order :

* The Respondents and/or their agents and/or their servants are restrained from continuing any further proceedings qua the petitioners under Section 140(5) of the Act in Company Petition No. 2062 of 2019. 

* No coercive action shall be taken qua the Petitioners in Criminal Complaint filed before the Special Court, being CC No. 20/2019 titled SFIO vs. IL&FS Ltd & Ors. In the Court of Ld. Additional Sessions Judge-cum-Special Judge (Companies Act) at Greater Mumbai.” 

18. Aggrieved by this order of High Court dated 4/9/2019, the petitioners moved SLP before the Hon’ble Apex Court. The Hon’ble Apex Court on 26/9/2019 passed the following order :

“Mr. Mehta, learned Solicitor General submitted that after the resignation of the original writ petitioners, the Company had passed a resolution on 11.07.2019 appointing M/s. Mukund M. Chitale & Co., Chartered Accountants as Statutory Auditors of the Company, to fill the resultant vacancy but said M/s. Mukund M. Chitale & Co., Chartered Accountants have expressed their inability to take up the assignment which would in turn mean that fresh appointment is required to be made to fill up the vacancy.

We see no reason why steps in that behalf could not be undertaken with promptitude so that the interest of the company is not prejudiced on any count.

Learned Solicitor General submits that appropriate application shall be moved before the NCLT. We grant liberty for moving such an application. If such an application is moved, the matter shall be dealt with in accordance with law.”

19. In exercise of liberty given by Hon’ble Apex Court and under first proviso to section 140(5), Misc. Application No. 3254 of 2019 came to be filed for seeking permission for appointment of M/s. M.M.Chitale & Co. as statutory auditors of IFIN for the financial year 2018-19 onwards. As seen above, this order dated 18/10/2019 has not been assailed by any of the petitioners. The orders passed by NCLT are already briefly mentioned by us supra.

20. Adv. Khambata, the learned Senior Advocate states that this High Court has on 4/9/2019 granted interim relief and stayed the proceedings before NCLT. The said order was questioned unsuccessfully before the Hon’ble Apex Court. When the Hon’ble Apex Court was disposing of the SLP, according to petitioners at eleventh hour, some documents were shown to Hon’ble Apex Court with submission that the MMC had declined to accept the responsibility and leave was sought to move appropriate application before NCLT to appoint new auditor. Hon’ble Apex Court granted that leave. Adv. Khambata submits that grant of this leave by the Hon’ble Apex Court and dismissal of the SLP cannot be construed as dilution of the High Court order dated 4/9/2019 and action of respondents in moving the application in very same proceedings which were stayed because of liberty given by the Hon’ble Apex Court is unwarranted. The NCLT could not have proceeded further and allowed that application.

21. Attention of the Court is invited to provisions of section 140 of 2013 Act to show that it appears in a chapter which does not deal with the discipline and therefore, punishment to be inflicted upon the auditors. Removal in the said chapter is termination simplicitor without casting any stigma and therefore, it cannot be seen as disqualification. Contention is disqualification envisaged under section 140(5) operates only against the recalcitrant auditors who do not abide by the orders passed by the NCLT or defy the procedure. It is therefore, a sanction to guarantee the procedural discipline thereunder or the orders passed by NCLT under that section. Second proviso to section 140(5) cannot be seen as ‘stand alone’ provision. Such treatment extended to that sub section would vitiate the entire scheme of the chapter of Companies Act and also the purpose of section 140.

22. Our attention is drawn to the fact that the company auditor must be Chartered Accountant and as such is already regulated by the Institute of Chartered Accountants and its disciplinary rules in so far as professional conduct or misconduct is concerned. There proper procedure has been prescribed in accordance with the principles of natural justice before the Chartered Accountant is punished for his professional misconduct.

23. Apart from the provisions of IPC under which delinquent Chartered Accountant can always be prosecuted, it is submitted that in Companies Act there exists special provision in the shape of section 447. The Directors or the other office bearers of the company or other persons found to have indulged in financial irregularities or fraud can be punished thereunder. It is submitted that the words “any person” employed in explanation (I) thereto also includes the auditor of the company. Such auditor is debarred from functioning as company auditor for two terms. Thus for fraud under section 140(5) the punishment of debarring the auditor for one term is provided. Under section 447 at the end of the trial, the guilty auditor is debarred for two terms. The law does not contemplate two punishments for the same offence or misconduct. Learned counsel argues that if the auditor is debarred for one term of five years under section 140(5) and is subsequently acquitted under section 447, he would have still suffered irreparable loss because of loss of reputation, loss of business etc. It is urged that during the trial under section 447 of Companies Act, the provisions of Cr.P.C. apply and those being tried get full opportunity in accordance with the law of land to defend himself. Such liberty is not protected & procedure is not prescribed under section 140(5).

24. The provisions of section 212 of Companies Act dealing with the Serious Fraud Investigation (SFI) are also pressed into service for this purpose. The provisions of the said section show that the enquiry therein is at par with the investigation under Cr.P.C. and hence, the provisions of section 173 of Cr.P.C. are attracted. Serious Fraud Investigating Officer (SFIO) has to submit report after completion of investigation under section 212(12) and then under section 212(14), the prosecution under section 447 of the Companies Act can be initiated. Section 212(15) gives this investigation report status of report filed by police officer under S.173 of Cr.P.C. The provisions of section 212(11) contemplates even an interim report, but no prosecution can be initiated on the basis of such interim reports.

25. Provisions of section 223(4) and (5) are relied upon to show that these provisions which permit inspection of documents or accounts are not attracted where section 212 of Companies Act is invoked. Section 435(1) of the Companies Act prescribes prosecution before Special Court and under section 436 and 438(1), provisions of Cr.P.C. regulate that prosecution.

26. This elaborate procedure which results in conviction of the auditor and his disqualification for the period of two terms is relied upon to point out how section 140 cannot be understood to contain the scheme for disqualification or debarment of the auditor. Even sections 141 and 142 of the said Act are relied upon for this purpose. It is submitted that section 140 therefore is summary procedure which is not aimed at fastening any guilt upon the auditor but only for his removal during further proceedings so that the concerned company can substitute him by new auditor and its functioning can continue smoothly.

27. Mr. Khambata states that the petitioners M/s. BSR became auditor of IFIN company on 27/11/2017 jointly with its earlier auditor Deloite till 31/3/2018. After 01/04/2018 petitioner BSR continued as sole company auditor for about 16 months when it resigned on 19/06/2019.

28. In this backdrop, it is submitted that the SFIO who was conducting enquriy of M/s. IFIN submitted second interim report in terms of section 212 (14) and on that basis section 447 of Companies Act has been invoked. It is submitted that the Government Order dated 29/05/2019 is based upon the report of which copy is not given to the petitioners despite demand. The new Board of Directors is looking after the affairs of M/s. IFIN since 1/10/2018 and second interim report has been submitted under section 212 on 28/5/2019. This second interim report runs into 32732 pages out of which 732 pages is actual report while the remaining 32000 pages are relevant annextures. This huge report has been looked into by two officers one after the other in the period of less than thirty hours and on 29/5/2019 the prosecution has been ordered against M/s. BSR. It is claimed that the perusal of the such a bulky report and its appreciation could not have been over in such a short time . It is claimed that this has been done hurriedly with undue haste.

29. Advocate Khambata relied upon Shri Ram Krishna Dalmia and Ors. vs. Shri Justice S. R. Tendolkar and Ors. : AIR 1958 SC 538 paragraph Nos.11 and 12, Ameerunnissa Begum and Ors. :AIR 1953 SC 91 paragraph No.11, 13 and 14 as also L. Bansal and Ors. vs. Union of India and Ors.:1992 Suppl. SCC (2) 398 paragraph Nos.21 and 24 to buttress his arguments that there is unwarranted classification between company auditors on one hand and directors/office bearer of the company on the other hand. He has invited our attention to justification pleaded by respondents in reply paragraph Nos.5(i) (D)(E) to urge that this justification does not explain and bring on record any tangible differentia. There is manifest unreasonableness and that by itself is sufficient to quash the provision as unconstitutional. Swiss Ribbons Private Limited and Another vs. Union of India and Ors.: (2019) 4 Supreme Court Cases 17 paragraph no.38 is cited for this purpose. He has also submitted that this disqualification is civil death for the company auditor and this penalty which is mandatory penalty of debarment for 5 years, is bad. He has relied upon Modern Dental College and Research Centre and Ors. vs. State of Madhya Pradesh and Ors. : (2016) 7 Supreme Court Cases 353 paragraph 59 to 65 to point out the need of balancing rights & obligations and to adopt doctrine of proportionality in said matters. He contends that if only object behind enacting section 140(5) is removal of said company auditor, mandatory civil death becomes disproportionate and unwarranted.

30. He adds that it also constitutes double jeopardy. Gagan Harsh Sharma and Anr. vs. State of  Maharashtra: 2019 Cri. L. J. 1398 is relied upon for this purpose.

31. He  submits  that  when  the  petitioner  applied  for documents to find out truth in defence that the report submitted by the SFIO is not an interim report and that before directing him to institute prosecution, the Central Governanment had applied its mind duly on 29.5.2019 to the said report; those documents were not made available and they also did not get opportunity to cross examine. According to him in proceedings before NCLT there is no scope for such cross examination. To explain relevance of the need to supply documents and to cross examine witnesses he cites P. Sanjeeva Rao vs. State of Andhra Pradesh:(2010) 6 SCC 1 (2012) 7 SCC 56. He also explains impact of non-supply of vital documents & denial of opportunity to cross-examine since such report might have influenced NCLI.

32. Senior Advocate Seervahi adopting arguments of advocate Khambata has raised additional contentions in Writ Petition No.4144/2019. He pointed out that removal of any company auditor results in irrevocable and irreparable damage to his reputation. In support he relies upon Institute of Chartered      Accountants       Of    India     vs.    L.K.     Ratna     &   Others– (1986) 4 SCC 537 para 18. The consequences resulting from said removal are very drastic for company auditor, his firm and also for his family. State of Rajasthan v. Mukan Chand,—AIR 1964 SC 1633 paragraph Nos.4,7 and 8 are pressed into service to show how twin test needs to be used for the purpose of Article 14. This ruling is followed in Leelabai Gajanan Pansare vs. Central Insurance Company- (2008) 9 SCC 720 , paragraph 75. Inviting our attention to order of NCLT, he submits that the jurisdictional fact that company auditor to be substituted must be “in office” has been lost sight of. He states that when Hon’ble Apex Court has refused to intervene in SLP, prayers made by Respondent No.1 could not have been entertained in very same matter before NCLT. According to him the date on which MCA-Ministry of Corporate Affairs moved application before NCLT, there was no need for Central Government to do it and there was no power with it to appoint company auditor for IFIN.

33. Senior Advocate Dwarkadas appearing in Writ Petition No.5023/2019 has advanced arguments on the basis of a written note. He submits that first question to be looked into is constitutionality of section 140(5) of the Companies Act 2013. While the other question is validity of order dated 29/5/2019 which grants SFIO sanction to prosecute.

34. Our attention is invited to paragraph Nos. 1 to 10 in his note. He has briefly explained facts and stated that in these facts, when language of section 140(5) is unambiguous, an attempt made by NCLT to artificially twist that language cannot be countenanced. Nathi Devi vs. Radha Devi Gupta– (2005) 2 SCC 271 is relied upon by him for this purpose.

35. He has further submitted that respondents attempted to add words in proviso to this section in an effort to get rid of its unconstitutionality and said attempt is again bad in law. He relies upon sections 132 and 447 of 2013 Act to urge that section 140(5) must be understood in the light of this provision.

36. The procedure for dealing with the Company Auditor who has committed professional misconduct is relied upon by him with submission that National Financial Reporting Authority (NFRA for short) has a detailed procedure in this respect and therefore adequate safeguards for CA. He submits that there if misconduct is established and company auditor is punished, that order is stayed automatically for period of 30 days to enable him to avail remedy of appeal to NCLAT.

37. Rules framed under Chartered Accountancy Act 1949 are also relied upon for this purpose. He states that section 21(2) and section 21(A) (2) deal with minor as also major professional misconducts and lay down the procedure therefor. He has invited our attention to section 21 (A) (3), 21(B) and section 22 to show that there is uniformity and established procedure to deal with such misconduct. Rule 9 of Rules framed under Chartered Accountants Act for said purpose is also relied upon.

38. He contends that when misconduct is looked into by NFRA or by the Institute of Chartered Accountants, because of settled and established uniform procedure known beforehand, the company auditor gets effective opportunity. This provision therefore safeguards his right to practice and also his reputation. Rules 14 and 18 are cited for this purpose. To explain importance of a settled and uniform procedure he draws support from – Maneka Gandhi vs. Union Of India-— 1978(1) SCC 248 paragraph No.1 179, 180, 143 and 147, 5,6 , 201, 202, 82, 84 and 173.

39. He has submitted that under section 140(5) direction is to be issued to Company to change auditor and the final order envisaged therein needs to be understood accordingly. To explain how said proviso needs to be interpreted he has relied upon Union of India vs. Sanjay Kumar Jain–(2004) 6 SCC 708 paragraph No.11. He has also submitted that AIR 1961 SC 794-Jeahnanda & Sona vs. State of U.P. also throws light in this respect.

40. He invited our attention to section 212 of 2013 Act. He submits that the procedure stipulated therein has been circumvented.

41. Inviting our attention to note at page 19, he argues that first explanation to S. 140(5) is inherently inconsistent since it overlooks provision of sections 27, 28 and 30 of the Limited Liability Partnership Act. He further submits that debarment of entire firm of Company Auditor is an exception in this situation.

42. Senior Advocate Mr. Desai taking up the challenge on the ground of double jeopardy, submitted that in such matters where the reputation of company auditor is at stake, procedural safety must exist. Though the report submitted by SFIO is expressly titled as interim report, in the petition filed by BSR defence has been taken that the investigation is complete. The same agency however, states that the investigation qua the partners is still incomplete. He invites attention to the stand taken on 20/6/2019 in paragraph 15 for this purpose before NCLT.

43. He Also states that as per the affidavit reply and the annexures filed thereto the Ministry of Corporate Affairs needed information and the interim report itself states that the investigation is going on. In this backdrop, he invites attention to section 173 Cr.P.C. to show how the scheme therein is different than one in section 212 of the Companies Act. He also invites attention to the stand in reply and contends that the MCA has shown undue haste with a view to defeat the statutory right of bail which might have accrued to one of the directors.

44. Rakesh Kumar Paul vs. State of Assam –(2017) 15 SCC 67.. paragraphs 11, 16, 28, 29, 32,38 and 39 are relied upon by him to submit that the steps hurriedly taken to defeat the provisions regarding default bail are mala fide and illegal.Kamlapati Trivedi vs. State of West Bengal: (1980) 2 SCC 91 , paragraph 50 and 52 are relied upon to state that the cognizance can be taken only of complete investigation.

45. Advocate Desai while advancing the arguments on 17/12/2019 stated that the sanction granted on 29/5/2019 to launch prosecution is vitiated. He handed over to court a copy of Company Application No.2017/2019 moved before the NCLT by the Union of India to show that there in paragraph 15, the Union of India (MCA) has submitted on 8/6/2019 that the investigation was incomplete. Because respondents realized the impact of section 4(2) of Cr.P.C. on their action and on section 212 of the Companies Act, they have taken a plea that the investigation is complete by way of afterthought. Section 212(12) of the Companies Act envisages final report and therefore, it is deviation from Cr.P.C. Unlike Cr.P.C. the Companies Act does not contemplate the final report. He submits that it is after section 212(14) stage that the investigation can be carried by SFIO.

46. He in this backdrop, relies upon the judgment of the Hon’ble Apex Court reported at State of Punjab and Anr. vs. Gurdial Singh and Ors.: (1980) 2 SCC 471 paragraph 9 to point out what is fraud on power and its impact. He submits that the order dated 29/5/2019 therefore, does not exist and it is void.

47.Inviting attention to letter dated 29/5/2019, he states that the purpose behind it is debarment of the company auditor and it is the hidden motive. Briefly he explains the three procedures in 2013 Act which are aimed at debarring the company auditor.

48. Again inviting attention to the investigation report of SFIO he points out that therein the recommendation is about removal of existing auditor. He submits that there is distinction between the existing auditor and those who have ceased to be company auditors as they have been rotated out. He further adds that the report submitted on 28/5/2019 again strengthens the arguments that it was ongoing investigation.

49. He submits that 15 days time available to NCLT to pass suitable orders is not directory as per stand of respondents in their reply affidavit. According to him in the instant matter, the procedure established by law has been circumvented and deliberately section 140(5) of Companies Act has been invoked though there was no such need and though there   are  no  sufficient  procedural  safeguards. Vinubhai Ranchhodbhai Patel vs. Rajivbhai Dudabhai Patel and Ors.: (2018) 7 SCC 743 paragraph 16 is relied upon to show how the framing of charge is imperative part of procedural safeguards. He contends that the petitioners are expected to answer interim report of SFIO which runs into 752 pages and which has more than 36,000 pages annexures within 15 days, though there is no specific charge framed against them. According to him there is violation of fair procedure envisaged in such matters.

50. According to under Article 20, the which decides it him, while considering the challenge nature of proceedings as also the forum is irrelevant. Supreme Court Bar Association vs. Union  Of  India  –1998(4)  SCC  409 paragraph 40 is relied upon to buttress this submission and to demonstrate how the punishment of cancelling the licence of an advocate in contempt-action has been viewed. Institute of Chartered Accountants Of India  vs.   L.K.  Ratna  & Others– (1986) 4 SCC 537 para 18 is also cited by him to point out how it considers the case of damage of reputation.

51. The Judgment of Supreme Court of United States in the case of Hudsun Vs. United States followed by the Supreme Court of India is also relied upon by him to urge that article 20 of the Constitution or section 26 of the General Clauses Act does not require that both actions must be under the criminal law. To support this, he also relies upon the history and object behind section 140(5) explained by respondent no.1 in paragraph 5 of its reply affidavit.

52. On 18/12/2019, Advocate Desai submitted that the question whether such debarment of company auditor constitutes penalty or not is answered by the United States Supreme Court in Hudsun Vs. United States (supra) and he also points out the reply affidavit in Writ Petition No. 4145 of 2019- particularly paragraph 17 to 19.

53. To stress the Indian Law on the point, he draws support from AIR 1953 SC 325 : Maqbool Hussain Versus State of Bombay, paragraph 3, 11 and 17, (2015) 3 SCC 799 : Union of India and another Vs. Purushottam, paragraphs, 7,8 and 9. The later judgment also considers the above mentioned judgment of the United States Supreme Court.

54. He submits that the NCLT is a judicial tribunal. Paragraph 54 and 57 in Writ Petition No. 3250 of 2019 are relied upon by him to buttress his submission. Section 408, 409, 419, 420, 424(4), 425, 430 and 432 of the Companies Act are also pointed out by him. Union of India vs. R. Gandhi, Madras Bar Association(2010) 11 SCC 1 paragraphs, 106,  are relied upon by him to show that the NCLT is a judicial tribunal.

55. NCLT rules particularly rule 34, 39, 40,47 and 52 are pressed into service to point out the powers akin to court given to NCLT for this purpose. (2015) 8 SCC 583 : Madras Bar Association Vs. Union of India and another, paragraphs 15 and 16 are also relied upon to show that the NCLT constituted under 2013 Act is also held to be a tribunal by the Ho’ble Apex Court.

56. To explain the meaning of collusion and to show that it implies criminal conspiracy, he draws support from (2004) 9 SCC 83 : State of Goa and another Vs. Colfax Laboratories Ltd. And another paragraph 18 and contends that section 140(5) which precedes on criminal conspiracy therefore is against Article 20(2).

57. Dealing with the aspect of proportionality of such disqualification for 10 years, he adopts the arguments of Advocate Khambata and submits that those who commit offence are not visited with such drastic consequences by 2013 Act.

58. Sr. Advocate Desai submitted that the status of report of Serious Fraud Investigation Office (SFIO) as interim report has been admitted by Respondent-Union of India in its reply affidavit before NCLT. Our attention is invited to paragraph 15 of reply filed on 20/6/2019 to show that there it is expressly mentioned that investigation qua the partners sought to be added was incomplete as on that day. The affidavit reply filed in Writ Petition No.4145/2019 is also relied upon to show that Ministry of Corporate Affairs (MCA) has disclosed that it had noted certain information in very same report which pointed out that investigation was continued. The fact that action on report of SFIO was expedited and directed to be completed in time bound manner is also relied upon to urge that only purpose was to defeat statutory bail which the other directors were entitled to in default.

59. Advocate Desai has relied upon judgment reported at Ramesh Kumar Paul vs. State of Assam:(2017) 15 SCC 67 to show how the provision in relation to default bail is dealt by Hon’ble Apex Court. He claims that it is important part of right of liberty and has highlighted its breach in the present matter by acting upon the interim report. Kamlapati Trivedi vs. State of West Bengal: (1980) 2 SCC 91 is also strongly relied upon by him to urge that law permits cognizance to be taken only if investigation is complete and not before that.

60. Our attention is invited to Company Application No.2070/2019 preferred by Union of India before NCLT to point out that on 8/6/2019 also the fact that investigation is not complete, has been accepted.

61. Respondent realized impact of section 4(ii) of Cr.P.C. on section 212 of Companies Act,2013 and special provision therein regarding completion of investigation and therefore inorder to defeat it, they have decided to act upon interim report. He contends that section 212 (12) also envisages final report only. It is further submitted that if report under section 212 (14) is received, it is open to the Central Government to order further investigation by SFIO.

62. State of Punjab and Anr. vs. Gurdial Singh and Ors.: (1980) 2 SCC 471 paragraph 9 is relied upon to urge that order dated 29/5/2019 is void and non existent since power is abused or its colourable exercise is apparent,

63. Our attention is invited to said communication dated 29/5/2019 to state that debarment i.e. punishment to said auditor is real but hidden motive. There are total three proceedings that can be initiated against the auditor for debarment i.e. one by the Institute of Chartered Accountant, other under section 447 of the Companies Act and the third under section 140(5) of the Companies Act. The investigation report received by the Ministry of Corporate Affairs shows that recommendation of removal can be acted upon if it is issued against existing auditor. The law makes distinction between auditors who are retired and those who are existing auditors. Letter dated 28/5/2019 shows that no action is possible against Chartered Accountant who is no longer a company auditor.

64. Learned Senior Advocate has invited our attention to the fact that time of 15 days envisaged under section 140(4) is stated to be mandatory by respondents in their reply affidavit. He submits that debarment of auditor is his civil death and is not recommended in the SFIO report. Despite this Ministry of Corporate Affairs has preferred to use section 140(5) as it wanted to victimize the petitioners. He submits that such punishment can be inflicted only in accordance with the procedure established by law and under section 140(5) there is no such procedure. Vinubhai Ranchhodbhai Patel vs. Rajivbhai Dudabhai Patel and Ors.: (2018) 7 SCC 743 is not recommended in the SFIO report. Despite this Ministry of Corporate Affairs has preferred to use section 140(5) as it wanted to victimize the petitioners. He submits that such punishment can be inflicted only in accordance with the procedure established by law and under section 140(5) there is no such procedure. Vinubhai Ranchhodbhai Patel vs. Rajivbhai Dudabhai Patel and Ors.: (2018) 7 SCC 743 is again relied upon to explain importance of process of framing of charge and procedural safeguards implied in it. He argued that the petitioners were made to answer within 15 days though there was no charge framed. Thus highhanded procedure has been followed in the matter.

65. While dealing with ground of double jeopardy, he submits that section 447 of the Companies Act and section 140(5) both spring into action after fraud is detected. It is therefore same offence for which two different actions are provided for. Fraud is defined under section 447 only and it cannot be given different meaning under section 140. State of Bombay vs. S. L. Apte and Another: AIR 1961 SC 578 is relied upon for this purpose.

66. The basis for initiation of action under section 447 and under section 140(5) is the same. It is based on same report, application of mind thereafter, same witnesses and same evidence.

67. Learned Senior Advocate states that while examining the concept of double jeopardy, punishments under both these provisions are not required to be same. Section 141 (1) (h) prescribes debarment for 10 years while punishment under section 140(5) is of debarment for 5 years.

68. Practitioners like auditor, Chartered Accountant, advocate and professionals constitute a class by themselves. Hon’ble Apex Court has considered the civil death which they suffer because of debarment and has prescribed the standard or requirement of proof beyond reasonable doubt in disciplinary matters. Proceedings for debarment are therefore criminal in nature.

69. An Advocate vs. Bar Council of India –1989 (supp) 2 SCC 25 is relied upon to show that proceedings are quasi criminal in nature and accordingly standards and procedure relevant in criminal jurisprudence are required to be used while debarring the auditors also. For Article 20 of the Constitution of India and S. 26 of General Clauses Act, nature of proceeding is irrelevant. (1998) 4 SCC 409- Supreme Court Bar Association vs. UOI & another and Institute of Chartered Accountants Of India vs. L.K. Ratna & Others– (1986) 4 SCC  537  are  relied  upon  by  him  to  substantiate  this contention. Judgment of S.C. of Unites States in case of Hudson vs. United States –522 US 93 (1997) followed by Indian Courts in (2015) 3 SCC 779 : Union of India and another Vs. Purushottam & other cases is also relied upon for this purpose.

70. Reply affidavit filed by MCA is relied upon to explain how measure of debarment came to be added to section 140(5) as punishment and as an interim measure.

71. The recent judgment dated 29/11/2019 delivered at Mumbai in Writ Petition No. 3250 of 2019 and paragraphs 54 and 57 therein are relied upon to urge that NCLT is a judicial tribunal. (2010) 11 SCC Page 1 : Union of India Vs. R. Gandhi is also pressed into service to show that under old Companies Act, NCLT has been held to be Judicial Tribunal.(2015) 8 SCC 583 : Madras Bar Association Vs. Union of India and another is cited for buttressing the submission that even in 2013 Companies Act, NCLT is recognized as a judicial tribunal.

72. In this backdrop, contention is second proviso to section 140(5) mandates second punishment and debarment without leaving any discretion in the judicial Tribunal. This is therefore, contrary to Article 14 and Article 21 of the Constitution of India. The decision given by NCLT must operate as res judicata in the proceedings before NFRA u/S. 132 where the company auditor would be barred for ten years and hence, this is nothing but in breach of protection against double prosecution.

73. He adds that the role of the company auditor is only limited to audit the accounts of transactions which are already made and therefore, fraud or tampering if any, has already taken place. As such, the. principal offender is somebody else and CA is not party to it. Hence, punishment of debarment or civil death imposed upon such auditor is grossly disproportionate.

74. (2001) 6 SCC 181 : T.T.Antony Vs. State of Kerala and Ors. (para 27) and (2013) 6 SCC 384 : Anju Chaudhary Vs. State of Uttar Pradesh and another para 14 are relied upon to submit that Article 21 also confers protection against multiple criminal proceedings. Principle akin to double jeopardy has been used by the Hon’e Apex Court to quash the second FIR at the initial stages. According to him section 210 CrP.C. also adopts the same principle. The Division Bench judgment of this court reported at (2017) 3 Mah.L.J. 929 : Tulsi Dass S/O. Suraj Prakash Vs. Union OF India and Ors . para 29 is relied upon to show that even in departmental enquiries, because of Article 21, this principle has been extended.

75. With the leave of the Court, Advocate Dwarkadas submits that the debarment under section 140(5) cannot be seen as interim or protem measure because there is no power to pass final orders in relation to it in the scheme of section 140 He submits that the auditor needs to be removed by the company while debarment as the punishment is to be imposed by some other authority.

76. Appearing for the petitioners in WP No. 5035 of 2019 Advocate Robin Jaisinghani submitted that the petitioners are partners in the firm Deloite which has independently filed another petition.

77. He adopted the arguments advanced by others but clarified that this partner has also questioned the order of NCLT before the appellate tribunal and hence, the question raised in Writ Petition is only about the constitutional validity of section 140(5) of Companies Act and about violation of Article 14 and 21 of the Constitution of India.

78. To add to the arguments already advanced on Article 14 of the Constitution of India, learned counsel has invited our attention to the provisions of section 167 (ii)(e) and (f) of 2013 Act as also proviso thereto. He states that this section and provisions gives the Director of Company time of thirty days after the order to his prejudice is passed. If in the meanwhile such director files an appeal, he cannot be removed and protection statutorily granted continues for the period of seven days more after the appeal is dismissed. Thus the Director has been treated differently than the company auditor. Section 164 which prescribes disqualification for the company director is also relied upon to urge that the disqualification specified therein arises after the conviction and sentencing. Thus the company auditor gets disqualified even before the conviction and before he is sentenced. He does not get any breathing period while the director who is more at fault in the fraud, is treated more leniently.

79. Section 177 of the Companies Act is also relied upon to show that the important function as watchdog which the company auditor performs is also to be performed by the Audit Monitoring Committee. The said Audit Monitoring Committee consists of experts and there are majority of independent directors on it. This is with a view to introduce transparency and to monitor the financial matters more scrupulously. This Audit Committee or Directors on it, are not dealt with in summary manner. The auditors appointed under section 139 of the Companies Act can only be dealt with in the manner prescribed in section 140 thereof. The internal auditors are not similarly dealt with. For this purpose, he makes reference to section 138 of the Companies Act.

80. Rule 13 of the Rules framed under the Companies Act for internal audit, rule 14 and rule 18 are also cited for this purpose. The procedure prescribed is also pointed out. Rule 19 is relied upon to show that it contemplates opportunity of hearing to the person found guilty even after he is convicted.

81. Provisions of section 21B of the Chartered Accountants Act are relied upon to point out how the said Act also prescribes opportunity of hearing before the punishment. He then points out the amendments made recently to first schedule and second schedule of the said Act to introduce the concept of deemed conviction. He contends that CA (company auditor) visited with debarment under section 140(5) suffers deemed convict under these schedules and therefore, can be punished directly by the Institute of the Chartered Accountants. He argues that this amendment is high handed and unconstitutional. Rule 34 and rule 51 of the NCLT Rules is relied upon to show that while proceeding against the company auditor, NCLT has been permitted to evolve its own procedure. Thus there is no pre-set or well established procedure and company auditors can be subjected to different procedures as per its whim by NCLT. Such a provision needs to be struck down on account of procedural inequality. He draws support from AIR  1952 SC 75 : The State of West Bengal Vs. Anwar Ali Sarkar and another, paragraph nos. 20(1), 38 and para 45 To explain the importance of the procedure in such matters and relevance of Article 21 of the Constitution of India, he draws support from the observations of the Hon’ble Apex Court in paragraph 21 and 266 in AIR 1950 SC 27 : A.K. Gopalan Vs. State of Madras.

82. Advocate Ponda appearing for the petitioner Director in WP No. 5263 of 2019 submits that the said petitioner is not concerned with the provisions of section 140 of the Companies Act. He states that the said Director has been made accused no. 3 in Criminal Complaint instituted after report of SFIO. He submits that he has been arrested on 01/04/2019 and the period of 60 days expired on 30/05/2019.

83. Learned counsel submits that at several places in its reply the Ministry of Corporate Affairs has accepted the report of SFIO as an interim report and also the need of further investigation. The provisions of section 212 of the Companies Act do not permit initiation of action against the petitioner on the basis of such interim report. With the aid of judgment of the DB of Allahabad High Court reported at 1975 SCC Online All 195 Lakshmi Brahman & another vs. State, paragraphs 9 & 10; he submits that the power to remand under S. 309 was not available here. He argues that the report which enables the Magistrate to frame charge can only be seen as a final report. All other reports are therefore, legally not in existence. He has relied upon 2018 SCC Online 1638 : Achpal Vs. State of Rajasthan, paragraphs 15, 16, 17 and 18 to explain the importance of procedure added through section 167 of Cr.P.C. He contends that the interim report could not have been used to deny this statutory right of default bail which had become available to the petitioner Director.

84. Relying upon the reply affidavit of MCA, he submits that the respondent MCA admits that the competent court has still not taken cognizance of the offences. As such section 309 of Cr.P.C. is also not attracted and there is no question of remanding the petitioner Director in this situation. His continuation in the custody is therefore, in violation of Article 21 and 22 of the Constitution of India.

85. He submits that the interim report submitted by SFIO runs into more than 750 pages and with relevant documents it is more than 32000 pages. The claim that two officers of MCA have applied their mind to these documents in less than 24 hours is therefore, ridiculous and the directions issued to file complaint on next day are unsustainable. The directions could have been issued after due application of mind, that too after a final report. Here, there is no application of mind. Our attention is invited to the mention of fact in the said direction dated 28/5/2019 that if the complaint is not filed before 31/5/2019, the petitioner Director would get a default bail. Learned counsel submits that thus power is being abused to illegally detain the petitioner Director in Jail.

86. Adv. Ponda has taken us through various judgments to substantiate his contentions.

87. For  the  convenience  of  the  Court  learned  Senior Advocate Chinoy handed over written submission. Orally he has submitted that second proviso to section 140(5) is not intended to prompt or aimed at inducing the CA-company auditor to resign. It is a substantive provision essentially intended to see that said auditor who is found involved in fraud or has colluded for that purpose with directors or officers of company, should not continue to monitor accounts of any company atleast for next 5 years. He submits that first proviso to that section can be seen as an interim measure because there action is envisaged within 15 days of receipt of application and hence, consequential final order is also envisaged in second proviso. Said auditor against whom final order has been made therefore can not be reappointed for next 5 years as auditor in the company. This provision is remedial as also preventive in nature and must be construed accordingly to further its object.

88. Accordingly, he has relied upon judgment of Hon’ble Apex Court to urge that it is not a rule that proviso must be seen as subservient to main section. Clear language of said provision can establish that it is not a qualifying clause but a substantive provision in itself. Commissioner of Commercial Taxes vs. Ramkrishan Shrikrishan Jhaver- AIR 1968 S.C. 59 paragraphs No.8 & 9 are pressed into service for this purpose. He adds that clear language in second proviso to section 140(5) shows that it is not controlled by substantive part of section 140(5).

89. He further submits that in view of clear scheme, interpretation of section 140(5) cannot be controlled by the heading of section 140 and plain language and substantive proviso needs to be given full effect. He submits that the judgment in the case of  Rawatmal Dugar–(2004) 4 SCC 766 relied upon by the petitioner itself lays down this proposition. 

90. According to him resignation of auditors against whom proceedings are initiated under section 140(5) is out of question since law does not permit company auditor to resign at his free will and he has to complete certain formalities. The public purpose behind second proviso to section 140(5) cannot  be allowed to be defeated by putting any such interpretation and permitting the auditor to escape from disqualification under said proviso, thereby permitting continuing to take care of accounts of other companies. Law can not countenance such a paradoxical situation.

91. He further submits that first proviso to section 140(5) operates only after a superior body like NCLT which has substituted High Court, is satisfied about fraud or collusion. The said authority though quasi Judicial Tribunal has to follow principles of natural justice and has to pass final order which itself is sufficient safeguard against abuse or misuse of provision. He relies upon judgment reported at – Subramanium Swamy vs. CBI (2014) 8 SCC 682 and Swiss Ribbons P ltd. vs. UOI (2019) 4 SCC 17 to contend that there is presumption of constitutionality, petitioners have to make out a clear case of transgression of constitutional principles. He also relies upon Union of India vs. R. Gandhi, Madras Bar Association– (2010) 11 SCC 1 to show the higher position at which NCLT has been placed. NCLT therefore exercises powers and jurisdiction vested earlier in High Court under old Companies Act.

92. The proceedings before High Court under Companies Act 1950 were essentially civil in nature and proceedings before NCLT are also civil proceedings. They are distinct from trial of offence under section 435 and 436 of the Companies Act 2013. He contends that merely because the company auditor cannot be reappointed for period of 5 years, the proceedings under section 140(5) do not become either criminal or quasi criminal. He states that judgment of Hon’ble Apex Court in An Advocate vs. Bar Council of India –1989 (supp) 2 SCC 25 considers proceeding under section 35 of Advocates Act where right to practice the profession as advocate is taken away. He claims that barring Chartered Accountant from acting and practicing for short duration does not make proceedings in NCLT, a criminal proceeding. He relies upon Director of Enforcement vs. M.C.T.M. Corp. (P) Ltd. – (1996) 2 Supreme Court Cases 471 for this purpose.

93. Sr. Advocate also states that judgment reported at An Advocate vs. Bar Council of India -1989 (supp) 2 SCC 25 supra has been rendered without looking into the larger Bench judgment reported at P.J. Ratnam vs. D. Kanikram—AIR 1964 SC 244, and other judgments like S.A. Venkataraman vs. Union Of India– AIR 1954 SC 375, Pandurang Dattatraya Khandekar vs. Bar Council of Maharashtra – (1984) 2 SCC 556, Gulabchand vs. Kudilal– AIR 1966 SC 1734.

94. He draws support from judgment in the case of Hudson vs. United States to explain why proceedings under section 140(5) cannot be seen as prosecution and punishiment. He also pointed out that this judgment has been cited by Supreme Court of India in Union of India vs. Purushottam – (2015) 3 SCC 779.

95. He submits that the procedure stipulated in NCLT Rules 2016 is not arbitrary & does not result in any or violation of Articles 14, 19 and 21. Union of India vs. Madras Bar Association– (2010) 11 SCC 1 is cited in support.

96. To urge that procedure followed by NCLT cannot be faulted with, he invited our attention to section 132 (4) of the Companies Act,2013 to show that NFRA can also take action against Chartered Accountant and Rule 11(5) of National Financial Reporting Authority Rules 2018 also contemplates only a summary procedure. Section 14(1) of the Chartered Accountant Act 1941 also prescribes summary disposal procedure in such disciplinary matters against Chartered Accountants.

97. Dealing with argument of proportionality advanced by the petitioner, he states that section 140(5) springs into life when a fraud or collusion is perceived which is wrong/misconduct of superior degree than mere negligence & said section is not attracted in case of mere negligence. The satisfaction to that effect on part of NCLT is must therefor.

98. He adds that Article 20(2) of the Constitution of India is attracted when the prisoner is prosecuted and punished with reference to offence. When there is no such offence or prosecution, there is no punishment. He relies upon paragraph No.12 of the judgment in AIR 1953 SC 325–Maqbool Hussain Versus State of Bombay and judgment in S.A. Venkataraman vs. Union Of India– AIR 1954 SC 375. He also submits that in latter judgment, in paragraph No.16, Hon’ble Apex Court has pointed out how action of Bar Council in striking of name of advocate for professional misconduct is not a punishment or an offence.

99. He submits that role of Company Auditor or Chartered Accountant is independent and they are representatives who have to protect interest of shareholders. They are not employees of company or subordinates of directors of company. He has explained their role by inviting our attention to judgment of Bombay High Court reported in the case of Sales Tax Practioners Association of Maharashtra and ors. vs. State of Maharashtra– 2008 SCC Online Bom 337, paragraph 12 and Deputy Secretary to the Government Vs. S.N. Das Gupta -AIR 1956 CAL 4. Thus, according to him, stand that role of Company Auditor must be seen as subordinate or secondary to role of Director of Company or Officers of Company is itself erroneous. He also invited our attention to provisions contained in Section 243 (1) (A) and 242 (4) (A) to show that in similar circumstances, the Director of the company also cannot hold office.

100. While dealing with the challenge in Writ Petition No. 4145 of 2019 to order dated 9/8/2019 passed by the NCLT, learned senior counsel points out that the petitioner has resigned as an auditor 9 days after the NCLT issued notice to it. The Union of India filed Company Petition No.2062 of 2019 for his removal under section 140(5) and for further action as per its proviso, on 9/6/2019 which came to be admitted by the NCLT on 10/6/2019. It was to be placed again on 21/06/2019 and on 10/06/2019, advocate for the BSR was present before the NCLT. On 19/06/2019, petitioner BSR and Associates submitted their resignation as an auditor of IFIN. IFIN appointed M.M. Chitale & Co. as its statutory auditors on 11/07/2019 wef 19/06/2019. Thereafter on 14/07/2019, BSR filed Misc. Application No. 2505 of 2019 and prayed for dismissal of the company Petition No.2062 of 2019 contending that the NCLT had no jurisdiction since BSR and Associates were no longer company auditors of IFIN. Learned senior counsel submits that in this backdrop, the reasons recorded by NCLT that by subsequent resignation, the jurisdiction invoked earlier could not have been taken away, are valid. He submits that the BSR and Associates exercised option and chose to raise their contention before NCLT and as such, adverse order of NCLT needs to be questioned in further appeal as per the provisions of Companies Act, 2013 in NCLAT. He further states that after the appeal is decided by the appellate tribunal, statute provides further appeal to Hon’ble Apex Court, that too only on the question of law. This statutory scheme cannot be allowed to be bypassed or defeated by BSR in this manner.

101. He points out that similar objection was raised by the another petitioner in WP No.5023 of 2019 namely M/s. Deloitte and it has filed appeal against same order and that petitioner has not questioned this order of NCLT before this court. Contention is as the appellate tribunal is already bound to look into the challenge before it, the availability of alternative remedy to BSR and Associates must be taken note of and held as a bar.

102. He submits that the BSR & Associates have challenged the constitutional validity of section 140(5). If that challenge is upheld, order of NCLT automatically falls to ground. However, if the challenge is rejected, the availability of alternate remedy must be used to deny intervention by this Court, and BSR and Associates should be asked to file statutory appeal.

103. To buttress his submission that right of the parties crystallize on the date on which the Company Petition No. 2062 of 2019 was filed before NCLT, he has relied upon (2004) 3 SCC 178 : Union Umbrella Manufacturing Co. and Ors. Vs. Bhagabandel Agarwalla and Ors., (2006) 2 SCC 724 : Mohinder Prasad Jain Vs. Manohar Lal Jain and (2003) 1  SCC 726 : Beg Raj Singh Vs. State of U.P. and Ors.

104. Without prejudice to this preliminary objection, learned counsel has submitted that the order of NCLT dated 09/08/2019 is just and valid. It has given appropriate reasons for holding that the resignation submitted after filing of the proceedings by UOI cannot be used to defeat the scheme of section 140(5) which is preventive as also remedial in nature. The purpose of the said provision is to deny to the company auditor involved in fraud or collusion, further participation in the affairs of company or in audit work. This object would be defeated if by submitting resignation such auditor is permitted to continue with that work. He further submits that after passing of the final order, as envisaged in second proviso, the company auditor cannot be reappointed to undertake audit work of any company. This object also will be defeated if the interpretation of petitioner is accepted. The strategy adopted by the petitioners is against the public interest and should not be countenanced to.

105. While dealing with the order dated 18/10/2019 by NCLT under first proviso to section 140(5), learned senior counsel submits that the contention about the NCLT loosing jurisdiction since M/s. BSR Associates had resigned and IFIN accepted that resignation and appointed M/s. M. Chitale as its auditors is liable to be discarded.

106. He points out the provisions of section 140(5) to urge that resignation of auditor proceeded against or any appointment purported to be made to substitute him is legally inoperative and cannot be pressed into service before the NCLT to deny it the jurisdiction.

107. While  dealing  with the  submission  that  the  first respondents could not have on 29/05/2019 directed SFIO to initiate prosecution under section 212(14) of the Companies Act, 2013, he submits that the act of respondents in using the words “interim report” while describing the report of SFIO is legally irrelevant since it is not interim report at all as envisaged under section 212(11). He argues that reliance placed upon the judgment reported at (1974) 1 SCC 242- Nagindas Ramdas vs. Dalpatram Ichharam, by the petitioners is erroneous since here the nomenclature and status of the report is decided by section 212(11). He has drawn our attention to the fact that along with the reply, copy of one more SFIO report on financial affairs has been filed and there it has been expressly described as interim report. It also mentions direction of Central Government with reference to which said report came to be filed. As against this the report which forms subject matter of the challenge before this court, nowhere describes itself as interim report and it has not been submitted in furtherance of any direction of Central Government as required by section 212(11) of the Companies Act, 2013. Thus act of parties loosely describing that report as interim report does not make it an interim or an incomplete report. It is a final report and on its basis, action has been rightly taken. According to him, the letter written by the first respondent on 30/05/2019 directing SFIO to initiate prosecution against officers/persons mentioned therein, therefore, cannot be faulted with on this ground.

108.  He explains that the SFIO report no doubt runs into more than 700 pages and has large number of annexures, but that does not mean that mind could not have been applied to it within 24/30 hours. The requirement of a valid sanction needs to be looked into by finding out whether the authority granting the sanction had before it relevant material justifying the grant and whether it has been looked into. The order dated 29/05/2019 does not disclose any non-application of mind. Petitioners have not pointed out to this court lack of material before the first respondent so as to vitiate the order dated 29/05/2019. He contends that this mere hypothetical contention that the report could not have been looked into within 30 hours, is liable to be rejected.

109. Shri Chinoy adds that even otherwise, no Government sanction is as such required to initiate action under section 140(5) of the Companies Act, 2013.

110. Advocate Venegaonkar, appearing for SFIO who is respondent no. 2 in all the writ petitions, invites attention to the prayer clause (iic) added by amendment in WP No. 4145 of 2019 to urge that there prayer is to quash and set aside the Criminal Case No.20 of 2019 instituted by SFIO before the competent court.

111. According to him, this prayer and writ petition is not maintainable to that extent as that court ie trial court has still not taken cognizance and the process has still not been issued. He submits that after report to police or Investigating Officer and till accrual of right, if any in favour of the accused, the matter proceeds through three stages. He has relied upon (2014) 3 SCC 92 : Hardeep Singh Vs. State of Punjab and Ors. to demonstrate this. The accused like petitioner can intervene only when the cognizance is taken and till then, he has no right to challenge the proceedings. He also draws support from (2012) 10 SCC 517 : Manharibhai Muljibhai Kakadia and another Vs. Shaileshbhai Mohanbhai Patel and Ors . for this purpose. Petitioner is not entitled to be heard on the question whether process should be issued against it or not.

112. Our attention is also invited to the judgment of the Hon’ble Apex Court reported in  AIR 1963 SCC 1430 :

Chandra Deo Singh Vs. Prokash Chandra Bose alias Chabi Bose and another to contend that when the court of learned JMFC cannot hear or extend an opportunity to petitioner, the High Court also cannot do it and hence, the petition as filed is liable to be dismissed. The grounds like non application of mind in direction or sanction order or about report under section 212 of 2013 Act being interim report, cannot be raised at this stage.

113. To  explain  the  status  of office of  SFIO,  learned advocate has relied upon (2019) 5 SCC 266 : Serious Fraud Investigation Office Vs. Rahul Modi and another. He submits that the SFIO headed by Director is a compact and complete unit consisting of experts in different fields/domains. He relies upon paragraphs 28 and 29 of the said judgment for this purpose. He also draws support from use of the word “assigned” in section 212(3) to explain that the other investigating agencies are completely denuded of any power to conduct the investigation in respect of the offences mentioned in this section. He supports the arguments of the learned senior counsel Mr. Chinoy that the SFIO has not described his report as an interim report. He adds that the status of the report as interim report will have to be determined with reference to direction in section 212(11) and as there is no such direction of Central Government, the report submitted on 29/05/2019 cannot be seen as an interim report. According to him, it is a final report which is complete in all respects. He states that there are various transactions with other companies and cross linkages which need to be looked into, and a separate report in relation to said connections can be filed after the investigation into their affairs.

114. Learned advocate has invited our attention to his brief written note on point no. 4 to contend that the report dated 28/5/2019 is complete and it is in relation to IFIN only. He placed heavy reliance on certain paragraphs in the said report for this purposes. He further adds that this report has been prepared on “stand alone” basis and needs to be appreciated accordingly. Learned counsel states that the effort to demonstrate that the report is interim or incomplete, cannot succeed. Nine points identified by investigation in paragraph 1 and 4 of the said report are also read out to the court.

115. In this backdrop, he submits that the said report is not under section 173 of Cr.P.C. and the deeming fiction under section 212(15) in 2013 Act is only for the limited purpose i.e. for the purposes of framing of the charge. This limited fiction cannot be enlarged further. He draws support from (1998) 6 SCC 183 : State Bank of India Vs. D. Hanumantha Rao and another paragraph 5.

116. Dealing with the issue of sanction/direction under section 212(14) he submits that in all the petitions filed before this court, the grounds assailing it show that the same accept existance of order/sanction dated 28/05/2019. In view of this position and as such document exists, all grounds raise the questions of facts and therefore, cannot be considered by this court. The same need to be answered by the trial court when the trial proceeds.

117. According to Shri Venegaonkar, all precedents cited by the petitioners in this respect deal with the cases of “no sanction” and hence, are not relevant. He has relied upon (2007) 1 SCC 1 : Prakash Singh Badal and another Vs. State of Punjab and another, (2012) 1 SCC 532 : Dinesh Kumar Vs. Chairman, Airport Authorty of India and another, (2015) 16 SCC 163 : Director, Central Bureau of Investigation and another Vs. Ashok Kumar Aswal and another and (1974) 3 SCC 72 : The State of Rajasthan Vs. Tarachand Jain. On the strength of last 2 rulings, he claims that the accused has to prove the prejudice caused by alleged lacunae in the sanction during the trial. Not only this, the prosecution also gets opportunity to lead evidence to bring on record the material looked into & application of mind during the trial.

118. While dealing with the Writ Petition No. 5263 of 2019, learned counsel relies upon point 8 of his notes and reads out prayer clauses (C ) and (D) in the writ petition. He states that the trial court has passed orders of remand judicially and those orders have not been questioned by the petitioner. These orders have attained finality and hence, such challenge at the instance of the petitioner at this stage should not be entertained.

119. He reads out section 309 CrPC particularly sub section 2 thereof and argues that it deliberately employs word “enquiry” as also “trial”. Thus after filing of the chargesheet by the prosecution before the trial commences, the court has to hold the enquiry and for that purpose, it can order remand. He submits that the law on the point including Full Bench Judgments and Judgments of the Hon’ble Apex Court is considered by the learned Single Judge of Karnataka High Court in ILR 1994 KAR 2391 : Dorai Vs. State of Karnataka paragraphs 19, 21, 23 and 24. He submits that these paragraphs actually contain the arguments of SFIO in the present matter. He therefore, prays for dismissal of all the petitions.

120. With the leave of the court, senior advocate Mr. Chinoy submitted that the contention about the accused requiring to disclose his defence in the enquiry under section 140(5) of 2013 Act and suffering a prejudice in trial, is misconceived. He relies upon (1981) 2 SCC 277 : Capt. Dushyant Somal Vs. Smt. Sushma Somal and another, paragraphs 1, 2 and 5 thereof.

121. Advocate Khambata has in rejoinder submitted that the efforts made by the petitioner BSR to procure the directions under section 212(14) have not succeeded and despite directions of this Court, the SFIO has not filed any affidavit asserting that his report is a final report. The assertion of the petitioner on oath therefore has not been rebutted. He submits that the negligence even of the highest degree does not tantamount to fraud under section 447 of 2013 Act and this aspect has been lost sight by SFIO as also by the Central Government. Petitioner, therefore, demanded email dated 07/03/2019 but it has not been supplied. Hence, the adverse inference that it contains direction of central Government to SFIO as per section 212(11) needs to be drawn. He relies upon (1973)  3 SCC 581 : Union of India and Ors. Vs. Messrs. Rai Singh Dev Singh Bist and Ors (paragraph 6).

122. He also reads out certain portions of the said report to show that the report itself points out need for the further investigation. There is express observation to that effect and respondents have not filed any reply on oath to urge that the said investigation has not been undertaken. According to him there is no scope in the scheme of section 212 for such further investigation. If it is a further investigation, the report dated 28/05/2018 is not a complete report under section 212 (12) of 2013 Act.

123. Advocate Khambata submits that when the Ministry of Corporate Affairs applied to NCLT on 10/06/2019, they have approached it on the basis of interim report and MCA has not filed any affidavit in the present matter to explain that in their pleadings there, words “interim report” are loosely used. The deponent who submitted said plea before NCLT has not even chosen to file any reply affidavit before this court.

124. Dealing with the issue of sanctions/directions, he adds that the so called processing note prepared by the officer for convenience has not been made available though demanded. He therefore, requests the Court to draw an adverse inference. He relies upon (1997) 7 SCC 622: Mansukhlal Vithaldas Chauhan Vs. State of Gujarat (paragraphs 18 and 19) to demonstrate non-application of mind and to show that the respondents have not made out any case. He accepts that the petitioner BSR worked as joint auditor with Deloitte only for four months. The issue regarding ever-greening of loans was going on between IFIN and RBI since last more than two years. The RBI did not agree with the ever-greening and also did not accept the cases relied upon for that purpose. According to him, there was confusion over scope & impact of ever-greening, and this is supported by the observations of SFIO. The RBI was aware about it and hence, it was not at all the concealed position.

125. He has produced compilation which contains master circular of RBI dated 01/09/2016. He relies upon Regulation 13 therein. He points out that the RBI notice dated 22/03/2019 shows that it had knowledge. In this backdrop he submits in the entire report of SFIO there is no whisper and finding of fraud against the petitioner. The Central Government before issuing sanction/direction on 29/05/2019 ought to have considered it. He invites attention to the relevant extracts to show that the RBI itself on 01/11/2017 gave time to IFIN to give roadmap by 31/3/2019. Learned counsel adds that in this situation, the grievance of fraud against the petitioner BSR which has acted only for four months is misconceived.

126. Mr. Khambata has drawn our attention to explanation to section 447 of the Companies Act 2013 to urge that ingredients of fraud as specified therein are not even examined by respondents. The report submitted by SFIO contains some exculpatory material that has not been perused. Annual report on IFIN itself shows that it was given time till 31/3/2019. In this situation neither SFIO nor the Central Government has considered its impact. Processing note as alleged therefore becomes important. He also invited our attention to reply filed by respondents to show that there is no inference of collusion in it and above aspects have been overlooked. The fact that SFIO asked RBI to hold internal inquiry has also been ignored. According to him, this implies some participation in collusion even by RBI officers. In this situation, the petitioner who worked as Chartered Accountant for about 4 months could not have been seen as involved in any fraud. Section 212(14) makes provision for legal advise and respondents ought to have procured it in present facts.

127. While dealing with contention of advocate Venegaonkar that challenge to prosecution is premature, he distinguishes judgments relied upon by advocate Venegaonkar with submission that even those judgments support the view in favour of the petitioner.

128. He submits that section 141 (3) of Companies Act 2013 envisages 9 contingencies in which the Chartered Accountant may be disqualified to become Company Auditor. Section 140 (5) cannot be seen as an additional ground. He urges that substantive part of section 140(5) uses word “may” and discretion conferred thereby cannot be lost sight of.

129. Commenting upon order of NCLT rejecting objection raised by the petitioner, he submits that line of argument before this Court in present challenge and reasons recorded in said order are inconsistent. The interpretation put by Respondents during arguments or by NCLT in its order results in adding words to that sub-section. He submits a draft in which these words are added in red ink. Advocate Khambata submits that such an exercise cannot be undertaken in an attempt to show that subsequent event of resignation is irrelevant. Learned counsel submits that plain language of section 140(5) and object behind it has to prevail. The auditor therefore must be continuing in office even on the date of passing of the order by NCLT. Facts prevalent on the date of filing of company petition become irrelevant due to subsequent events. He draws support from Pasupuleti Venkateswarlu vs. The Motor and General Traders:(1975) 1 Supreme Court Cases 770, (paragraph No.2 and 4); Ramesh Kumar vs. Kesho Ram: 1992 Supp (2) Supreme Court Cases 623, (paragraph 6). He also distinguished judgment cited by Advocate Chinoy for this purpose. Beg Raj Singh vs. State of U.P. and Ors: (2003) 1 Supreme Court Cases 726; Mohinder Prasad Jain vs. Manohar Lal Jain: (2006) 2 Supreme Court Cases 724.

130. While commenting upon the order dated 18/10/2019 he submits that after liberty given by Hon’ble Apex Court, the Ministry of Corporate Affairs did not point out to NCLT that appointment of M/s. Mukund M.Chitale & Co. was inoperative in law.

131. He further adds that alternate remedy cannot operate as bar in the present matter when impugned orders are consequential to jurisdictional challenge being looked into by this Court. Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai and Ors. :(1998) 8 Supreme Court Cases 1, (paragraph  15);  Maharashtra Chess Association vs. Union of India and Others: 2019 SCC Online SC 932, (paragraph 20 to 24) and Division Bench Judgment of this Court in Writ Petition (L) No.3250/2019 dated 29/11/2019 are pressed into service for this purpose. He also adds that since writ of prohibition has been sought the said objection is relevant. He cites Isha Beevi on behalf of the minor Umaiben Beevi and Others vs. The Tax Recovery Officer and Addl. P.A. to Collector, Quilon and Ors.:(1976) 1 Supreme Court Cases 70, (paragraph 5) in support. Lastly, he relies upon Bengal Immunity Company Limited vs. State of Bihar and Ors.: AIR 1955 SC 661, (paragraph 8) to urge that all orders passed in said matters by NCLT can be assailed before this Court since constitutional validity has been questioned.

132. He submits that before the petitioner became auditor, RBI had already entered into correspondence with IFIN and this correspondence was going on for 2 years. Annual report contains necessary disclosures and as such; taking action against petitioner under section 140(5) is unwarranted. Our attention is invited to scheme of section 241, 242 and 243 of Companies Act 2013 to urge that the action is possible if very higher degree of implicating material exists and only after rigorous preconditions are complied with. The adverse order against the director therefore cannot be obtained easily. As against this, for invoking action under section 140(5) there are no such pre-condition of higher degree compliances. Section 140(5) therefore permits authorities to pick and choose between  even  company  auditors  (CA)  and   this  discretion conferred upon authorities is constitutionally unsustainable.

133. Advocate Seervai urged that bar of alternate remedy cannot operate when jurisdictional issues are to be decided Competition Commission of India vs. Bharti Airtel Limited and Ors.:(2019) 2 SCC 521, (paragraph 115 to 120) and Arun Kumar and Ors. vs. Union of India and Ors.: (2007) 1 Supreme Court Cases 732 are relied upon for this purpose. He further states that the auditor cannot be changed only under section 140(5) and there are other provisions. Change of auditor cannot be equated with appointment of auditor. He invited our attention to stand taken in written submissions by Advocate Chinoy at page 29, clause (i) and (iv). He contends that this stand in written submission/arguments is misconceived.

134. Senior Advocate Mr. Seervai has submitted that accepting arguments of advocate Chinoy results in adding words and proviso to section 140(5) which prohibit an auditor from resigning or prohibit appointment of any other auditor in his place during pendency of action. To buttress his submission that second provision cannot be read in isolation and must be seen as part and parcel of section 140(5), he has relied upon heavily on paragraph 18 of judgment reported in the case of Dwarka Prasad vs. Dwarka Das Saraf: (1976) 1 Supreme Court Cases 128  and has also accordingly attempted to distinguish judgments relied upon by Advocate Chinoy. He has submitted that judgment of Hon’ble Apex Court reported at Commissioner of Commercial Taxes, Board of Revenue, Madras and Another vs. Ramkishan Shrikishan Jhaver:

AIR 1968 SC 59 paragraph 8 is more germane here.

135. Senior Advocate Dwarkadas handed over a fresh submission (written note) inter alia contending that as there is no settled and established procedure to be followed by NCLT, section 140(5) is rendered arbitrary and violative of Article 14. He also states that Rule 34 of NCLT Rules does not contain any settled procedure and contention that NCLT has substituted High Court and therefore, must be seen as equally competent and responsible body, is not legally sound for this purpose. Provisions of Appellate Side Rules, Company Court Rules and NCLT Rules guided High Court while functioning under Companies Act,1956 and as such, there was established procedure.

136. He further added that first proviso to section 140(5) cannot be seen as an interim measure. He has pointed out object which prompted the parliament to incorporate section 140(5) and relies upon the discussion on purpose of criminal justice, punishments in chapter dealing with administration of justice, contained in SALMOND on Jurisprudence.

137. According to him proviso to 140(5) militates with Limited Liability Partnership Act and therefore it needs to be construed properly in the wake of substantive provision in S. 140(5).

138. He further argues that the contention that second proviso is lenient since the CA is not debarred from continuing with ongoing work of other companies and has been disqualified only for fresh term or continuation; is erroneous since the stigma cast is final and cannot be avoided anywhere. The punishment possible after full trial under section 447 is imposed highhandedly and unilaterally under S. 140(5) with undue haste. Once order is passed by NCLT, other companies of repute may be induced to initiate steps for removal of such CA. The second proviso to section 140(5) therefore cannot be seen as an independent provision.

139. Mr. Desai, Sr. Advocate contended that criminal case No.20/2019 moved by MCA and more particularly paragraph Nos.4, 62 and 63 show that it is not based upon completed investigation and therefore on a complete report. Leave to produce additional material reserved therein supports this. Our attention is invited to the fact that report of SFIO indicates collusion even by bank officers. In prosecution, therefore bank officers or officers of company and its directors are necessary parties. He has relied upon Section 223 of Cr.P.C. for this purpose. He highlighted that the contention of petitioners that interim report has been prepared & used to deny bail to one of the directors, has not been rebutted in reply arguments.

140. He has relied upon prayer clause (c) in Writ Petition No.5023/2019 and submitted that it is because of void direction or sanction under section 212(15) of Companies Act 2013.

141. To meet contention that there has to be essentially a difference in case of “no sanction” and “invalid sanction”, he has drawn support from judgment of Division Bench of this Court reported at 2017 SCC Online Bom. 9434—para 16– Ashok Chavan vs. CBI. He submits that earlier view of Hon’ble Apex Court in case of (2000) 8 SCC 500- Abdul Wahab Ansari vs. State of Bihar has been reaffirmed.

142. State of Punjab vs. Davinder Pal Singh Bhullar and Ors.: (2011) 14 Supreme Court Cases 770. Paragraph Nos. 107 to 111 are pressed into service to urge that when primary order is shown to be bad, consequential order also falls.

143. He submits that as seen in paragraph 102(6) of judgment of Hon’ble Apex Court reported at State of Haryana and Ors. vs. Bhajanlal and Ors.:1992 Supp (1) Supreme Court Cases 335, challenge raised in the present petition to prosecution cannot be seen as premature.

144. According to him, proceedings under section 447 of 2013 Act and under section 140(5) thereof deal with fraud and as NCLT is performing adjudicatory function, ingredients of Article 20 are satisfied. Proceedings before NCLT are also therefore affected by principle of double jeopardy. He has drawn support from L. D. Jaisinghani vs. Naraindas N. Punjabi: (1976) 1 Supreme Court Cases 354 and R. D. Bhatia (Mrs.) vs. Rajinder Kaur (Smt.) and Ors.: (1996) 6 Supreme Court Cases 627 to demonstrate that in such matters before NCLT, required standard of proof is beyond reasonable doubt only. These standards are applicable even in matters pertaining to professional misconduct.

145. Advocate Desai has cited Prahlad Saran Gupta vs. Bar Council of India and Another: (1997) 3 Supreme Court Cases 585, (paragraph 9); Pawan Kumar Sharma vs. Gurdial Singh:(1998) 7 Supreme Court Cases 24, (paragraph 7); H.V. Panchaksharappa vs. K. G. Eshwar: (2000) 6 Supreme Court Cases 721, (paragraph 6), Bhupinder  Kumar   Sharma  vs.   Bar Association, Pathankot: (2002) 1 Supreme Court Cases 470, State of Punjab vs. Davinder Pal Singh Bhullar and Ors.:(2011) 14 Supreme Court Cases, paragraph Nos.107 to 111 and Nirmala J. Jhala vs. State of Gujrat and Another:(2013) 4 Supreme Court Cases 301, (paragraph 11 to 17) to demonstrate that when question is of misconduct by professionals, higher degree of proof is always envisaged and it is not preponderance of probability. He states that An Advocate vs. Bar Council of India –1989 (supp) 2 SCC 25–(paragraph 4) also follows same law. Pandurang Dattatraya Khandekar vs. Bar Council of Maharashtra, Bombay and Ors. (cited supra) relied upon by Advocate Chinoy has not considered said 4 Judges view. He also distinguishes other judgments cited by Advocate Chinoy on the ground that they consider burden of proof in suit for specific performance or in civil proceedings.

146. Ram Singh and Ors. vs. Col. Ram Singh: 1985 (Supp) Supreme Court Cases 611, (paragraph Nos. 222, 223) and Ram Sharan Yadav vs. Thakur Muneshwar Nath Singh and Ors.: (1984) 4 Supreme Court Cases 649, (paragraph Nos.2 and 3) are relied upon by him to show what is quasi criminal proceeding. He contends that sections 132, 140, 147 deal with fraud and same degree of proof must apply. He submits that State of U.P. & another vs. Synthetics & Chemicals Ltd. (1991) 4 SCC 139 – para 41 points out what is a precedent and if a particular legal provision or settled position is ignored, resulting judgment is liable to be discarded as sub- silentio. He submits that Director of Enforcement vs. M.C.T.M. Corp. (P) Ltd. – (1996) 2 Supreme Court Cases 471 used by Ad. Chinoy has been considered in Bharjatiya Steel Industries vs. Commissioner, Slaes Tax, U.P.-(2008) 11 Supreme Court Cases 617, (paragraph 17 & 18) to declare that question whether mens-rea is an essential ingredient or not will depend upon the nature of the right of the parties & the purpose for which the penalty is sought to be imposed. Thus, 1996 judgment had no occasion to consider constitutional Bench judgment in Shanti Prasad Jain vs. Director of Enforcement, FERA– AIR 62 SC 1754 where in para 35,Hon. Constitution Bench observes that the proceedings under the FERA are quasi-criminal in character & it is the duty of the respondents to prove violation of law beyond reasonable doubt.

147. Advocate Desai argues that respondents do not dispute the debarment prescribed by second proviso to section 140(5) as punishment and hence it not very material whether it falls in realm of criminal law or civil law. He submits that removal or substitution of Chartered Accountant under scheme of section 140(5) can be seen as remedial but then debarment ordered by second proviso is a punishment. Final order against Chartered Accountant springs from the finding of involvement in fraud.

148. 1966 edition of Salmond is cited to explain what is civil and criminal justice. Debarment of Chartered Accountant from all companies cannot be seen as remedial at all. He also invited our attention to section 22 and Schedule III of the Chartered Accountants Act 1949 with its section 8 to show that removal of name of Chartered Accountant from roll of Chartered Accountant is nothing but death penalty.

149. He has relied upon K.C. Sareen vs. CBI, Chandigarh (2001) 6 SCC 584 (paragraph 12 to 14) to show that Hon’ble Apex Court does not stay conviction and how conviction affects carrier of a person. For latter proposition, he also takes help of Sanjay Dutt vs. State Of Maharashtra– (2009) 5 SCC 787.

150. To explain what constitutes prejudice, he takes help of M.S. Sheriff vs. State of Madra –AIR 1954 SC 397 He submits that in such matters under section 140(5) issue of embarrassment to Chartered Accountant proceeded against definitely arises. He draws support from Capt. M. Paul Anthony vs. Bharat Gold Mines– (1999) 3 SCC 679 He further submits that Union of India and Another vs. Purushottam (cited supra) by Advocate Chinoy does not look into professional misconduct and it deals with departmental proceedings.

151. Advocate Robin Jaisinghani has in rejoinder submitted that NCLT has no fixed procedure and in its absence prejudice caused is apparent. Suraj Mall Mohta and Co. vs. A. V. Visvanatha:AIR 1954 SC 545, (paragraph Nos.2, 14 and 15) is relied upon to highlight importance of uniform procedure. He also states that in petition filed before NCLT, institution of Chartered Accountant is already a respondent and a direction to it to proceed against Chartered Accountant sought to be removed, has also been sought.

152. Thus, in this backdrop he explains importance of provision like S. 167 of the Companies Act and its absence in case of chartered accountant. He reiterates that the director proceeded against gets breathing time of 30 days to assail impugned order/ proceeding in appeal during which there is automatic stay in his favour.

153. In rejoinder to arguments of Advocate Venegaonkar, learned counsel Mr. Ponda reiterated that no complaint can be filed without final report and invited attention to the rulings earlier cited by him. He also distinguished the rulings cited by Advocate Venegaonkar and points out that here even as per respondents, the trial court has still not taken cognizance. He submits that (1983) 2 SCC 372 : State of Uttar Pradesh Vs. Lakshmi Brahman and another cited by Advocate Venegaonkar and points out that here even as per respondents, the trial court has still not taken cognizance. Advocate  Venegaonkar is not approved in (1996) 4 SCC 495 : Raj Kishore Prasad Vs. State of Bihar and anr. (paragraph 9). (2014) 3 SCC 92 : Hardeep Singh Vs. State of Punjab (paragraph 28) is also relied upon to show that the judgment in case of Laxmi Bramhan is found per in curium there. (1986) 2 SCC 709 : A.S. Gaurava and anr. Vs. S.N. Thakur and anr (paragraph 10) is relied upon to submit that unless and until there is express provision in Cr.P.C. or other procedural law, the Criminal Court cannot take procedural steps. He relied upon the provisions of section 209 of Cr.P.C. to demonstrate that as there is no cognizance taken, power to remand could not have been exercised. That power becomes available only after committal for trial and not before that. Section 309(2) is also pressed into service for this purpose. To urge that there is no inherent power to remand, he draws support from (1975) 2 SCC 220 : Natabar Parida Vs. State of Orissa (paragraph 5 and 8) as also (1995) 4 SCC 190 : Union of India Vs. Thamisharasi (paragraph 16). (1972) 3 SCC 141 : CBI Vs. Anupam Kulkarni (paragraph 9) is also relied upon.

154. He also tendered written submissions in rejoinder on behalf of Petitioner Harishankaran in Writ Petition No.5263 of 2019.

155. Advocate Khambata in Criminal Writ Petition No. 4145 of 2019 also submitted brief written note to distinguish the judgment reported at (2007) 8 SCC 559– Carona Ltd. vs. Parvthy Swaminathan & Sons relied upon by the MCA and to urge that events like resignation subsequent to filing of S. 140(5) proceedings must be taken note of.

156. Senior Advocate Mr. Seerwai also gave brief note in Criminal Writ Petition No. 4144 of 2019 in rejoinder.

157. Because some judgments were cited while advancing arguments in rejoinder, Advocate Chinoy has also submitted written submissions in rejoinder. He has explained the same in brief and contended that the steps taken need to be understood in the context in which the same became necessary. He also explained the purpose and object of the proceedings. He submitted that the alleged admissions of Government cannot be seen as final and determinative. On incomplete investigation, he has reiterated his contentions and submitted that the final report submitted by the SFIO here may be followed by further final report. For that purpose he has drawn support from PMC Mercantile Pvt. Ltd, vs. State-(2014) 3 MWN (Criminal) 454 (paragraph 11 and 18).

158. He has substantiated the order of the central government dated 29/5/2019 directing prosecution under section 212(14) and also attempted to distinguish the judgment reported at (1973) 3 SCC 581 : Union of India and Ors. Vs. Messrs. Rai Singh Dev Singh Bist and Ors. relied  upon  by  the  petitioners  and  (1997) 7 SCC 622 : Mansukhlal Vithaldas Chauhan Vs.  State of Gujarat. He submits that the approach of NCLT in the order is just and proper. Since right of the parties in proceedings under section 140(5) of 2013 Act crystallizes on the date of filing of the report. He submits that Uco Bank & another vs. Rajinder  Lal Capoor–(2007) 6 SCC 694 is the judgment which considers the punishment of Criminal and Service Jurisprudence.

159. He has also commented upon (1975) 1 SCC 770 – Pasupuleti Venkateswarlu vs. The Motor and General Traders relied upon by the petitioners to urge that the said judgment proceeds on the premise that the right to relief must be in existence as on the date the suiter initiates legal proceedings. He further points out that there also Hon’ble Apex Court has held that the legislative intent cannot be frustrated.

160— As regards the order of NCLT made under the first proviso to section 140(5), he submits that as the NCLT was satisified that the such auditors need to be prohibited from continuing the audit work, it has right to make that order as the said satisfaction has been reached when the auditor was in office. The consequential disqualification follows from the second proviso to section 140(5). Hence, after initiation of the proceedings, the auditor cannot resign.

161. He has submitted that the case law cited by the petitioners to show that their challenge to orders of NCLT must be entertained in the present petition is not applicable in the present facts. He has submitted that the petitioners have moved NCLT for dismissal of the proceedings and as such they have to follow the statutory channel and accept it.

162. He submits that the action contemplated against the Directors and officers by section 241(3(a), 242(4A) and 243(1A) need to be appreciated in the mode & manner as approved by the Statute. The directors and officers of a company stand on the different footing and therefore, the Chartered Accountant opting to work as company auditor cannot compare or equate himself with them. He has also again pointed out how second proviso to section 140(5) cannot be eclipsed by substantive part of section 140(5). He adds that the NCLT Rules 2016 contain sufficient procedure for conducting the matter against the auditor/company under section 140(5).

163. Lastly he has relied upon some judgments in effort to show how Article 20(2) of the Constitution of India is not relevant in the present matter. At the end of his written note, he has again reiterated the defences in brief.

164. Before proceeding with the discussion, we find it suitable to enumerate the questions which arise for determination. Those questions are–

A. Whether S. 140(5) of 2013 Act is unconstitutional?