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Statutory auditor appointed by CAG can’t be terminated without opportunity of hearing: Gujarat HC

July 13, 2021[2021] 128 153 (Gujarat)

COMPANY LAWS : Where C&AG informed respondent-corporation about appointment of a Chartered Accountant firm as statutory auditor for state police housing corporation, it could not be terminated without prior notice; C&AG ought not to have blindfoldedly accepted say/complaint of State Government and it should have first put said firm to notice and should have given an opportunity of hearing

• Post empanelment of writ applicant Chartered Accountant firm, C&AG informed respondent-state police housing corporation that writ applicant No.1 had been appointed as statutory auditor for said corporation for Financial Year 2020-21- However, appointment of writ applicant was terminated without prior notice and another Chartered Accountant firm was appointed to undertake work of statutory audit.

Held, if a company wants to remove the Auditor appointed under section 139 of the Act from its office before the expiry of his term, then the company is empowered to do so only by way of passing a special resolution and that too after obtaining the previous approval of the Central Government in that behalf in the prescribed manner. [Para 48]

• The C&AG can approach the NCLT for the removal of the Auditor if the C&AG is of the view that the Auditor has acted fraudulently. [Para 51]

• It appears that when the CAG appoints a statutory auditor, it does so in accordance with the policy/guideline/conditions of appointment which is titled the "Appointment of auditors of Government Company/Government controlled other company under section 139 (5) & (7) of the Companies Act, 2013" [Para 59]

• The C&AG has the right to remove the Auditor at any point of time after following the due administrative process. The opportunity of hearing has to be given to the concerned Auditor before his removal. The principles of natural justice are implicit. [Para 60]

• C&AG ought not to have blindfoldedly accepted the say/complaint of the State Government. It should have first put the writ applicant to notice and should have given an opportunity of hearing. [Para 65]

• The sudden removal causes a lot of blemish to the auditor. [Para 66]

• Whenever an action of a public body results in civil consequences for the person against whom the action is directed, the duty to act fairly can be presumed and in such a case, the administrative authority must give an appropriate opportunity of hearing to the affected person. [Para 67]

• The writ applicants are entitled to get themselves once again uploaded on the portal. The removal of the writ applicant No.1, as the statutory authority, is hereby quashed and set aside. [Para70]

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