UNION OF INDIA Vs. R N RAJAM IYER

JUDGEMENT

(1.) THIS is a revision petition preferred by the Union of India represented by the department of Company Law Administration, Ministry of Commerce and Industry, under Section 22-A (2) of the Chartered Accountants Act, 1949. The petition is against the order passed by the Council of the Institute of Chartered Accountants of India, New Delhi, that the first respondent herein was not guilty of any professional or other misconduct Under Section 21 of take Chartered Accountants act of 1949. In doing so, the Council of the Institute dissented from the finding of the Disciplinary Committee that the first respondent was grossly negligent in the performance of his duties as an auditor.

(2.) THE first respondent is a Chartered accountant. In the course of audit of the little's Oriental Balm and Pharmaceuticals Ltd. , Madras, he checked, verified and approved the balance-sheet of the company as on 31-12-1951 the payment of remuneration to Messrs. Oakley Bowden and Co. , as managing agents of the little's Oriental Balm and Pharmaceuticals Ltd. Alter a period of six years, the registrar of Companies, Madras, sent a letter calling upon him to explain the failure on his part to detect the continuance in office of Messrs. Oakley Bowden and Co. Ltd. , as managing agents of Mess is Little's Oriental Balm and pharmaceuticals Ltd. beyond the stipulated period without any further agreement and also the failure to point out to the shareholders the irregularity in regard to the payment of remuneration to the said managing agents for the period in question. The auditor sent his reply. Though it was difficult for him to recall the events that took place at the time of the audit and to remember the circumstances under which he audited the affairs of the company, yet he was able to send an explanation to the best of his ability from the papers available with him. He stated that the renewal of a managing agency agreement was generally a matter of course, unless either party had given notice to the other of its intention to the contrary, at the time of the expiry of the agreement. In the instant case the agreement was being renewed from time to time since the inception of the company in 1920 and there was no indication that it was not to be renewed. There was not the slightest suspicion that the agreement had expired, as the managing agents were attending to the day to day business and affairs of the company and were operating on the bank accounts of the company as usual. The company was accepting those services through its directors by their general conduct and also by their resolutions ratifying the transactions and dealings of the Managing agents. In his report to the shareholders of the company on the accounts for the year ending with 31-12-1951, he had drawn the attention of the Secretary of the Company, who was also the Secretary of the managing agency carrying on the day to day business and affairs of the company to get the ratification of the transactions and dealings by the directors of the company. He also recorded his doubt as to whether there was compliance of the Articles of Association as to the management of the company with which was tied up the remuneration of the managing agents. The Registrar of Companies was not satisfied with this explanation submitted by the auditor, and thereupon, the Company Law Administration through its Deputy secretary laid information to the Secretary of the Institute of Chartered accountants of India to take such action as the Council of the Institute might think fit. Thereupon, the Institute of Chartered Accountants of India sent a copy of the communication received from the Department of Company Law Administration to the auditor and called upon him to send his written statement. The first respondent herein filed his written statement reiterating what he had stated in his explanation to the Registrar of Companies. He further stated in the written statement that there was a provision in the Articles of Association of the Company that the Managing Agency should be entrusted to Messrs. Oakley Bowden and Co. , and that they were to be vested with powers of management and were not to be removed from office otherwise than by their resignation, or for misconduct, insolvency or any special resolution of the company. Messrs. Oakley Bowden and co. , were appointed as the Managing Agents off the company, Little's Oriental balm and Pharmaceuticals Ltd. The company used to enter into agreement with the managing agents in regard to their remuneration once in ten years. The first of such a resolution was passed in the year 1920, which was renewed in 1930 and again renewed in the year 1941. The last resolution passed in 1941 was followed by art Extraordinary Resolution dated 10-7-1945, in which it was resolved to execute an agreement for the continuance of the managing agency. The auditor further stated-

(3.) THE respondent had taken a stand both in his letter of the explanation to the registrar as well as in the written statement that even though the managing agency expired in the year 1951, still their continuance in office was not opposed to any of the provisions of the Indian Companies Act relating to managing agents, for, according to the auditor, under the Articles of Association of the Company, the managing agents were not to be removed from office otherwise than by resignation or for misconduct, insolvency or any special resolution of the company,