NCLT Takes Direct Action Against Auditor for Fabricating Audit Reports

NCLT Takes Direct Action Against Auditor for Fabricating Audit Reports

Mumbai: On Friday, February 8, the Mumbai bench of the NCLT in a first of its kind decision, barred an auditor for five years for maliciously fabricating audit certificates.

The matter pertains to an appeal filed by the Government against auditor Mukesh Choksi, proprietor of Mukesh Choksi & Company and Zen Shaving Company.

During the hearing, the Tribunal observed that the auditor had failed to provide for an appropriate explanation for the allegations against him of fabricating audit reports in collusion with the Chairman of Zen Shaving company. The only response recorded by the auditor to the accusations was “I don’t know.” Furthermore, despite a signed auditor’s report under his name, the auditor alleged not to have audited the books of accounts of the company.

As per the Tribunal order, auditor Mr. Choksi shall not be eligible to be appointed as an auditor of any company for a period of 5 years from the date of passing this order. Moreover, the Court held that the auditor also stands liable for action under Section 447 of the Companies Act providing punishment for fraud. The barred auditor has been instructed to refund the remuneration he received from the company Zen Shaving, during the period as its auditor.

The order comes as a reform as the NCLT has been primarily instituted as a quasi-judicial body to hear appeals against companies under the Companies Act. Recently, the Government formed the National Financial Reporting Authority (NFRA) for independent regulation of the auditing profession.

Earlier, the accounting professionals believed that the only governing body entitled to take action against them is the ICAI. Thus, in case of an order or any action taken against auditors by any other authority including the SEBI, the accused would move the Court in appeal on grounds of jurisdiction. The accountants claim that at present after the ICAI, the NFRA has powers to initiate action pertaining to auditors.

However, the new age reform includes the NCLT to initiate direct action against the auditor exercising its powers provided under Section 147(3)(i) of the Act.

147(3)(i) of the Companies Act
National Company Law Tribunal (NCLT)
National Financial Reporting Authority (NFRA)
Section 447 of the Companies Act

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