Facts of the Case

A complaint was filed by CA Nishant Maitin, Patna, against CA Ashish Anand Pathak, Partner of M/s A.A. Pathak & Co., alleging professional misconduct in relation to statutory audit of M/s SRL Hospital Private Limited. The company was incorporated on 11 February 2014.

The complainant alleged that the Respondent accepted appointment and conducted statutory audit for Financial Year 2014–15 despite not being validly appointed as first auditor within the statutory time limit of 30 days from incorporation, nor being appointed by shareholders in an Extraordinary General Meeting thereafter.

It was alleged that the Respondent accepted the audit assignment only after the Annual General Meeting held on 21 July 2014, and yet issued consent and certificate dated 25 July 2014, thereby regularising an invalid appointment and conducting audit without lawful authority.

Issues Involved

Whether the Respondent accepted and conducted statutory audit without being properly appointed as first auditor under Section 139(6) of the Companies Act, 2013, and whether such conduct amounted to Professional Misconduct under Item (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

Petitioner’s Arguments

The complainant contended that the Respondent was never appointed as first auditor within 30 days of incorporation by the Board of Directors, nor by shareholders in an EGM within the extended period. It was argued that once the AGM was held, appointment of first auditor was no longer permissible, and any audit conducted thereafter was void ab initio.

The complainant further argued that the Respondent knowingly issued consent and certificate after AGM, thereby lending legitimacy to an illegal appointment and misleading statutory authorities.

Respondent’s Arguments

The Respondent contended that under Section 139(6) of the Companies Act, 2013, the first auditor could be appointed within 90 days from incorporation, and that the Board’s delay should not invalidate his appointment. He further submitted that there was no requirement to file Form ADT-1 for appointment of first auditor, and that the delay was procedural in nature without any mala fide intent.

The Respondent also argued that no prejudice was caused to any stakeholder and that minor procedural lapses should not amount to professional misconduct.

Court / Authority Order and Findings

The Board of Discipline examined statutory provisions, sequence of events, ROC records, consent letters and certificates issued by the Respondent. The Board noted that under Section 139(6), the first auditor must be appointed by the Board within 30 days of incorporation, failing which shareholders must appoint the auditor within 90 days in an EGM.

The Board observed that in the present case, no appointment was made by the Board within the stipulated period, nor was any EGM convened for such appointment. The AGM held on 21 July 2014 could not retrospectively cure the defect. The Board held that once the AGM was held, appointment of first auditor was no longer permissible under Section 139(6).

The Board further observed that the Respondent accepted appointment and conducted audit despite being aware of these statutory lapses, and that issuing consent and certificates after AGM amounted to acceptance of audit without valid authority. Such conduct was held to be in clear violation of professional standards and statutory requirements.

Important Clarification

The Board clarified that appointment of first auditor is strictly governed by statutory timelines and procedures. Chartered Accountants must independently verify validity of appointment before accepting audit assignments. Procedural irregularities in appointment cannot be ignored or retrospectively cured by issuance of consent or certificates.

Final Outcome

The ICAI Board of Discipline held CA Ashish Anand Pathak (M. No. 521013) guilty of Professional Misconduct under Item (9) of Part I of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22. In exercise of powers under Section 21A(3) of the Act, by order dated 19 April 2023, the Board reprimanded the Respondent.

Source Link- https://www.mytaxexpert.co.in/uploads/1768820661_CA.NishantMaitinM.No.079995vsCA.AshishAnandPathakM.No.521013Patna.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.