National Company Law Tribunal paves the way for termination of Zen Shaving auditor on January 6, 2016 and on February 08 NCLT disqualified him for 5 years.
The story was one of its kind in recent times. In most of the times auditors help the corporate to do all mischief and escape unhurt. One of the major example was Satyam story.
Zen Shaving Ltd a Mumbai based company registered under Companies Act. Company came out with initial public offer and issued prospectus to raise capital in October 196 but never listed on any stock exchange as was mentioned in the prospectus. Based on this and on other complaints the Ministry of Corporate affairs ordered an inspection of the company and found that the company have all features of possible shell company.
The Inspection found that the family members of the auditor are also the shareholders of Zen Shaving, which is clear violation of Section 141(3)(d) of Companies Act which specifically prohibits a statutory auditor whose relative or partner from holding any security or interest of the company.
In addition to that the statutory auditor had "I don't know" answers for all type of questions by the inspection and the Tribunal.The auditor has given his audit certificate even without seeing the books of accounts.
This case was started because an investor complained about the company for diverting the fund of the company in addition to other violations.
What followed with Mukesh Choksi?
The Tribunal straight away removed the auditor from his position and appointed another independent auditor in his place and placed the matter for final hearing on February 4th 2019.
You play ignorant, we will safeguard the interest of investors.
NCLT passed a historical order on the hearing. For the first time a Statutory auditor of a company has been disqualified for 5 years from auditing. The Mumbai bench of the NCLT passed this order banning Mr Mukesh Maneklal Choksi for 5 years as well ordered him to return the remuneration he received from the company.
Irony of Zen Shaving case
The MCA inspectors found that Mr Choksi even do not know the name of the Company Secretary of the company he is auditing as well he location of the company or the last Annual General Meeting date.
NCLT bench of VP Singh and Ravikumar Duraisamy said in its order that "Mukesh 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, and the auditor shall also be liable under Section 447 of the companies Act." Section 447 deals with punishment for frauds, for which 6 months to 10 years imprisonment can be awarded depending up on the gravity of the case.
Mukesh Choksi accepted
Mr Choksi accepted the allegations against him when he responded with all question relating to the company in question with "i don't know" answer.
The bench also noted that the role of the statutory auditor has become important to prevent scams and investor protection. Also noted that the national economy is more dependent on the profitability and credibility of commercial institutions and statutory auditors are important to avoid any wrong doings. The bench continued to say that the role of the statutory auditor is vital and the auditor owes a fiduciary duty towards nation. It concluded by saying that it is necessary to take stern action against the person who has tried to diminish the credibility of the auditors profession.
Future of Mukesh Choksi and the auditors who are careless or party to any fraud.
The bench also directed that the copy of the order to be sent to National Financial Reporting Authority and to Institute of Company Secretaries of India for further action.
The decision by the NCLT shows that the system and government will not tolerate the operation of shell companies and also the person involved with it either in management or professional capacity.