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NCLT bars auditor for issuing ‘false’ certificate

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In what could perhaps be the first order of its kind, the Mumbai bench of the National Company Law Tribunal (NCLT) has barred an auditor from auditing companies for five years after it was found that he colluded with the chairman of a company and gave a false audit certificate without even examining and verifying the books of accounts.

Hearing an appeal filed by the government against Mukesh Choksi, proprietor of Mukesh Choksi & Company, and Zen Shaving Company, the tribunal noted that Mr. Choksi had “not given any plausible explanation for such irresponsible fraudulent behaviour.”

“Mr. Mukesh Maneklal 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 for action under Section 447 of the Companies Act, 2013,” the NCLT stated in the order. It also directed Mr. Choksi to refund the remuneration he received from the company — Zen Shaving Company — during the period he acted as its auditor.

Significance of order

The order assumes significance as the NCLT has been primarily formed as a quasi-judicial body to hear appeals against companies under the Companies Act. Recently, the government created the National Financial Reporting Authority (NFRA) as an independent regulator for the auditing profession.

In the past, the Securities and Exchange Board of India has been dragged to court for taking similar action against auditors who believe only bodies like the Institute of Chartered Accountants of India and now the NFRA have powers to act against accounting firms.

“Pinning responsibility on auditors for the preparation of financial statements, especially in the context of listed company is not a new concept,” said Sumit Agrawal, founder, RegStreet Law Advisors and a former SEBI officer. “However, the process of punishing an auditor directly by NCLT exercising powers under Section 147(3)(i) is a new trend. Earlier, auditors have never been under fire by authorities like the way they have been in recent years,” he added.

The NCLT order highlights the fact that the auditor, while submitting his statement under oath, only said “I don’t know” while replying to questions like whether he was aware when the last annual general meeting of the company was held and where the company’s factory is located.

He further said he had not audited the books of accounts of the company though he had signed the auditor’s report.