HC Rejects Auditor Prosecution Under Companies Act for Lack of Evidence

The petitioner, a Chartered Accountant who acted as the statutory auditor of two companies, challenged criminal proceedings initiated against him through Complaint Case Nos. 44/2019 and 43/2019 before the Special Court at Kolkata. These complaints were filed by the Deputy Registrar of Companies alleging violations of Sections 129 and 448 of the Companies Act, 2013.

The main allegation was that the petitioner failed to disclose certain financial information, including details relating to specified bank notes and related party transactions, yet still certified the financial statements as compliant with the law. The petitioner argued that the complaints were vague and did not contain specific allegations showing any falsification of accounts or intention to mislead. He also contended that the company itself had not been made an accused and that the complaints appeared to have been filed without proper application of mind.

Central Issue: The key issue before the Court was whether criminal proceedings against a statutory auditor under Section 448 of the Companies Act can continue when there are no specific allegations, no proof of intent (mens rea), and when the company itself has not been made an accused.

HC’s Ruling: The High Court allowed the petitions and quashed the proceedings against the auditor. It held that general allegations or omissions in financial statements are not sufficient to constitute an offence under Section 448 unless there is clear material showing that the accused knowingly made a false statement or deliberately concealed a material fact. In this case, no such intent or specific role of the auditor was shown.

The Court further observed that criminal liability cannot be imposed merely on the basis of designation. An auditor’s role is limited to examining records and giving an opinion, while the preparation of financial statements is the responsibility of the company’s management. Since the company was not made an accused and the complaints lacked specific allegations, the prosecution was unsustainable and continuing it would amount to abuse of process of law.

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