REMOVAL OF STATUTORY AUDITOR FOR ALLEGED FRAUD IN THE AFFAIRS OF NETWEALTH AGROTECH INDIA LTD WAS DECLINED BY NCLT AS THE NECESSARY INGREDIENTS OF SECTION 140(5) OF THE COMPANIES ACT, 2013 ARE NOT MET AT THIS STAGE

 REMOVAL OF STATUTORY AUDITOR FOR ALLEGED FRAUD IN THE AFFAIRS OF NETWEALTH AGROTECH INDIA LTD WAS DECLINED BY NCLT AS THE NECESSARY INGREDIENTS OF SECTION 140(5) OF THE COMPANIES ACT, 2013 ARE NOT MET AT THIS STAGE

NCLT MUMBAI VS NETWEALTH AGROTECH INDIA LTD

FACTS OF THE CASE

The NCLT  Mumbai has disposed of the MCA petition under Section 140(5) of the Companies Act, 2013, which sought the removal of the statutory auditor of Netwealth Agrotech India Ltd.

 The Tribunal held that the “necessary ingredients of Section 140(5) are not met at this stage and hence Auditor cannot be removed.”

KEY POINTS FROM THE JUDGEMENT

SECTION 140(5) CONTEXT:

This provision empowers the Tribunal to direct removal of an auditor if it is satisfied that the auditor has acted in a fraudulent manner or abetted fraud in relation to the company’s affairs.

NCLT’S OBSERVATION:

The NCLT noted that the threshold requirements under Section 140(5) were not satisfied at this stage of proceedings.

IMPLICATION:

The statutory auditor will not be removed based on the current petition. The MCA’s allegations of fraud against Netwealth Agrotech India Ltd. and its auditor did not meet the evidentiary standard required for removal.

SECTION 140(5) – CORE REQUIREMENTS

For the Tribunal to remove a statutory auditor under this provision, the following must be established:

FRAUD ALLEGATION

There must be a specific allegation that the auditor has directly acted in a fraudulent manner or has abetted or colluded in fraud in relation to the company’s affairs.

PRIMA FACIE EVIDENCE

The Tribunal must be satisfied, at least on a prima facie basis, that such fraud exists. Mere suspicion, general allegations, or ongoing investigation are not enough.

CONNECTION TO AUDITOR’S ROLE

The fraud must be linked to the auditor’s professional duties — e.g., manipulation of accounts, concealment of material facts, or deliberate misstatements.

CONCLUDING THOUGHTS

This shows that Section 140(5) is not a preventive tool to remove auditors based on suspicion; it is a remedial provision triggered only when fraud is demonstrably linked to the auditor. Until then, regulators may need to rely on other mechanisms like:

· Section 140(1) (auditor resignation/removal by shareholders)

·      Section 447 (punishment for fraud)

·      SFIO/ROC investigations for deeper inquiry

# YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,