The Custodian vs. In Respect Of Compliance Of Order Dt 29-04-2022 In Spma-21-2007 And In Spma-166-2011

Held

The Court held that the necessity of appointing a firm of Auditors to conduct a full-scale inquiry into the affairs of the notified parties and their relationship with the respondents is unquestionable, given the prior order of the Court dated April 29, 2022, which remains in effect. The scope of work for the auditors is extensive. The Court found that the Custodian did not appear to have selectively chosen M/s. Borkar and Muzumdar, as offers were invited from five empanelled Chartered Accountants. Therefore, the objection raised by respondent no.1, primarily concerning the selection process and the quantum of professional fees, was deemed not worthy of acceptance. The report was made absolute in terms of all prayer clauses (a) to (d). The ratio decidendi is that when a court directs a full-scale inquiry and the Custodian follows a reasonable selection process for auditors, even if it deviates from past practices, and the fees are justifiable and in line with professional body recommendations, objections based on perceived irregularities or exorbitant fees are unlikely to succeed.

Facts

The Custodian filed a report seeking directions to appoint M/s. Borkar & Muzumdar Chartered Accountants to conduct an audit as per previous court orders dated April 29, 2022. The audit was to investigate the affairs of notified parties and their relationship with specific respondents. The Custodian also sought directions for these respondents to cooperate with the appointed auditors and for the auditors to complete the work within three months. The proposed auditor's fees were capped at Rs. 27,50,000/- plus GST, payable from the attached account of Ketan V Parekh. The respondent no.1, represented by Mr. Ashwin Mehta, objected to the appointment, citing irregularities in the selection process and the exorbitant professional fees, arguing that the respondent's account should not bear such costs. The Custodian, represented by Mr. Daruwalla, countered by detailing the steps taken to obtain consent and fee scales from empanelled Chartered Accountants, stating that only the proposed firm responded with its fee in a sealed cover and that the fees were in accordance with the Institute of Chartered Accountants' recommendations.

Key Issues

1. Whether the Custodian's proposed appointment of M/s. Borkar & Muzumdar Chartered Accountants for a full-scale inquiry is irregular and the professional fees of Rs. 27,50,000/- plus GST are exorbitant, thereby warranting rejection of the Custodian's report. Contentions: Petitioner (Custodian): Argued that the appointment process followed the court's directions and that the proposed auditors' fees are in line with the Institute of Chartered Accountants' recommendations. The Custodian also highlighted that only M/s. Borkar & Muzumdar conveyed their consent and fee scale. The necessity of the audit is established by the court's prior order dated April 29, 2022. Respondent no.1: Contended that the Custodian deviated from the past practice of inviting offers from at least three Chartered Accountants and that the proposed fees are exorbitant. The respondent also argued that their account should not be burdened with such high professional fees.