STATUTORY AUDITOR’S APPOINTMENT – A SHIFT IN PLATE REQUIRED?
“In dispensation of justice, law does not
operate in a vacuum, it draws substance, sustenance from social and operational
jurisdiction.”
-
Justice N.
V Ramana, Supreme Court of India
INTRODUCTION:
Time had been the witness and on the other hand reason as well for the metamorphosis
of legislation in the Indian soil but nevertheless the core intent of law had
been undisturbed irrespective of the changes. The intention of any law is
crystal clear and its locus lies in the interest of its people. The Delhi Bench
of State Consumer Disputes Redressal Commission in the case of “Ashok
Gupta vs. Indian Airlines Limited (2008)” while interpreting the rule
of beneficial legislation postulated that “A
law is interpreted and constructed in the manner that which should serve
the interests of those for whom it is meant and promote its object. If
there are two or more constructions possible, construction which is beneficial
and protects the interests and favour those for whom
a law was made is to be followed.”
Likewise, the landscape of the corporate sector had underwent
substantial changes when Companies act, 1956 was repealed and Companies act,
2013 was enacted and made effective. The latter is recognised as consolidating
statute. The rationale behind introduction of a consolidating statute is to
present the whole body of statutory law on a subject in a complete form,
repealing the former statute. An interpretation can be chalked out from the
case of “Southern Petrochemical Industries Ltd. vs. Electricity Inspector and
Ors. (2007)” for understanding the nature of Companies act, 2013. The
Supreme Court of India in the said case contemplated that “A consolidating act/statute re-enacts in an orderly form the various provisions
embodying a particular law.”
STATUTORY AUDITOR – THE STANDPOINT:
A company’s good position is an indicator of the effort at all the
levels of hierarchy of a company. Such performance is attributable to the
degree of caution exercised by the board of directors of the company and the
designated officials to whom power is delegated thereupon. Now when the term
all levels of hierarchy is used, it denotes the personnel who work internally
and also externally. Statutory auditor is an important stakeholder to the
company who is an external personnel appointed to audit and certify the
financial status of the company. Section 141 of the
Companies Act, 2013 embodies that only a qualified chartered accountant can be appointed as
an auditor. The Gujarat High Court in the case of “Council of Institute of Chartered
Accountants vs. Shri Mukesh R. Shah FCA
and Ors. (2003)” opined that “Companies
Act specifically prescribes that a person shall not be qualified for
appointment as auditor of a company unless he is a Chartered Accountant within
the meaning of the Act. There are various other provisions which prescribe the
powers and duties of the Auditors as well as the responsibilities. These
provisions are indicative of the extent a Chartered Accountant is looked upon
by the society, with special reference to the corporate world, as being
competent to discharge various statutory duties and responsibilities as a
qualified professional.”
The statutory auditor is a watchdog of a kind, who by certifying the
financial status ensures that the relevant records required to be maintained
are in place and also compliance under law are adhered to. The role of the
statutory auditor is extremely critical. The Delhi High Court in the case of “National
Dairy Development Board vs. Union of India (2010)” held that “Statutory auditor is primarily
concerned with the financial position/affairs of the company or the
corporation, maintenance of accounts and records and
whether statutory compliances have been made.” Every business functions
in a prevailing dynamic cluster wherein decisions concerning growth and returns
have to chalked out with utmost care and diligence.
So how does a company get to be termed as ‘credible’ to be invested in?
Being a potential investor, an individual would look for an authenticated
information or record to understand the entity and the financial position. This
is where the certification by the statutory auditor plays a big role. The
biggest misconception about the audit report is that it is mandatory since the
law creates an obligation for a company to appoint an auditor and get a report.
But that is not the intention of the legislation. The audit report is an
authenticated “public document” which creates reposes the confidence upon an
investor or a regulator to look at the company as a potential one. Auditing
being a statutory function brings authentication and a source which every
stakeholder can rely upon. The Hyderabad bench of Custom, Excise & Service
Tax Tribunal in the case of “Price Waterhouse vs. Hyderabad-Ii
(2018)” opined that “Auditing is
a statutory function in terms of Companies
Act and the report of the Auditor clearly shall mention that 'they have audited the attached
balance sheet and the P&L account of the Company in connection with audit
and this is not merely a certification activity." Therefore the
audit activity undertaken by the statutory auditors set a tone for the company
among the stakeholders. The Supreme Court of India in the case of “Centre
for Public Interest Litigation vs. Union of India and Ors. (2018)” held
that “Financial statements audited by
qualified auditors are acted upon and failures of the auditors have resulted
into scandals in the past. The auditing profession requires proper oversight.”
HAS THE INDEPENDENCE BEEN FORGONE?
Ineffective decisions and decisions concerning personal pursuits are
perhaps the frontier actions of corporate boards that has led several companies
into scams. The Uttaranchal High court in the case of “Jagteshwar Prasad Bansal and Ors.
vs. State of Uttarakhand and Anr (2017)” categorically remarked
that “The corporate personality has been
obtained by certain individuals as a cloak or a mask to prevent tax liability
or to divert the public funds or to defraud public at large or for some illegal
purposes etc.” When any corporate financial scam is pulled out, at first
immediately the role of auditors and the board of directors are put under
scrutiny. So the question has always been on the charts, are the statutory
auditors who certify the credibility of a company independent? The judiciary
has also acknowledged the fact that auditors being the cornerstone of a company’s
market standing must be independent. The Supreme Court of India in the case of “M/s
Sahara India (Firm), Lucknow vs. Commissioner of Income Tax (2008)” postulated
that “An auditor is a professional
person. He has to function independently. He is not an employee of a company.
In case of mis-conduct, he may become liable to be proceeded against by a
statutory authority under the Chartered
Accountants Act, 1949.” The
Andhra High Court in the case of “Vadlamudi Rama Rao vs. Asian Coffee Ltd.,
Sec'Bad (2000)” reiterated that “A statutory auditor has an independent role to play if he
has to effectively perform his part. The imputations of bias cannot lightly be
made against a professional Chartered Accountant who is expected to discharge
the duties according to the obligations cast on him by the Statute and the well-established
principles of professional conduct and etiquette.” Closely held
companies often enjoy this position where directors are shareholders and such
directors cum shareholders use such autonomy to appoint statutory auditors who are known to them personally. By
appointing in such a way, the financial documents are often inflated and
investor’s wealth is eroded over the period of time. A very interesting view is
derived from the case of “G. Haranadh vs. Shri Laxmi Durga Paper
Products (India) Limited (2004)” where the Company law board
opined that “The shareholders' inherent
rights to appoint their auditor cannot constitute an act of mismanagement.”
Unless any act is done contrary to the interest of the company and the investors,
the law grants protection to the members in a company especially in a closely
held set-up.
So the foremost characteristic attribute that an auditor must possess is
‘independency’ in examining a company and giving the report. Being independent
shouldn’t be projected in the subject heading and in textual content of the auditor report but also
during the entire process of audit and reporting exercise. Lindley L.J. in the
case of “Land Allotment Co. (1893)” observed that “Directors have been described as trustees because of the peculiar
nature of their office. The directors are the individuals elected to manage the
affairs of the company for the benefit of the shareholders.” Most of the
corporate structure failures can be attributed to the mismanagement of the
personnel functionaries by the board of directors. Sole focus on personal
pursuits have been placed over the real business objective of wealth maximization.
There is no justification or reasoning for appointment and functioning of an auditor
if such individual or firm is influenced by the company. The Calcutta High
court in the case of “New Central Jute Mills Co. Ltd. vs. Deputy
Secretary, Ministry of Corporate Affairs (1965)” contemplated that “If it appears that auditors are under some
sort of obligation to the company, the accounts of which they audit, there may
arise a doubt that the auditors might have discharged their functions much too
indulgently. If such a doubt arises, it cannot be ignored as a doubt which no
reasonable man should entertain.”
If an Auditor were to rely upon statements of the management even in
respect of matters which were capable of direct verification, his appointment
by the shareholders to examine the accounts of the company would be perfectly
useless and would serve no purpose at all. The real value of a company
is projected to the public and regulators only when the authentication of the
company as a whole is undertaken by an independent personnel. It is unfortunate
to understand and know today that most corporate resort to appointment of
auditors who are related to them in a way so as to ensure that the entity as a
whole is evaluated as per the discretion of the management. Many companies adopt
the practice of entrusting the activity of book keeping and accounting services
to the auditor which is prohibited under Section 144 of the Companies Act, 2013.
The Bangalore District Court in the case of “Mr. M. Pratap Reddy vs.
Raghavendra Naik T (2018)” held that “The rendering of services in accounting and book keeping services
means the participation of statutory Auditor in preparing the financial
statements. This involves the direct participation of auditors in the
participation of finance management of a company.” This is where an auditor
loses his/her independency. It is imperative to understand that shareholders of
the company who are the true owners rely upon the audit report submitted by the
statutory auditors to understand whether a company has their investments channelized
in proper manner. Audit certification and reporting forms a basis for investment
decisions. Improper diligence by the auditors have resulted in the scam biggest
corporate scams such as Lehman Brothers Scandal (2008), the Satyam Scam (2009),
Leasing & Financial Services (IL&FS) Saga just to name a few.
These occurrences had served as a catalyst to exploit the corporate decision
making. This is the reason for the legislation to evolve over times to reduce
malafide practices. The Audit report given the statutory auditors plays a
crucial role which the stakeholders of a company including statutory regulators
take into factor while evaluating the credibility of a company. The Delhi High
Court in the case of “Additional Commissioner of Income Tax vs.
Jay Engineering Works Ltd. (1978)” remarked that “It is quite competent for the income-tax
authorities not only to accept the auditors' report, but also to draw the
proper inference from the same.”
ANALYSIS OF STATUTE:
Section 139 of the Companies Act, 2013 casts onus on both the board of
directors and the shareholders to appoint auditors of the company. The statute
stipulates that the board of directors of a company other than a government company
shall appoint the first auditor within 30 days of the company being registered
i.e. within 30 days of obtaining the certificate of incorporation. Failure to
do the same, shifts the responsibility to the shareholders who shall appoint
the auditor within 90 days from the registration of the company at an extra-ordinary
general meeting and such auditor appointed by the board or the shareholders as
the case maybe shall office till the conclusion of the first annual general
meeting. Thereafter at the first annual general meeting the shareholders shall
appoint the statutory auditor who shall act as the auditor of the company from
the conclusion of the said meeting till the conclusion of the sixth annual general
meeting. Further the shareholders may appoint the same auditors for another
period of 5 years or appoint another individual or firm to act as auditor. The
law in clear sense empowers the shareholders to exercise their rights to govern
the appointment of auditors. The Telangana High Court in the case of “P.M.
V. Subba Rao vs. The State of Telangana & Anr. (2019)” reiterated
that “Shareholders appoint statutory auditor of the
company at General Meetings, who have duty to audit the Annual Accounts
prepared by Board of Directors and after duly auditing, Board of Directors
circulate prepare the Annual Accounts and Returns as per law and the same is uploaded
into the public domain of ROC/MCA portal.” The Companies Act, 2013
also mandates that any body corporate other than a limited liability
partnership registered under the Limited Liability Partnership Act, 2008
shall not be eligible to act as an auditor.
The auditors are also seen as officers of the company and on equal footing
with every personnel of the company. In “Kingston Cotton Mill Co. (1896)” Vaughan
Williams, J. observed that “I want
to say generally of auditors that I have no doubt myself but that auditors who have to
perform that duty are not only in this case but in all cases, officers of the
company.” The same was also reiterated by the Allahabad High Court in
the case of “L. Hudson vs. Official Liquidator of Dehra Dun Electric Tramway
Co. (1929)” where the court held that “The general result of the decisions is that where an auditor has been appointed by a limited
liability company at a general meeting of the shareholders, he must be taken to
be an officer of the company.”
Section 139 also mandates listed companies and the following categories
of the companies to rotate the auditors i.e. re-appoint or change the auditors or
in other words to limit the tenure of auditors to one term of 5 consecutive years
in case of such auditor being an individual or two terms of 5 consecutive years
each:
·
All unlisted public companies having paid up
share capital of rupees ten crore or more;
·
All private limited companies having paid up
share capital of rupees fifty crores or more;
· All companies having paid up share capital below
threshold limit as mentioned above, but having public borrowings from financial
institutions, banks or public deposits of rupees fifty crores or more.
The intent of the legislature to mandate the concept of rotation of
auditor can be understood to not have the same auditor certify the financials
for a longer time so as to avoid any personal relationship by an auditor with
the company as it would enable the entity to exert its influence to inflate the
financial figures as per their requirement. The statute also provides a cooling
period as such that an individual can be appointed as an auditor of the same
company after a period of 5 years post his completion of tenure and in case of
an audit firm, such firm can be appointed as the auditor of the company after
five years of completion of its term. Likewise the section also empowers the
board of directors to appoint an interim auditor in case of casual vacancy within
a period of 30 days from such vacancy and in case where the auditor resigns
from the company, the board shall make recommendation to the shareholders
within a period of 30 days and the shareholders shall approve such appointment
as they deem fit within 3 months from the recommendation of the board. In both
these scenarios the interim auditor so as appointed shall hold office till the
conclusion of the next annual general meeting.
It is extremely important to understand why the term ‘till the
conclusion of the next annual general meeting’ is used. The statutory auditor
has to be present at the annual general meeting to answer the queries raised by
the shareholders and to address the appropriate issues raised to him/her. Effectively
a statutory auditor is not discharged from his duties until he/she is made
accountable to the shareholders. The recommendation of the Audit Committee on any matter
relating to financial management including Audit Report shall
be binding on the Board. This Audit Committee is expected to independently audit the accounts
of the companies. The Board is bound by the report of the Audit Committee. Certain amount of
power and autonomy has been given to the Audit Committee. In case the Board
disagrees with the observations of the Audit Committee, the entire matter is required to be placed before the
general body of the company. Section 139 casts the responsibility on the
audit committee where required to be formed, to make recommendation to the
board of directors pertaining to the appointment of the auditors. Likewise
removal of auditor before the expiry of his/her term is channelized through a
mechanism in which the shareholders are bestowed with the autonomy to remove a
statutory auditor from his position only after obtaining the approval of the
respective Regional director. The Delhi High Court in the case of “S.
P. Gupta vs. M/s. Packwell Manufacturers Pvt. Ltd. (2013)” reiterated
that “The auditors can be removed only by the
company but the power has to be exercised in the general meeting of the
shareholders. There is always a distinction between the company and its
shareholders.” The Bombay High Court in the case of “Union
of India vs. The Company Law Board (2013)” held that “From a plain
reading of the statute it is clear that it prohibits a company in its general
meeting from removing a statutory auditor before the expiry of his term if the previous approval
of the Central Government in that behalf has not been obtained.”
WHERE DOES IT GO WRONG?
The board of directors have a significant hand on the appointment of an
auditor and also on the entire audit exercise. It cannot be said that the independent
audit exercise keeps aside the interest of the board of directors. It must be
remembered that the shareholders are empowered to appoint the auditors but the
management of affairs is done by the directors and not always are the
shareholders in the corporate office of the company. The board of
directors are in the cushion to exert influence on the auditors to act in the
interest of the board and in return the auditors are assured recurring
services. Though the shareholders appoint statutory auditors, they do so upon
the recommendation of the board of directors. The question therefore arises,
how the shareholders get to know whether the auditor is a known person to the
board or has any connection with the board unless the requisite disclosure is
made by the board on voluntary basis which does not occur in majority of
circumstances. The true position of the auditor gets
diluted over the period of time. The Delhi High Court in the case of “Amar
Nath Malhetra vs. M.C.S. Limited (1992)” remarked that “It is significant to mention that much
importance has been attached by the Act to the independence of the auditors. In fact
the auditor is to act as
a watchdog for the protection of the shareholders and is required to examine
the accounts with a view to give the shareholders true and fair picture of the
same.” Over the year some auditors have tended to certify financial
statements without making a satisfactory audit assessment or even without
verifying the authenticity of accounts. Frequently, auditors have tended
to regard audit as merely a financial obligation to certify accounts which are
supposed to have been examined by them.
There can be no doubt that when an auditor starts to sell management services, other advices and offers various unspecified services, he immediately compromises his objectivity. Virtually one ends up
with a situation where the company that has purchased the services of the
auditors in various forms, follows the recommendations of its own auditor
consultant leaving little else for audit. As time would fly by, balance sheets
may no longer be accepted by shareholders and gradually by other authorities as
a true index of the state of affairs of a business enterprise. There may even
be a feeling that when the auditor has other interests in the company, or other
incomes from the company, he may tend to conceal things in his own interest.
The Karnataka High Court in the case of “T.S. Natraj vs. Union of India and Ors.
(1985)” held that “The independence of
the auditor is essential also for the orderly development of trade and
industry.” Normal
business losses are not regarded as something which a shareholder would be
concerned off but when a potential company which undertakes transactions on
recurring basis and yet sustains loss would be under the cloud of suspicion by
the shareholders and the regulators. The Supreme Court of India in the case of “Madhusudan
Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd. (1972)” opined
that “The mere fact that the company has suffered trading losses
will not destroy its substratum unless
there appears a serious
misconduct on the part of those who manage the affairs of the entity.” Every
corporate board and also the auditors aim at enhancing the value of a company
but at a cost which is unacceptable by the regulator.
THE VALUE OF A CORPORATE ENTITY AND THE ROLE OF
THE AUDITOR:
In the prevailing corporate domain, investors capital has more choice
and mobility than ever before. The key to survival and growth lies in
organizational change initiatives that will contribute directly to the economic
value of the entity and its ability to satisfy the financial return
requirements of its investors. The Delhi bench of Income Tax Appellate Tribunal
in the case of “Marubeni India (P) Ltd, New Delhi vs. Assessee (2009)” categorically
remarked that “The main object of an
entity established in India traditionally is to attract and retain
competitively sought after investors capital or in other
words shareholders wealth.” The existence of legislation can be
justified to give and promote a balance between the owners and the agents. The
agents undertake various kinds of risk depending on the circumstances to run a
corporate structure. If we carefully observe, the approach of law had slowly
shifted to a business friendly approach. The Delhi High Court in the case of “J.B.
Exports Ltd. and Anr. vs. BSES Rajdhani Power Ltd. (2006)” contemplated
that “The main intent of shift in the
focus of law is to encourage entrepreneurs to start new business ventures and
thus help in the process of industrialisation.”
In every business there is a risk that the business may fail due to
recession, competition etc. Hence, businessmen were reluctant to set up new
industrial ventures out of fear that if it failed, recovery would be issued in
respect of the loans they had taken and thereupon even their household and
personal effects may be sold in connection with the recovery. Hence,
businessmen were reluctant to take risks and start new industrial ventures. To
get over this hurdle and to encourage industrialisation the legal principle was
carved out that if a company is incorporated under the Companies Act, the
liability of the shareholders becomes limited because the shareholders,
directors etc. are legally treated as being different from the company. Corporate
entities have made an important transition in their object, while earlier
entities focused on establishment of their position irrespective of the
utilization of the investments, a gradual shift to protection and focusing on
enhancing the value of company had been in focus. Not only that but also such
focus had been termed in much more optimistic manner as “business purpose”. The
Mumbai bench of Income Tax Appellate Tribunal in the case of “LML
Ltd, vs. Assessee (1999)” opined that “Business purpose being a term of wide import would mean and has to be
meant and equated to maximizing shareholder's wealth or value.” Thus
the role of auditors can be observed to be more peculiar in nature as they work
towards the authentication of the usage of the wealth of the investors. In
other words, the auditing was intended for protection of the beneficiaries and
the auditor is expected to examine the accounts maintained by the trustees with
a view to inform the beneficiaries of the true financial position.
The auditor is, in such a case is under a clear duty towards the
beneficiaries 'to probe into the
transactions' and to report on their true character. The Calcutta
High Court in the case of “London Oil Storage Co. Ltd. vs. Seear,
Hasluck and Co. (1956)” categorically remarked that “He, the auditor must exercise such
reasonable care as would satisfy a man that the accounts are genuine, assuming
that there is nothing to arouse his suspicion of honesty and if he does that,
he fulfils his duty; if his suspicion is aroused, his duty is to probe the
thing to the bottom and tell the directors of it and get what information he can.”
In the matter of “London
and General Bank (1895)” Lindley L.J. observed that “It is no part of an auditor's duty to give advice, either to directors
or shareholders, as to what they ought to do. An auditor has nothing to do with
the prudence or imprudence of making loans with or without security. It is
nothing to him whether the business of a company is being conducted prudently
or imprudently, profitably or unprofitably. It is nothing to him whether
dividends are properly or improperly declared, provided he discharges his own
duty to the shareholders. His business is to ascertain and state the true
financial position of the company at the time of the audit, and his duty is
confined to that.”
THE FOOTPRINTS FORWARD:
Following can be measures which can be undertaken by the regulators
concerning the best interest of the company and the investors:
· Has the
time come for the appointment of auditor by an independent agency? This
question has been put forth by the changing times. The Ministry of Corporate
Affairs (‘MCA’) may appoint an independent agency and could delegate the power
to appoint auditors of every company domiciled in the Indian landscape. The
power of the company to appoint auditors can be very well shifted to an
independent agency as deputed by the MCA which can coordinate with the Comptroller
and Auditor-General to exclusively appoint and govern the role of
auditors of the company.
· The shareholders in case of companies which are
required to constitute audit committee and required to appoint independent
directors can be empowered to appoint a representative independent director in
the audit committee who would may or may not be one among themselves. For the
purpose of the same, for every 1000 shareholders one independent director may
be appointed, who may be a company secretary or a cost accountant or a chartered
account by qualification or an individual who has expertise knowledge in
finance, economics, law etc. Such independent director may put forth his opinion to the committee in the best interest of the shareholders. A provision can also be made that such director retires by rotation and maybe subsequently re-appointed every 6 months subject to the approval of the shareholders.
· Few more skew of measures can be undertaken by
the MCA such as introducing an affidavit to be given by the auditors stating
that they would not resort to any other services to the company with they are
dealing with either on annual basis or when they are appointed.
· The system of interim audit for companies above a
stipulated threshold can be introduced which can be undertaken on half yearly
basis. The companies on the other hand would be required to hold a mandatory
extra-ordinary general meeting for the approval of the said interim audit
report. This way a company stimulates the shareholders to effectively be
informed about the company, its management and the state of affairs.
· Any complaint / remark on the accuracy of audit
made by the shareholders (present and voting at a general meeting) holding five
percent of shares or more either individually or collectively should be
compulsorily followed up by an independent investigation.
· The rotation of auditors should be made mandatory
without any threshold limits. That is to say that rotation of auditors should
be made applicable for every company except small companies and one person
companies. At present, one term of auditor is 5 years consecutively till which
he or she can act as auditor. The MCA can reduce this tenure from 5 years to 3
years, that is to say an auditor can act as the statutory auditor of the
company for one term of three consecutive years if such auditor is an
individual or two terms of three consecutive years in case such auditor is a
firm.
· A measure can be introduced as such that a
mandatory report be presented by the audit committee at every Annual General
Meeting confirming the role of auditors played during the financial year and
the scope of work that may be recommended for the upcoming financial year.
· The board of directors shall present a list of auditors
proposed to be appointed at the respective general meetings. In traditional practice,
the board selects and recommends, however the board should prepare an exclusive
list of auditors who may be appointed and which shall be placed at the general
meetings and the chairman ought to explain the parameters for recommending each
auditor so that the shareholders can make the most effective decisions.
· Another important measure that the regulator
could deploy is a supervisory audit that should be made mandatory and which should
be undertaken every two years by an audit firm other than the one contractually
employed as auditor of a particular company. The supervisory audit should be
done by an auditor nominated by the Comptroller and Auditor-General of India on
the auditor who audits the company. Likewise the statutory auditors can be also be entrusted with the role of supervisory audit to be conducted over the internal auditors of the company appointed, if any.
ENDING REMARKS:
Seen with two different views, two different interpretations can be
drawn on what a company’s wealth. It’s something bigger than articulating the
affairs of the company. It is much more than pursuits and profits. It is much more than
examination of the activities. It is the collective effort that each personnel
at every level undertakes to reach a good market standing, be it internal
personnel who work with diligence or the external personnel like auditors who
work independently. The Bombay High Court in the case of “H.J. Doshi and
Ors. vs. Commissioner Of Wealth-Tax (1977)” stated
that “The wealth of a shareholder arising from shareholdings is one thing,
while the wealth of the company itself is a different matter. A
company's net wealth which law recognises is not the sum total of the net wealth of the
individual shareholders but a larger picture portrayed among the public. The
company and the shareholders are different assessable entities under law.”
The reality of the company is much broader than that of an association
of capital, it is a human working community that performs a collective action
for the common good. The status of auditors undoubtedly changed from being the
extended arms of corporate boards to the extended arms of good corporate
governance but requires more changes. It is pertinent to reiterate the findings of the Gujarat High Court
held in the case of “Panchmahals Steel Limited vs. Universal Steel
Traders (1975)”. The court stated that “Time-honoured approach that the company law
must safeguard the interest of investors and shareholders of the company would
be too rigid a framework in which it can now operate. New problems call for a fresh approach.”
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