Auditor Liable For Misuse Of Digital Signature By His Own Employee Under Implied Authority: NCLT Mumbai

It held that under settled principles of agency, a principal is bound by the acts of his agent carried out within the scope of implied authority.

A coram of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar made the observation while dismissing an application by Dattatray Maruti Khune, former auditor of Netwealth Agrotech India Ltd, seeking dismissal of proceedings initiated against him under Section 140(5) of the Companies Act.

“It is trite that a principal is responsible for acts of his agents, accordingly, the purported fraudulent use of Applicant's DSC for uploading the Financial Statements, claimed to not have been signed by the Auditor, does bind the Applicant to the consequences flowing from such conduct of his employee in view of implied authority, even if committed without his Authority.”, the tribunal observed.

Netwealth Agrotech was subjected to inspection following complaints alleging fraudulent chit fund activities. The inspection revealed that balance sheets for the financial years of March 31, 2015, 2016 and 2017 were uploaded on the MCA portal on April 30, 2018, without supporting audit reports, notes to accounts, or previous-year figures.

The Ministry of Corporate Affairs, filed a petition in August 2019 seeking removal of Khune as statutory auditor and his disqualification for five years. It alleged that he had facilitated the filing of fabricated financial statements by signing or enabling multiple sets of financial statements without adequate verification.

Khune contended that the statements were uploaded by his accountant without consent and relied on his resignation to argue that no further orders could be passed against him.

Rejecting the plea, the tribunal held that resignation during pendency of proceedings cannot render an application under Section 140(5) infructuous, as such an interpretation would allow errant auditors to escape statutory consequences. It also relied on settled precedent to hold that proceedings must continue to their logical conclusion irrespective of the resignation.

The tribunal accordingly dismissed the application. It clarified that the main petition would be examined on merits after considering the investigation.

Case Title: Dattatray Maruti Khune vs Union of India

Case Citation: 2026 LLBiz NCLT (MUM) 50

Case Number: IA 1179 of 2020 IN CP / 2996/ (MB)/ 2019

For Applicants: Advocate G. Aniruth Purusothaman

For Respondent: Advocate Kunal Kanungo