Liquidator Turret Motors V. Charles Et Al

1943 Present: de Kretser and Jayetileke JJ.

LIQUIDATOR TURRET MOTORS, Appellants, and CHARLES et al, Respondents.

307-D. C. Colombo, 13,252

Companies Ordinance, No. 51 of 1938, ss. 121 and 132 (1)-Action of auditors- Duties of auditors-Preparation of balance sheet-Failure by Directors to prepare balance sheet-Claim by auditors -for fees.

Under section 121 of the Companies Ordinance it is the duty of the Directors of a Company to prepare a balance sheet.

In the absence of a balance sheet the only duty cast on the auditors , is to report to the members on the accounts examined by them.

Where the auditors have failed to do so, they are not entitled to any remuneration.

APPEAL from a judgment of the District Judge of Colombo.

N. Nadarajah, K.C. (with him N. Kumarasingham and H. W. Thambiah), for defendants, appellants.

G. Thomas, for plaintiffs respondents.

Cur. adv. vult.

July 2, 1943 JAYETILEKE J.-

This is a claim by the plaintiffs who carry on business in partnership as auditors and accountants, against the defendant company represented by their liquidator, one Sambamurti, for the recovery of a sum of Rs. 550 as fees for auditing their accounts for the year ended March 31, 1940.

At a general meeting of the defendants held on December 31, 1939, Sambamurti was appointed auditor but he declined to accept office owing to some disagreement about his fees. Thereupon the directors, in May, 1940, in the exercise of the powers vested in them by section 130 (5) of the Companies Ordinance, No. 51 of 1938, filled the vacancy by appointing the plaintiff but did not fix the remuneration payable to them.

It must be noted that Sambamurti was paid Rs. 400 for auditing the accounts in the previous year and that he declined to accept office because the directors proposed to reduce the fee for the year in question.

The duties of an auditor are laid down in section 132 (1) of the Ordinance. His primary function is to make a report to the members on the accounts examined by him, and on every balance sheet laid before the company in general meeting during his tenure of office. He is required to state in his report whether or not he obtained all the information and explanation he wanted and whether, in his opinion, the balance sheet is properly drawn up so as to exhibit a true and correct view of the company's affairs according to the best of his information and the explanations given to him, and as shown by the books of the company.

Under section 121 of the Ordinance it is the duty of the directors to cause to be made out in every calendar year and to be laid before the

company in general meeting a balance sheet. To that balance sheet a report has to be attached by them with respect to the state of the company's affairs, the amount, if any, which they recommend should be paid by way of dividend and the amount, if any, which they propose to carry to the reserve fund.

The defendants' directors made default in carrying out the duty imposed upon them by this section and arranged with the plaintiffs to have a balance sheet prepared by them. This, in my opinion, cannot be regarded as a desirable arrangement in view of the duties imposed upon the plaintiffs by section 132 (1).

The plaintiffs say that they commenced their audit in May, 1940, and that they spent a certain amount of time on it as shown in the Time Sheet, P 2.

On September 18, 1940, the plaintiffs wrote P 3 to the directors asking for Rs. 300 against their fees. On September 20, 1940, the directors replied by P 4 : " We shall thank you to expedite the auditing of our accounts as urgently as possible as it is long delayed. We shall certainly look into the payment of your fees in due course."

On November 25, 1940, the plaintiffs wrote P 5 to the Secretary of the defendants asking him for copies of all Insurance claims and the amounts received from the various Insurance companies in resp

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