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**Descriptive Legal Case Study — Section 141 Auditor Disqualifications and Independence (Marks: 7)** CA. Rohan is a partner in M/s Rohan & Associates, Chartered Accountants. The firm is proposed to be appointed as the Statutory Auditor of Swastik Pharma Ltd. at its upcoming AGM. Examine the validity of the appointment under Section 141(3) of the Companies Act, 2013 in the following independent situations: (a) Rohan's brother holds equity shares of face value ₹90,000 (market value ₹3,50,000) in Swastik Pharma Ltd.. (b) M/s Rohan & Associates is indebted to Swastik Pharma Ltd. for ₹5,50,000 against purchase of equipment on credit. (c) Rohan has given a guarantee on behalf of his friend to a bank which has extended a credit facility to Swastik Pharma Ltd..

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Detailed Solution & Explanation

### Statutory Solution & Analysis — ICAI Corporate Law #### 1. Statutory Provisions (Section 141(3) of Companies Act, 2013): Under Section 141(3)(d), a person shall not be eligible for appointment as an auditor of a company if: - (i) He, or his relative or partner is holding any security or interest in the company. *Provided that a relative may hold securities of face value not exceeding ₹1,00,000*. - (ii) He, or his relative or partner is indebted to the company, its subsidiary, or holding company in excess of ₹5,00,000. - (iii) He, or his relative or partner has given a guarantee or provided security in connection with the indebtedness of any third person to the company, its subsidiary or holding company for an amount exceeding ₹1,00,000. #### 2. Evaluation of Cases: - **Situation (a)**: The brother (relative) holds shares of face value ₹90,000. Since the statutory ceiling of ₹1,00,000 applies to **face value** (and not market value), CA. Rohan is **NOT disqualified**. - **Situation (b)**: The firm is indebted to the company for ₹5,50,000, which exceeds the statutory limit of ₹5,00,000. Therefore, M/s Rohan & Associates is **disqualified** under Section 141(3)(d)(ii). - **Situation (c)**: Providing a guarantee for an amount exceeding ₹1,00,000 causes disqualification under Section 141(3)(d)(iii). Hence, if the guarantee value exceeds ₹1,00,000, the firm cannot accept the appointment.

Key Concepts to Understand

Guarantee

A contract to perform the promise, or discharge the liability, of a third person in case of his default (Section 126, ICA 1872). It involves three parties: Principal Debtor, Creditor, and Surety. A guarantee is secondary liability.

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