--- title: A company cured an improper auditor removal through a compounding order. That validated the auditor who took over next. description: A company's improper removal of its auditor was later compounded. The Board held that cure validated the chain of appointments after it, clearing the incoming auditor of all three charges against her. case_number: BOD 829/2025 file_number: PR/4/2019/DD/65/2019/BOD/829/2025 forum: board-of-discipline institute: icai decided_on: 2026-01-16 outcome: Not guilty clauses: Item (8) of Part I of the First Schedule; Item (9) of Part I of the First Schedule; Item (2) of Part IV of the First Schedule order_pdf: https://disc.icai.org/wp-content/uploads/2026/01/44.-BOD-829-2025.pdf published: 2026-09-07 author: Jainam Shah keywords: bod 829 2025, item 8 part i first schedule, item 9 part i first schedule, item 2 part iv first schedule, no objection certificate audit, compounding order companies act, section 140 companies act, auditor appointment validity, board of discipline not guilty source: /icai/board-of-discipline/bod-829-2025 --- # A company cured an improper auditor removal through a compounding order. That validated the auditor who took over next. Two chartered accountants ended up on opposite sides of the same statutory audit, three appointments apart.[^parties] One had been removed from it years earlier without the government approval the law required; the other accepted it only after a compounding order settled that very question. ## What happened ```timeline A chartered accountant's firm audits two group companies for several years running, under a regular appointment. The companies try to remove that firm early without the Central Government approval the law requires, and the regulator rejects their paperwork. A second firm is named auditor regardless, and the companies later pay to have that lapse compounded before a Regional Director. Once the compounding order is passed, a third chartered accountant accepts the assignment, relying on a no-objection certificate from the second firm and signing off both companies' accounts within a day of taking up the appointment. The original auditor complains to the regulator that the new appointment rests on an illegitimate chain — an uncured removal, a no-objection certificate from a firm with no standing to give one, and an audit finished implausibly fast. A Board of Discipline examines what effect the compounding order had on everything that came after it. Finding that it cured the original defect before the new auditor ever accepted the work, the Board closes all three charges. ``` Two documents anchored the case. The first was the Regional Director's rejection of Form ADT-2 — the companies' attempt to remove the original auditor without prior government approval, which by rights should have kept him in place. The second, sixteen months later, was a compounding order dated 18 December 2017, in which the companies paid Rs 50,000 and Rs 45,000 respectively to settle that same lapse under Section 140(1) of the Companies Act, 2013 (para 13). The respondent accepted her appointment three days after that compounding order was passed, and signed both companies' financial statements — including reporting under CARO and on internal financial controls — within twenty-four hours of taking it up (para 3). ## The charges Two sit in Part I of the First Schedule, one in Part IV.[^forum] - **Item (8) of Part I** — failing to communicate with the retiring auditor in writing before accepting an audit already held by another member.[^item8] The allegation was that she should have written to the original auditor, not the firm that had displaced him. - **Item (9) of Part I** — accepting a company audit without first ascertaining that the statutory requirements for the appointment had been complied with.[^item9] The allegation was that she knew of the compounding order and accepted the assignment anyway, on the strength of a no-objection certificate from an auditor whose own appointment was said to be void. - **Item (2) of Part IV** — other misconduct, here framed around completing a full statutory audit, including CARO reporting, within a single day of appointment. The Board found none of the three made out and held her not guilty on all counts. ## What the respondent said On the validity of her appointment, she argued that the compounding order had a curative, retrospective effect: once the Regional Director compounded the earlier lapse under Section 454 of the Companies Act, the penal consequences ended, and her appointment on 21 December 2017 — after that order — was fully valid. She said she had no actual or constructive knowledge of any rejected Form ADT-2, since the government's own filing portal does not display such rejections unless specifically uploaded, and that she had relied on facially correct corporate records — a board resolution, Form ADT-1 and consent letters — all of which showed compliance (para 9). On communication, she said she had written to the firm that public records showed as the immediately preceding auditor, whose signature appeared on the prior year's financial statements and who was accepted as such by the Registrar of Companies. Identifying that firm as the outgoing auditor was, she argued, a reasonable and good-faith reading of the only records available to her (para 10). On the pace of the audit, she said there was no evidence that the work could not, as a matter of fact, be completed in the time taken, and that the allegation rested on suspicion rather than proof (para 16 records this submission). ## What the Board held The Board traced the full chain of appointments — the original auditor for FY 2014-15, the displacing firm for FY 2015-16, and the respondent from FY 2016-17 — and turned first to what the compounding order had actually done: > The legal effect of compounding, as is well settled, is that upon payment of the prescribed > compounding fees, the statutory breach stands cured and the matter attains finality in the eyes > of the law (para 13) Because the respondent's appointment came after that order, the Board held: > on the date of the Respondent's appointment, the earlier illegality stood remedied, and no legal > impediment survived either in respect of the removal of the Complainant or the consequential > appointments thereafter (para 14) That answered the communication charge as well — if the removal was cured, the firm that communicated with the respondent had standing to do so, and its no-objection certificate could not be treated as void (para 15). On the pace of the audit, the Board found no material showing the work could not have been completed in a day given modern auditing tools, and declined to found a finding of guilt on suspicion alone (para 16). ## The order > the Respondent is Not Guilty of Professional and Other Misconduct within the meaning of items (8) > and (9) of Part I and Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, > 1949 No punishment stage follows a not-guilty finding. The Board ordered the case closed under Rule 15(2) and disposed of it.[^rule] Two hearings, seven weeks apart, brought the matter to a close.[^coram] ## Why it matters *This section is ours, not the Board's.* **A compounding order can retroactively validate everything built on top of it.** The Board treated the cure as reaching back to the original defect, which meant every appointment and certificate that followed it stood too. If your appointment rests on a predecessor's paperwork, check whether any compliance gap in that chain has since been cured — it may rescue you. **Item (9) asks you to check the public record, not investigate behind it.** The respondent relied on Form ADT-3 and Registrar filings that were on record and unrejected. That was enough. You are not expected to uncover a government rejection order the portal itself does not display. **Speed is not, by itself, evidence of collusion.** A same-day audit invited suspicion here, but suspicion is not proof. If your working papers can show the audit was actually done, timing alone will not sustain a misconduct finding against you. This summarises a public order and links the primary source. It is general information, not legal or professional advice. [^parties]: *CA. Poonam Chand Soni (M.No. 054403), Proprietor, P.C. Soni & Co., Kolkata* was the complainant, the original statutory auditor of the two companies. *CA. Khushboo Jajodia (M.No. 303137), Partner, M/s PBMN & Co., Kolkata* was the respondent, who succeeded a second firm, M/s RASS & Co., as auditor. [^forum]: First Schedule matters go to the Board of Discipline; Second Schedule matters, and matters falling under both, go to the Disciplinary Committee. The two carry very different punishment ceilings. [^item8]: Item (8) of Part I of the First Schedule requires a chartered accountant to communicate with the retiring auditor, in writing, before accepting a position as auditor previously held by another member. [^item9]: Item (9) of Part I of the First Schedule bars a member from accepting appointment as auditor of a company without first ascertaining that the statutory requirements relating to the appointment — here, the Companies Act's rules on removing and replacing an auditor — have been duly complied with. [^rule]: Rule 15(2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 — where the Board finds a member not guilty, it records that finding and orders the complaint closed. There is no punishment hearing. [^coram]: CA. Rajendra Kumar P (Presiding Officer), Ms. Dolly Chakrabarty, IAAS (Retd.) (Government Nominee) and CA. Priti Savla (Member). Both parties appeared in person, with counsel for the respondent. Hearings were held on 15 October 2025 (part-heard and adjourned) and 22 December 2025 (heard and concluded). The findings were signed on 16 January 2026.