JA YETILEKE J.—-Liquidator Turret Motors and■ Charles.
1943Present: de Kretser and Jayetileke JJ.
LIQUIDATOR TURRET MOTORS, Appellants, andCHARLES 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 byDirectors to prepare balance sheet—Claim by auditors for fees.
Under section 121 of the Companies Ordinance it is the duty of theDirectors 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 anyremuneration.
PPEAL from a judgment of the Distriet Judge of Colombo.
N. Nadarajah, K.C. (with him N. Kumarasingham and H. W. Thambiah),for defendants, appellants.
Thomas, for plaintiffs) respondents.
Cur. adv. vult.
July 2, 1943 Jayetileke J.—
This is a claim by the plaintiffs who carry on business in partnershipas auditors and accountants, against the defendant company representedby their liquidator, one Sambamurti, for the recovery of a sum of Rs. 550as fees for auditing their accounts for the yean 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 officeowing to some disagreement about his fees. Thereupon the directors, inMay, 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 byappointing the plaintiff but did not fix the remuneration payable tothem.
It must be noted that Sambamurti was paid Rs. 400 for auditingthe accounts in the previous year and that he declined to accept officebecause 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 accountsexamined by him, and on every balance sheet laid before the companyin general meeting during his tenure of office. He is required to statein his report whether or not he obtained all the information andexplanation he wanted and whether, in his opinion,, the balance sheet isproperly drawn up so as to exhibit a true and correct view of the company’saffairs according to the best of his information and the explanationsgiven to him, and as shown by the books of the company.
Under section 121 of the Ordinance it is the duty of the directors tocause to be made out in every calendar year and. to be laid before the
452JAYETILEKE J.—Liquidator Turret Motors and Charles
company in general meeting a balance sheet. To that balance sheet areport has tp be attached by them with respect to the state of the com-pany’s affairs, the amount, if any, which they recommend should bepaid by way of dividend and the amount, if any, which they propose tocarry to the reserve fund.
The defendants’ directors made default in carrying out the dutyimposed upon them by this section and arranged with the plaintiffsto have a balance sheet prepared by them. This, in my opinion, cannotbe regarded as a desirable arrangement in view of the duties imposedupon 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 TimeSheet, P 2.
On September 18, 1940, the plaintiffs wrote P 3 to the directors askingfor Rs. 300 against their fees. On September 20, 1940, the directorsreplied by P 4 : “ We shall thank you to expedite the auditing of ouraccounts as 'urgently as possible as it is long delayed. We shall certainlylook into the payment of your fees in due course.”
On November 25, 1940, the plaintiffs wrote P 5 to the Secretary of thedefendants asking him for copies of. all Insurance claims and the amountsreceived from the various Insurance companies in respect of these claims.On November 30, 1940, they wrote to the Secretary inviting attention toP 5 and requesting him to furnish them with a certified list of spare partsand cars. The Secretary failed to comply with the plaintiffs’ request.
In December, 1940, the defendants went into liquidation. Theplaintiffs thereupon submitted to the liquidator their claim for Rs. 550for services rendered by them.
On January 22, 1941, the liquidator wrote P 10 requesting the plaintiffsto send him the balance sheet with their report. They replied by P 11that they could not “ perfect the balance sheet ’’ as the, informationasked for in P 5 and P 8 was not givep to them and pressed for a settle-ment of their claim.
The liquidator refused to pay and the plaintiffs instituted this actionfor the recovery of the said amount. The liquidator, filed answer. alleging that the plaintiffs failed and neglected to perform their obligationsand that the defendants did not have the benefit of any work done–bythem.
The learned District Judge held that the plaintiffs’ failure to furnisha report was due to the neglect of the directors of the defendants andawarded the plaintiffs a sum of Rs. 400 as remuneration.
It seems to me that the judgment cannot be supported either on thefacts or on the law. The information and the documents which theplaintiffs called for by P 5 and P 8 were for the purpose of preparing thebalance sheet which was no part of their duty. In the absence of a balancesheet the only duty which lay on the plaintiffs was to make a report to themembers on the accounts examined by them. That they have failedto do.
MOSELEY A.C.J.—Mohamed and Walker & Greig.
It would, I think, be enough to say in the present case that the plaintiffshave failed to discharge the duty imposed upon them by section 132 (1) ofthe Ordinance and their claim for remuneration must therefore fail. The■claim cannot be based on a quantum meruit as the defendants did not getthe benefit of any work done by the plaintiffs.
I would set aside the decree appealed from and dismiss the plaintiffs’action with costs here and in the Court below.
.DE Kretser J.—I agree.