SECTION C: Auditors And directors liability to third party An auditor can be held liable to third parties for negligence, gross negligence, and fraud while preparing an audit report. And directors of companies have responsibility to represent financial statement as a true and fair as different types of parties like shareholders, investors ,tax authorities , government bodies are depending on it. However, in these scenario, as an investor i have relied on prospectus was signed by directors and internal auditors and experienced a financial losses. Under the following indian legislations and cases i can sue the directors and auditors. a)Firstly I can sue the auditors
Legislation: under section 227 of Indian companies act require auditors to make a true and fair financial statement and auditors have right to inspect all the companies financial books for that purposes. under this section auditors need to make a report to the members and to the shareholders of the companies on the basis of financial statements. Auditors are required to disclose all reasonable financial aspects based on financial statements before signing up the report Here, auditors did not disclose the revenues which was fictious ,therefore i can sue the auditors as it is breached of section 227 by auditors Relevant Cases: institute of chartered of accountants v. P. k .mukherjee state auditors are responsible to work in the best interest of the shareholders and owes a duty of care to shareholders and to potential users of such report. Similiar opinion has been made in the case of CIT v dandeker b) I can sue the directors under the following legislation and cases legislation: under the section 56 of the Indian companies act ,directors are personally liable to third parties for the damages if they state any misstatement facts or any fictious facts in the prospectus. And it is mentioned in section 62, directors shall be made liable to pay compensation. Under this section, i can sue the...
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