had purchased substantial shares from second plaintiff i.e.
Limited Company. Second plaintiff owned all the shares of 3rd
plaintiff. As it turned out that second and third plaintiffs were
insolvent, plaintiff initiated action in tort against the auditor
alleging that there was substantial inaccuracy in auditing the
account and auditors were failed to discover and report the
inaccuracy. Claim was substantially dismissed. It was held
that occurrence of loss to the plaintiff is not possible to corelate
with the transaction in question, hence, no cause of
action against the auditor. It also held that the fact that the
potential bidder or lender might rely on the audited account
of the company that by itself is not sufficient to impose duty of
care owed by the auditor towards bidder or lender. Recently,
in Mehjoo’s case – 2014 (4) All ER 806, claimant was holding
Iranian domicile. He studied at U.K. and was staying in U.K.
Dispute arose as running business in which the claimant had
substantial share, was sold. Main grievance of claimant was,
Chartered Accountant failed to give advise to the claimant to
avail a scheme, namely, Bearer warrant scheme, by which the
claimant could have avoided capital gain tax. One of the
Judges in separate and concurrent order relying on 1978 (3)
All ER 571 (583) has held, thus;
“There is no such thing as a general retainer in that
sense. The expression “my solicitor” is as meaningless
as the expression “my tailor” or “my bookmaker” in
establishing any general duty apart from that arising out
of a particular matter in which his services are retained.
The extent of his duties depends on the terms and limits
of that retainer and any duty of care to be implied must
be related to what he is instructed to do.
Now no doubt the duties owed by a solicitor to this
client are high, in the sense that he holds himself out as
practicing a highly skilled and exacting profession, but I
think that the court must beware of imposing on
solicitors, or on professional men in other spheres,
duties which go beyond the scope of what they are
requested and undertake to do. It may be that a
particularly meticulous and conscientious practitioner
would, in his client’s general interests, take it on himself
to pursue a line of enquiry beyond the strict limits
comprehended by his instructions. But that is not the
rest. The test is what the reasonably competent
practitioner would do having regard to the standards
normally adopted in his profession, and cases such as
Duchess of Argyll v. Beuselinck [(1972) 2 Lloyd’s Rep
172], Griffiths v. Evans [(1953) 2 All ER 1364, [1953 1
WLR 1424] and Hall v. Meyrick [[1957] 2 All ER 722,
[1957] 2 QB 455 demonstrate that the duty is directly
related to the confines of the retainer.”
6.2 It is interesting to make quick reference to early cases
on the point. In Re Kingston Cotton Mill Co.’s case – (1896) 2
Ch 279, it was held that auditor has to work as watchdog and
not as a “bloodhound”. In later case i.e. Re City Equitable Fire
Insurance Co. Ltd.’s case – (1925) 1 Ch 407, ‘watchdog’
principle was reiterated, however, in that case it was found
that auditor was not negligent in discharge of his duty. Then,
in Formento (Sterling Area) Limited’ case 1958 (1) All ER at
Page-23, test of ‘inquiring mind’ in examining the conduct of
auditor was introduced. This test of ‘inquiring mind’ was
reiterated in Re Thomas Gerrard & Son Ltd.’s case – 1967 (2)
All ER 525.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 6116 of 2010
HONOURABLE MR.JUSTICE R.D.KOTHARI
HARESH A PATEL
Versus
STATE OF GUJARAT & 1.
Date : 08/05/2015
