Page 472 - CA Final PARAM Digital Book.

QNO Right to Lien Old Course - (M17E)
8.000 TITANIUM CNO - SA230.100

Auditor's right to Lien as per Companies Act, 2013

Answer Part I -- Relevant Standards & Laws
▪ General Principles of Law

▪ The Institute of Chartered Accountants in England and Wales Conditions
▪ Sec 128 of Company Act
▪ Refence to Saxena Vs Sharma Case Law & ICAI Ethical Standard Board Announcement

Part II -- Requirements of Relevant Standards & Laws
➢ General Principles of Law – Person with lawful possession of property and worked on it, can
exercise lien for non-payment of his dues – Same logic can be applied to Client Books
In terms of the general principles of law, any person having the lawful possession of somebody
else’s property, on which he has worked, may retain the property for non-payment of his dues on
account of the work done on the property. On this premise, auditor can exercise lien on books and
documents placed at his possession by the client for non-payment of fees, for work done on the
books and documents.

➢ ICAEW Conditions
• The Institute of Chartered Accountants in England and Wales has expressed a
similar view on the following conditions: – Auditor Can exercise lien subject to
Conditions – Possession as per Authority of Client / Documents belong to Client /
Client Owes Money / Fees Money is Connected with Work on those documents
Auditor can exercise lien on books and documents placed at his possession by the client for
non-payment of fee for work done on the following conditions:
• Documents retained must belong to the client who owes the money;
• Documents must have come into possession of the auditor on the authority of the
client;
• The auditor can retain the documents only if he has done work on the documents
assigned to him;
• Such documents can be retained which are connected with the work on which fees
have not been paid.

➢ As per Sec 128
Sec 128 of Company Act – Books should be kept at registered office / So it is impractical
for auditor to keep possession / Company has to allow access to auditor / directors /
authorised persons.
Under section 128 of the Act, books of account of a company must be kept at the registered office.
These provisions ordinarily make it impracticable for the auditor to have possession of the books
and documents. The company provides reasonable facility to auditor for inspection of the books of
account by directors and others authorised to inspect under the Act.

➢ Requirements of Saxena Vs Sharma & ICAI ESB Announcement
In Saxena Vs Sharma Case Supreme Court Said that professionals should not exercise line on client
documents as it would lead to a problem in running client business. ICAI ESB also said if CA exercises
lien it will be misconduct.
Part III -- Conclusion
➢ As per general principles & ICAEW exercising lean may seem logical but as per Sec 128 /
Supreme Court Judgement / ESB Announcement it is impractical to exercise lien and it will

lead to misconduct.
Taking an overall view of the matter, it seems that though legally, auditor may exercise right of lien
in cases of companies, it is mostly impracticable for legal and practicable constraints. His working
papers being his own property, the question of lien, on them does not arise.

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