A, T and K are partners in LMN LLP, a firm specialising in secretarial audits. A holds 1% paid-up share capital in a company JKL Ltd, where the nominal value of his shares is ₹80,000 and the current market value is ₹50,0

Provision: As per Para 3 of CSAS-1, Substantial Conflict of interest means holding of more than 2% in the paid up share capital or shares of nominal value of rupees fifty thousand, whichever is lower or more than 2% voting power, as the case may be, by the Auditor singly or along with partners, spouse, parent, sibling, and child of such person or of the spouse, any of whom is dependent financially on such person. Before accepting the audit, the Auditor shall disclose that there is no conflict of interest of ownership as specified in this Standard or prescribed in any law, act, rules and regulations under which the audit is being carried on. Where there exists a substantial conflict of interest in the Auditee organization, the Auditor cannot accept the Audit Engagement. The limit of holding of more than 2% in the paid-up share capital or shares of nominal value of rupees fifty thousand, whichever is lower or more than 2% voting power shall be applied based on combined holding of the Auditor along with partners, spouse, parent, sibling, and child of such person or of the spouse, any of whom is dependent financially on such person. Given Case: A, T and K are partners in LMN, LLP, a firm of Practicing Company Secretaries. A holds 1% of the paid-up share capital in company JKL Ltd. Nominal value of such shares is ₹80,000. The market value of the shares held by A is ₹50,000. Also wife and daughter of A who are financially dependent on him hold 1% paid-up share capital in JKL Ltd. In this case, there will be a substantial conflict of interest between A and the company JKL Ltd, as the nominal value of shares held by A is more than ₹50,000, therefore he cannot accept the Secretarial Audit of XYZ Ltd. The market value of the shares is irrelevant while deciding the conflict of interest based on ownership in accordance with CSAS-1. Also, in this case A is not directly holding any interest in JKL Ltd.as he has 1% paid-up share capital in JKL Ltd. However, according to para 3.1 of CSAS-1, A is having a substantial conflict of interest in JKL Ltd. As the aggregate value of paid-up share capital held by his wife, daughter and wife in JKL Ltd is 3%. Viewed in this context also, he is not eligible to become Secretarial Auditor of JKL Ltd.