X, Y and Z are three partners in JK LLP, a firm of Practicing Company Secretaries. X holds 1% paid-up share capital in ABC Ltd. Y holds shares of nominal value of ₹ 70,000/- in ABC Ltd. Referring the provisions relating

ICSI Auditing Standards - CSAS 1: Auditing Standards on Audit Engagement. Substantial Conflict of Interest means: (1) 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. (2) Indebtedness of the Auditor for an amount exceeding rupees five lakh other than that arising out of ordinary course of business of the Auditee: Provided that any indebtedness that may seriously impair his independence shall also be considered as substantial conflict of interest. (3) Where an Auditor was in employment of the Auditee, its holding or subsidiary company and 2 (two) years have not lapsed from the date of cessation of employment, the same shall be considered as substantial conflict of interest. In the given case, though X holds only 1% of the paid up share capital in ABC Ltd., but according to para 3.1 of CSAS-1, he is having a substantial conflict of interest in ABC Ltd. as his partner Y is having a share capital of nominal value ₹ 70,000/- i.e, more than ₹ 50,000 in ABC Ltd. and therefore JK LLP is not eligible to become Secretarial Auditor of ABC Ltd.