Appointment
of Auditors

COMMENT: Manner
and Procedure of Selection and Appointment of Auditors
(1) In case of a company that is required to constitute an
Audit Committee under section 177, the
committee, and, in cases where such a committee is not required to be
constituted, the Board, shall take into consideration the qualifications and
experience of the individual or the firm proposed to be considered for
appointment as auditor and whether such qualifications and experience are
commensurate with the size and requirements of the company:
Provided that while considering the appointment, the Audit
Committee or the Board, as the case may be, shall have regard to any order or
pending proceeding relating to professional matters of conduct against the
proposed auditor before the Institute of Chartered Accountants of India or any
competent authority or any Court.
(2) The Audit Committee or the Board, as the case may be,
may call for such other information from the proposed auditor as it may deem
fit.
(3) Subject to the provisions of sub-rule (1), where a
company is required to constitute the Audit Committee, the committee shall
recommend the name of an individual or a firm as auditor to the Board for
consideration and in other cases, the Board shall consider and recommend an
individual or a firm as auditor to the members in the annual general meeting
for appointment.
(4) If the Board agrees with the recommendation of the
Audit Committee, it shall further recommend the appointment of an individual or
a firm as auditor to the members in the annual general meeting.
(5) If the Board disagrees with the recommendation of the
Audit Committee, it shall refer back the recommendation to the committee for
reconsideration citing reasons for such disagreement.
(6) If the Audit Committee, after considering the reasons
given by the Board, decides not to reconsider its original recommendation, the
Board shall record reasons for its disagreement with the committee and send its
own recommendation for consideration of the members in the annual general
meeting; and if the Board agrees with the recommendations of the Audit
Committee, it shall place the matter for consideration by members in the annual
general meeting.
(7) The auditor appointed in the annual general meeting
shall hold office from the conclusion of that meeting till the conclusion of
the sixth annual general meeting, with the meeting wherein such appointment has
been made being counted as the first meeting:
Provided further that before such
appointment is made, the written consent of the auditor to such appointment,
and a certificate from him or it that the appointment, if made, shall be in
accordance with the conditions as may be prescribed, shall be obtained from the
auditor:
COMMENT: Conditions
for Appointment and Notice to Registrar
(1) The auditor appointed under rule 3 shall submit a certificate that -
(a) the individual or the firm, as the case may be, is
eligible for appointment and is not disqualified for appointment under the Act,
the Chartered Accountants Act, 1949 and the rules or regulations made thereunder;
(b) the proposed appointment is as per the term provided
under the Act;
(c) the proposed appointment is within the limits laid
down by or under the authority of the Act;
(d) the list of proceedings against the auditor or audit
firm or any partner of the audit firm pending with respect to professional
matters of conduct, as disclosed in the certificate, is true and correct.
(2) The notice to Registrar about appointment of auditor
under fourth proviso to sub-section (1) of section 139 shall
be in Form ADT-1.
Provided also that the
certificate shall also indicate whether the auditor satisfies the criteria
provided in section 141:
Provided also that the company
shall inform the auditor concerned of his or its appointment, and also file a
notice of such appointment with the Registrar within fifteen days of the
meeting in which the auditor is appointed.
Explanation—For
the purposes of this Chapter, “appointment” includes reappointment
(2) No listed company or a
company belonging to such class or classes of companies as may be prescribed,
shall appoint or re-appoint:
COMMENT: Class
of Companies
For the purposes of sub-section (2) of section 139, the class of companies shall mean the following classes
of companies excluding one person companies and small companies:
(a) all unlisted public companies having paid up share
capital of rupees ten crore or more;
(b) all private limited companies having paid up share
capital of rupees 1[fifty] crore or more;
(c) all companies having paid up share capital of below
threshold limit mentioned in (a) and (b) above, but having public borrowings
from financial institutions, banks or public deposits of rupees fifty crores or
more:
(a) an individual as auditor for
more than one term of five consecutive years; and
(b) an audit firm as auditor for
more than two terms of five consecutive years:
Provided that—
(i) an individual auditor who has
completed his term under clause (a) shall not be eligible for re-appointment as
auditor in the same company for five years from the completion of his term;
(ii) an audit firm which has
completed its term under clause (b), shall not be eligible for re-appointment
as auditor in the same company for five years from the completion of such term
Provided further that as on the
date of appointment no audit firm having a common partner or partners to the
other audit firm, whose tenure has expired in a company immediately preceding
the financial year, shall be appointed as auditor of the same company for a
period of five years
Provided also that every company,
existing on or before the commencement of this Act which is required to comply
with the provisions of this sub-section, shall comply with requirements of this
sub-section within a period which shall not be later than the date of the first
annual general meeting of the company held, within the period specified under
sub-section (1) of section 96, after three years from the date of commencement
of this Act.
Provided also that, nothing
contained in this sub-section shall prejudice the right of the company to
remove an auditor or the right of the auditor to resign from such office of the
company.
(3) Subject to the provisions of
this Act, members of a company may resolve to provide that
(a) in the audit firm appointed
by it, the auditing partner and his team shall be rotated at such intervals as
may be resolved by members; or
(b) the audit shall be conducted
by more than one auditor.
(4) The Central Government may,
by rules, prescribe the manner in which the companies shall rotate their auditors
in pursuance of sub-section (2).
Explanation—For the purposes of
this Chapter, the word “firm” shall include a limited liability partnership
incorporated under the Limited Liability Partnership Act, 2008.
(5) Notwithstanding anything
contained in sub-section (1), in the case of a Government company or any other
company owned or controlled, directly or indirectly, by the Central Government,
or by any State Government or Governments, or partly by the Central Government
and partly by one or more State Governments, the Comptroller and
Auditor-General of India shall, in respect of a financial year, appoint an
auditor duly qualified to be appointed as an auditor of companies under this
Act, within a period of one hundred and eighty days from the commencement of
the financial year, who shall hold office till the conclusion of the annual
general meeting.
(6) Notwithstanding anything
contained in sub-section (1), the first auditor of a company, other than a
Government company, shall be appointed by the Board of Directors within thirty
days from the date of registration of the company and in the case of failure of
the Board to appoint such auditor, it shall inform the members of the company,
who shall within ninety days at an extraordinary general meeting appoint such
auditor and such auditor shall hold office till the conclusion of the first
annual general meeting.
(7) Notwithstanding anything
contained in sub-section (1) or sub-section (5), in the case of a Government
company or any other company owned or controlled, directly or indirectly, by
the Central Government, or by any State Government, or Governments, or partly
by the Central Government and partly by one or more State Governments, *the
first auditor shall be appointed by the Comptroller and Auditor-General of
India within sixty days from the date of registration of the company and in
case the Comptroller and Auditor-General of India does not appoint such auditor
within the said period, the Board of Directors of the company shall appoint
such auditor within the next thirty days; and in the case of failure of the
Board to appoint such auditor within the next thirty days, it shall inform the
members of the company who shall appoint such auditor within the sixty days at
an extraordinary general meeting, who shall hold office till the conclusion of
the first annual general meeting.
(8) Any casual vacancy in the
office of an auditor shall—
(i) in the case of a company
other than a company whose accounts are subject to audit by an auditor
appointed by the Comptroller and Auditor-General of India, be filled by the
Board of Directors within thirty days, but if such casual vacancy is as a
result of the resignation of an auditor, such appointment shall also be
approved by the company at a general meeting convened within three months of
the recommendation of the Board and he shall hold the office till the
conclusion of the next annual general meeting;
(ii) in the case of a company
whose accounts are subject to audit by an auditor appointed by the Comptroller
and Auditor-General of India, be filled by the Comptroller and Auditor-General
of India within thirty days:
Provided that in case the
Comptroller and Auditor-General of India does not fill the vacancy within the
said period, the Board of Directors shall fill the vacancy within next thirty
days.
(9) Subject to the provisions of
sub-section (1) and the rules made thereunder, a retiring auditor may be
re-appointed at an annual general meeting, if—
(a) he is not disqualified for
re-appointment;
(b) he has not given the company
a notice in writing of his unwillingness to be re-appointed; and
(c) a special resolution has not
been passed at that meeting appointing some other auditor or providing
expressly that he shall not be re-appointed.
(10) Where at any annual general
meeting, no auditor is appointed or re-appointed, the existing auditor shall
continue to be the auditor of the company.
(11) Where a company is required
to constitute an Audit Committee under section 177, all appointments, including
the filling of a casual vacancy of an auditor under this section shall be made
after taking into account the recommendations of such committee.
* Responsibility to Inform
C&AG
DISCLAIMER: THE ARTICLE IS BASED ON
THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE
PREPARATION. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT
FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.
THE AUTHOR – CS DEEPAK
SETH (ASSOCIATE PARTNER HELPINGHANDS PROFESSIONALS LLP) AND CAN BE
REACHED AT CONTACTHHPRO@GMAIL.COM OR 9910248911.
0 Comments