APPOINTMENT OF AUDITORS UNDER NEW COMPANY LAW (Part -II)

[Dr. Sanjiv Agarwal]

Rotation of the partner

The sub-section (3) provides for the provision for rotation of auditing partner and his team within the auditing firm. A company may resolve that the auditor and his team in the audit firm shall be rotated at such intervals as may be resolved by members, or the audit shall be concluded by more than one auditor (joint auditors).

First auditors

The power to appoint first auditors of the company (other than Government companies) vests with the Board of Directors. The first auditors of the company are to be appointed by the Board within 30 days of incorporation of the company. The first auditor appointed by the Board shall hold office till the conclusion of the first Annual General Meeting of the company. The remuneration of the first auditor shall also fixed by the board. At the first AGM, auditor shall be appointed for a team of 5 years till the conclusion of 6^th AGM.

In case the Board fails to appoint the first auditor of the company within 30 days of incorporation, the company shall inform the same to members, who shall appoint the first auditor within 90 days in extraordinary general meeting. Such auditor shall hold office till the conclusion of first annual general meeting.

It is not clear from which date, these ninety days shall be counted but from the information and language of the section it appears that it shall be from the expiry of first thirty days.

Appointment of Auditor in Government Company

The appointment of auditor in Government company or government controlled company shall be held in accordance with the following provisions:

a)  First auditor shall be appointed by the Comptroller and Auditor General within 60 days from the date of incorporation and in case of failure to do so, the Board shall appoint auditor within next 30 days and on failure to do so, the members will appoint the auditor within 60 days, who shall hold office till conclusion of first Annual General Meeting.

b)  The first auditor of the company other than Government company, shall be appointed by the Board within 30 days of its incorporation and in case of failure to do so, the members shall appoint the same within 90 days form incorporation, who shall hold office till conclusion of first Annual General Meeting.

c)  In case of subsequent auditor for existing government companies, the Comptroller & Auditor General shall appoint the auditor within a period of 180 days from the commencement of the financial year and the auditor so appointed shall hold his position till the conclusion of the Annual General Meeting.

d)  In case the company has an Audit Committee, then all appointments of Auditor including filling of casual vacancy, shall be made after taking into account the recommendations of the Committee.

Casual Vacancy in the office of auditor

The provisions for filling of casual vacancy in the office of auditor are as follows:

(a)  The Board of the company shall have power to fill the casual vacancy in the office of auditor within 30 days in any case except where –

(i)   the casual vacancy occurred due to resignation of the auditor, or

(ii)  the company accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India.

(b)  In case casual vacancy has occurred due to resignation of auditor, such appointment should be approved by the company in general meeting convened within 3 months of the recommendation of the Board and he shall hold the office till the conclusion of the next annual general meeting.

(c) In case of a company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India, such vacancy should be filled by the Comptroller and Auditor-General of India within 30 days.

(d) 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 30 days.

(e) Appointment of auditors to fill casual vacancy shall be made after taking into account the recommendation of the audit committee.

Re-appointment of retiring auditor

The provisions also apply to reappointment as appointment would include reappointment also.

At any annual general meeting, a retiring auditor shall be reappointed as auditor of the company except under the circumstances specified. In the following circumstances, it would not be competent for the company to reappoint the retiring auditors if:

(a)  he is not qualified for re-appointment.

(b)  he has given the company a notice in writing of his unwillingness to be re-appointed.

(c) a special resolution has been passed at that meeting appointing somebody else instead of him or providing expressly that retiring auditor shall not be re-appointed.

(d) the ceiling for number of terms mentioned in the sub-section (2) for listed or specified companies has been reached.

Audit Committee

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 only after taking into account the recommendations of Audit Committee.

Rules to be Prescribed

Draft Rules in relation to the following have been prescribed separately on enactment of Companies Act, 2013 –

(a)  Prescription of conditions subject to which the appointment of Auditor will be made in terms of sub section (1).

(b)  Classes of Companies in which there shall be a restriction on the term of appointment/reappointment of Auditor or audit firm,

(c)  Rules regarding the manner in which the Companies shall rotate their Auditors, to be prescribed by Central Government.

(d)  Rules regarding reappointment of the retiring auditor at the annual general meeting.