APPOINTMENT, RESIGNATION AND REMOVAL OF AUDITORS UNDER THE COMPANIES ACT, 2013
Introduction
The Companies Act, 2013 is an important milestone in bringing the glory of Indian business at par with international community. It focuses on improving corporate governance of the corporates and has introduced certain new concepts such as Independent Directors, Corporate Social Responsibility, Women Director, One Person Company, Class Action suits and much more…. In this light let us examine the provisions relating to Appointment, Removal and Resignation of Auditors under The Companies Act, 2013.
Appointment & Reappointment of Auditors
- Section 139 mandates the company to appoint an individual/firm as the auditor of the company in its 1st Annual General Meeting, who shall hold the office till the conclusion of its 6th Annual General Meeting and thereafter till the conclusion of every sixth meeting. Thus an auditor is appointed for a term of 5 consecutive years.
- The auditor so appointed is required to submit the certificate of eligibility for appointment under Chartered Accountants Act, 1949 and Companies Act, 2013.
- The Company is required to file with ROC – Notice of appointment/reappointment of Auditors in Form ADT-1 within 15 days of the meeting in which auditor is appointed/reappointment.
- A retiring auditor may be re-appointed in AGM if he is not disqualified for re-appointment, he has not given the company a notice in writing of his unwillingness to be re-appointed and a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed.
- 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.
- Rotation of Auditors has now become a reality and is mandatory for all listed companies, unlisted companies having paid up share capital of Rs. 10 crore or more, all private limited companies having paid up share capital of Rs. 20 crore or more and all other companies (excluding OPC & small companies) having paid up share capital below threshold limit but having public borrowing financial institutions, banks or public deposits of Rs. 50 crore or more.
- An individual is eligible to appoint as auditor only for one term of 5 consecutive years while a firm can be appointed as auditor of the same company for two terms of 5 consecutive years. The existing companies shall comply with the requirement of rotation of auditors within 3 years. The auditor is eligible for reappointment after a cooling period of 5 Years.
- The first auditors of a company other Government company must be appointed by the Board with 30 days from the date of Incorporation and, if the Board fails, members shall in an EGM appoint the auditor within 90 days.
- The Board is empowered to appoint an auditor in case of casual vacancy of auditor arising other than by way of resignation of auditor.
- 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.
Removal & Resignation of Auditors
- Section 140 provides that the auditor may be removed from his office before expiry of his term only by a special resolution of the company after obtaining the previous approval of CG by making an application in Form ADT-2. The concerned auditor shall be given the reasonable opportunity of being heard.
- The auditor who has resigned from the company shall file within a period of thirty days from the date of resignation, a statement in Form ADT- 3 indicating the reasons and other facts as may be relevant with regard to his resignation with the company. In case of failure to comply with the provision, auditor is liable to fine of Rs. 50,000 which may extend to Rs. 5 lakhs.
- Special notice shall be required for a resolution at an AGM appointing as auditor a person other than a retiring auditor or providing expressly that a retiring auditor shall not be re-appointed, except where the retiring auditor has completed a consecutive tenure of 5 or10 years.
- The company shall forward the notice to the auditor. Auditor shall send representation in writing to the company. The company shall circulate the representation of the auditor to the members. The auditor may require that the representation shall be read out at the meeting. If the copy of representation is not sent to members it shall be filed with ROC.
