Appointment of
first auditors
As per section
224(5), the first auditor or auditors of a company shall be appointed by the
Board of directors within one month of the date of registration of the
company; and the auditor or auditors so appointed shall hold office until
the conclusion of the first annual general meeting. Following provisions are
related to the matter:
(i) Appointment of
first auditors in general meeting.—A company in
general meeting may appoint the first auditor or auditors if the Board of
directors fails to exercise its power of appointment of first auditors within
one month of the date of incorporation of the company. 224(5)(b)
(ii) Appointment
of first auditors through Memorandum and Articles of Association.—The Institute of Chartered Accountants of India has expressed its opinion vide
Compendium of Opinion Volume No. 1 that the appointment of first auditors
through the Memorandum and Articles of Association of the newly floated private
company is not a valid appointment.
(iii) Removal of
first auditors.—The company may, at a general meeting, remove
first auditor(s) or all or any of such auditors and appoint in his or their
places any other person or persons who have been nominated for appointment by
any member of the company and of whose nomination notice has been given to the
members of the company not less than fourteen days before the date of the
meeting 224(5) (a).
(iv) Tenure of office of the first auditor.—The first auditor(s) shall hold office until the conclusion of the first
annual general meeting of the company and then be eligible for re-appointment 224(5)
(a).
Appointment of auditor shall be an ordinary business
As per section
173(l)( a)(iv) of the Act, the appointment of, and the fixing of
the remuneration of the auditors shall be an ordinary business to be transacted
at an Annual General Meeting of a company. Only an ordinary resolution is to be
passed for this purpose except, in the circumstances stated u/s 224A requiring
the passing of a special resolution.
Section 224A
Auditor Not To Be Appointed Except With the Approval Of The Company By Special Resolution In
Certain Cases.
(1) In the case
of a company in which not less than twenty-five per cent of the subscribed
share capital is held, whether singly or in any combination, by -
(a) a public
financial institution or a Government company or Central Government or any
State Government, or
(b) any financial
or other institution established by any Provincial or State Act in which a
State Government holds not less than fifty-one per cent of the subscribed share
capital, or
(c) a
nationalised bank or an insurance company carrying on general insurance
business, the appointment or re-appointment
The
Department has clarified by Circular No. 2 of 1976,
dated 5-6-1976 that the material date for determination of
the 25% of the subscribed share capital of the company is held by specified
institutions, whether singly or in any combination of others will be the date
of the annual general meeting at which the special resolution is required to be
passed.
As per
Department's Circular No. 5/72, dated 21-2-1972, the appointment or reappointment
of auditors at the annual general meeting is one of the items of ordinary business
to be transacted at such a meeting.
As per
Explantaion I of 224 1(C):-
The expression
'specified number' means—
(i) in the
case of a person or firm holding appointment as auditor of a number of companies
each of which has a paid-up share capital of less than rupees twenty-five lakhs,
twenty such companies;
(ii) in
any other case, twenty companies, out of which not more than ten shall be companies
each of which has a paid-up share capital of rupees twenty-five lakhs or more.
In computing the
specified number of companies in respect of which or any part of which any
person or firm has been appointed as an auditor, whether singly or in
combination with
any other person or firm, shall be taken into account in computing the specified
number as defined in Explanation I of section 224(1C).
The following
types of companies shall be excluded from reckoning specified limits, in
terms of share capital:—
(a)
Guarantee companies (Department's Letter No. 8/12/(224)/74-CL-V, dated
28-9-74)
(b)
Foreign companies (Circular No. 21 of TSF No. 35/3/75-CL-III, dated
24-9-1975)
As mentioned
above, as per the Companies (Amendment) Act, 2000 private companies will not be
taken into account for counting the 20 number of companies audit as specified
as per sub-section (1B) of section 224.
(c) Branch audit
of the Indian Companies not counted for calculating the specified number.
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