To Appoint a Person as Auditor Other Than Retiring Auditor U/S 140 of The Companies Act, 2013
November 5, 2016 by Nupur Singhal
Appointment of Auditor
As per Section 139(6) of the Companies Act, 2013, the first auditor of the company shall be appointed by the Board of Directors within 30 days from the date of incorporation who shall hold office till the conclusion of first AGM.
Section 139(1) states that the shareholders of the company shall appoint an auditor at its first annual general meeting who shall hold office till the conclusion of sixth AGM subject to ratification at every AGM.
Person other than the retiring auditor is proposed to be appointed
Where a person other than the retiring auditor is proposed to be appointed as an auditor or where it is proposed that the retiring auditor shall not be re-appointed, a special notice under Section 115 of the companies Act, 2013 has to be given proposing that such a resolution would be moved at the next annual general meeting.
This provision is attracted only when the retiring auditor is not to be appointed after the completion of his term of 5 years or whatever his tenure is. It is to be noted that ratification of auditor appointment at every AGM shall not be treated as completion of the term of auditor. And therefore, if an auditor is to be removed during the tenure of his office, then Central Government approval is required as provided in Section 140(1).
Special Notice procedure
- Notice shall be given by members holding minimum 1% of the total voting power or shares on which an aggregate sum of not less than Rs. 5,00,000 has been paid up as on the date of the notice. (Section 115 of the Companies Act, 2013)
- The notice shall be sent not earlier than 3 months but at least 14 days before the date of general meeting.
- The company shall give its members notice of the resolution at least 7 days before the meeting as prescribed in Rule 23 of the Companies (Management and Administration) Rules, 2014.
Rights available to the Retiring Auditor
- On receipt of the special notice, the company should send a copy thereof to the auditor to be removed. The Department has advised to send the notice by registered post acknowledgement due. (Circular No. 2/81, dated 17.10.1981).
- He has the right to send give representation of a reasonable length.
- The company is under the obligation to forward the said representation to all the members unless it is received too late.
- When the representation is not sent as above, the auditor has the right to get the representation read out in the relevant meeting.
- Representation made by the auditor shall also be filed with the Registrar when it is not sent to the members.
- Special notice is not required for the removal of the first auditor or auditors.
However, the company or any other person aggrieved may apply to the Tribunal not to send the representation and not to read it out in the meeting on the ground that the rights conferred by this section are being wrongly used by the auditor.
The provisions of Section 173(2) (now Section 102 of Companies Act, 2013) as to the explanatory statement are not applicable in respect of the resolution for the removal, because the company merely acting in pursuance of a special notice received by it to move the resolution, is not a resolution proposed by the company [Life Insurance Corporation of India v. Escorts (1986) 59 Comp Case 548 (SL)].