APPOINTMENT OF AUDITOR IN AGM 2019 - Series 493

 SHORT NOTE:

APPOINTMENT OF AUDITOR IN AGM 2019

This Editorial is updated till 28^th August, 2019.

In this editorial auditor shall discuss the few questions in relating to Appointment/ Re- appointment of Auditor in AGM of 2019.

                  I.            In case term of auditor is ending in AGM 2019. Company wants to                        appoint  new auditor in place of retiring auditor? What shall be process of          the same?

             II.            Whether an auditor can be appoint for more than two terms of 5 year in a           Private Limited Company?

      III.           Whether an auditor can be appoint for term less than or more than 5 year           in  a single term?

A.    In case term of auditor is ending in AGM 2019. Company wants to appoint new auditor in place of retiring auditor? What shall be process of the same?

Provisions of appointment of Auditor are mentioned in Section 139 of Companies Act, 2013.

As per Section 139(1), Extract of Law: - “Subject to the provisions of this Chapter, every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the members of the company”

Note: - If term of any auditor is getting expired on upcoming AGM (e.g. AGM 2019). Means now its call of Company to re-appoint him or appoint new auditor.

If Company wants to appoint New Auditor:

As per provisions of Section 139 Company will pass Board Resolution in Board Meeting for appointment of new auditor subject to approval of Shareholders in upcoming Annual General Meeting.

Note:

·        There is no need to obtain any letter of retirement from the old Auditor.

·        There no need to file any form for expiry of term of old Auditor.

·        No need have obtained NOC from the retiring auditor.

·        Company will send notice of AGM to retiring auditor as his term will end at the end of the Annual General Meeting.

Process of appointment of auditor given below in flow Chart form:

B.     Whether an auditor can be appoint for term less than or more than 5 year in a single term?

Provisions of terms appointment of Auditor are mentioned in Section 139 of Companies Act, 2013.

As per Section 139(1), Extract of Law: - “Subject to the provisions of this Chapter, every company shall, at the first annual general meeting,

     ·         appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and

      ·         thereafter till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the members of the company”

Note:

No where under section 139 it is mentioned that auditor shall be appoint for 1,2,3,4,5,6, years. Terms of appointment of auditor is mentioned in Section 139(1) only.

As per section ‘terms of auditors shall be as follow:

      ·         Term of appointment of first auditor shall be till conclusion of first AGM

      ·         Further term of auditor shall be till 6^th AGM of Company

[e.g. if auditor is appointed in 14^th AGM then term of auditor shall be till 19^th AGM]

     ·         Term of auditor in case of auditor appointed in casual vacancy shall be till conclusion of subsequent Annual General Meeting.

In other word, term of appointment of auditor shall be till 6^th AGM from the date of appointment. Therefore, one can opine that statutory auditor can be appoint minimum or maximum for 5years. There is no option to appoint auditor for less than 5 year or more than 5 year in a single term.

C.  Whether an auditor can be appoint for more than two terms of 5 year in a Private Limited Company?

Provisions of terms appointment of Auditor are mentioned in Section 139 of Companies Act, 2013.

As per Section 139(2), Extract of Law: - NO Company mentioned below

·         Listed Company or

·         all Unlisted Public Companies having paid up share capital of rupees ten crore or more;

·         all Private Limited companies having paid up share capital of rupees fifty crore or more;

·         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

  shall appoint or re-appoint—

       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:

Note:

As per extract of law mentioned above, Private limited Company having paid up share capital 50 crore more or having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more can’t continue auditor after expiry  of two terms.

In other words, a auditor or auditor firm can be appoint as statutory auditor even after expiry of two terms of appointment if such company doesn’t fall under above mentioned limites.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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