Course of Action where a change in the shareholding pattern occurred
In exceptional cases, where a change in the shareholding pattern in the company has taken place, between the date of issue of notice of the annual general meeting and the date of actual passing of the resolution regarding appointment of auditor, the company may either,—
(i) adjourn the meeting to another date, and later issue the required notice in accordance with law and thereafter pass the special resolution required to be passed u/s 224A of the Companies Act, 1956;
(ii) omit or pass over the item on the agenda regarding appointment of auditor.
In the event of the company adopting the procedure at (ii) above, the situation would be then covered by section 224A(2) of the Act.
· A question has been raised whether, it is only those shares in a company which are beneficially held by a nationalised bank that will be taken into account in calculating the 25% of the subscribed share capital of that company or even those shares of the company which having come into the custody of the nationalised bank as security for loans advanced to the constituents are got transferred by the nationalised bank in its name for making the security effective, will also be taken into account. It is clarified that irrespective of the circumstances in which a nationalised bank is holding shares if the name of the bank is entered in the Register of members of the company as holder of shares, such holding of shares will have to be taken into account, for the purposes of section 224A of the Companies Act, 1956. (The Department's Circular No. 18 of 1974, dated 12-12-1974)
The Department has issued a General Circular No. 14/2001 [No. 6/1/2001-CL.V], dated 16-7-2001 on provisions of section 224A of the Companies Act, 1956 that the Department of Company Affairs had recently received a reference regarding clarification in respect of section 224A of the Companies Act, 1956 which relates to appointment of auditor in certain cases with the approval of the company by special resolution. The clarification had been sought on sub-section (1) of that section which reads as under—
"224A(1) In the case of a company in which not less than 25% 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 51% of the subscribed share capital, or
(c) a nationalised bank or an insurance company carrying on general insurance business,
the appointment or re-appointment at each annual general meeting of an auditor or auditors shall be made by a special resolution."
The querist was of the opinion that three clauses (a) to (c) mentioned in sub-section (1) of that section [section 224A] should be treated as mutually exclusive. According to them, the aggregate holdings of the institutions grouped under either clause (a) or clause (b) or clause (c) of section 224A(1) are to be treated as mutually exclusive and are not to be aggregated with institutions covered by any other sub-clause, for determining the applicability of section 224A.
The Department has examined this matter in consultation with Department of Legal Affairs and Solicitor General of India and found that three sub-clauses (a) to (c) to sub-section (1) of section 224A are not mutually exclusive. The provisions of sub-section (1) of that section would, therefore, apply to all cases of shareholdings in any combination by any of the Institutions mentioned in the three clauses.
Where any company referred to in section 224(1) omits or fails to pass at its annual general meeting any special resolution appointing an auditor or auditors, it shall be deemed that no auditor has been appointed by the company at its annual general meeting and then Regional Director shall have powers under section 224(3) for appointment of auditors.
The company shall file e-Form 23 electronically along with certified copy of the special resolution and explanatory statement with the Registrar within 30 days of passing of resolution as per section.