Whether to file form ADT-1 for the appointment of first auditor or not?
It is one of those contemporary issues which is frequently faced by many Companies and Professionals (including Auditors).
To draw an inference about the requirement of filing form ADT-1 for the appointment of first auditor, let's go through some of the relevant provisions of the Companies Act, 2013 [the Act] & Companies (Audit and Auditors) Rules, 2014 [the Rules].
Section 139 of the Act: Appointment of Auditors
Section 139 of the Act states about the appointment of Statutory Auditor(s) and related matters. To understand the issue in question, sub-section (1) & (6) of Section 139 are relevant for us.
Sub-section (1)- Appointment of Auditor in AGM: 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 at such meeting shall be such as may be prescribed:
First proviso [Omitted]
Provided further that before such appointment is made, the written consent of the auditor to such appointment, and a certificate from him or it that the appointment, if made, shall be in accordance with the conditions as may be prescribed, shall be obtained from the auditor:
Provided also that the certificate shall also indicate whether the auditor satisfies the criteria provided in section 141:
Provided also that the company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Registrar within 15 days of the meeting in which the auditor is appointed.
Explanation. - For the purposes of this Chapter, 'appointment' includes reappointment.
Sub-section (6)- Appointment of first auditor: Notwithstanding anything contained in sub-section (1), the first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within 30 days from the date of registration of the company and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within 90 days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.
Rule 4 of the Rules: Conditions for appointment and notice to Registrar
Rule 4 states about the pre-conditions for the appointment of an Auditor along with the requirement of filing form ADT-1.
(1) The auditor appointed under rule 3 shall submit a certificate that -
(a) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder;
(b) the proposed appointment is as per the term provided under the Act;
(c) the proposed appointment is within the limits laid down by or under the authority of the Act;
(d) the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.
(2) The notice to Registrar about appointment of auditor under fourth proviso to sub-section (1) of section 139 shall be in Form ADT-1.
Points of inference
- Now that we have gone through the relevant provisions of the Act and applicable Rules, it can be noted that the requirement of filing form ADT-1 is provided under Rule 4(2) of the Rules.
- After reading Section 139 with Rule 4, it can be seen that the Rule provides for the requirement of filing form ADT-1 as per fourth proviso to sub-section (1) of Section 139 which clearly states about the appointment of Auditor(s) in AGM.
- Further, it is also pertinent to note that the appointment of first auditor is governed under sub-section (6) of Section 139.
After taking into consideration the above-mentioned provisions, it can be concluded that the requirement of filing form ADT-1 is not mentioned in case of appointment of first auditor as Rule 4(2) clearly states about sub-section (1) of Section 139 which is regarding appointment of auditor in AGM whereas the provisions of appointment of first auditor is given under sub-section (6) of Section 139.
AS PER AUTHOR
We Company Secretaries are also known as Corporate Governance Professionals, not just for the sake of name but for the high standards of Corporate Governance insight and point of view we carry. As a good Corporate Governance practice, it is always advisable to file form ADT-1 upon the appointment of the first auditor. This is beneficial from each and every stakeholder's point of view, especially the Company which is appointing and the Auditor who is getting appointed.
Furthermore, it is also pertinent to note that, in form ADT-1, there is a field which asks about the 'Nature of appointment' and in the drop-down menu, the first option relates to the appointment of First Auditor itself.
So, as Professionals let's make it possible to provide proper advice to our clients keeping in view the best Corporate Governance practices.
Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.
The author can also be reached at firstname.lastname@example.org