Auditors disqualification

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Querist : Anonymous

Querist : Anonymous (Querist)

09 October 2012 Hi,

There is Public Limited company in which a relative of Director to be appoint as Statutory Auditor in the AGM of 2012 for the financial year 2012-13.

Also a relative of Auditors is having capital interest in the company in which Auditors going to be appointed.

Kindly suggest the appropriate provision of the Companies Act,1956 applicable for the said case.

Thanks & Regards

Ajay Mishra

Ajay Mishra (Expert)
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09 October 2012 Hi

Certain category of persons not qualified for appointment as auditor:

Section 226(3) states that none of the following persons shall be qualified for appointment as auditor of a company:—
(a) a body corporate;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;
(d) a person who is indebted to the company for an amount exceeding one thousand rupees, or who has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees;
(e) a person holding any security of that company after a period of one year from the date of commencement of the Companies (Amendment) Act, 2000 i.e. 13th December, 2000;
(f) For the purposes of section 226, "security" means an instrument, which carries voting rights;
(g) a person if he is, by virtue of section 226(3), disqualified for appointment as auditor of any other body corporate which is that company's subsidiary or holding company or subsidiary of that company's holding company. [Section 226(4)]

Ajay Mishra

Ajay Mishra (Expert)
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09 October 2012 Appointment of a relative of a director as an auditor should not be made:

In the legal sense a relative of a director of a company is not disqualified for appointment as an auditor of the company. However, special resolution under section 314 shall be passed if the remuneration of
auditor exceeds the limits specified in section 314.

However, the council of the Institute of Chartered Accountants of India has suggested that a chartered accountant shall not accept the audit of a company where he is relative of the company's managing director or whole-time director and he believes that he would not be in a position to express his independent opinion.

Section 297 stipulates requirement for obtaining of Board's sanction for certain contracts in which particular directors are interested, does not come into play where a relative of a director is appointed as an
auditor of the company. [DCA Circular No. 13, dated 5-6-1975]

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