Subscription to moa/aoa

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Querist : Anonymous

Querist : Anonymous (Querist)

22 October 2012 Hi,

Can foreign company being the share holder of the india company authorise an auditor to subscribe to MOA/AOA?. This auditor is proposed to be named as statutory audit for the indian company?

Is this valid under the indian laws?

Thanks,

Ajay Mishra

Ajay Mishra (Expert)

22 October 2012 Hi,

No, The person hold shares of the company can not hold the position of statutory auditor.

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)]

Arun Biyani

Arun Biyani (Expert)

23 October 2012 Dear Ajay, nice reply however the auditor in this cazse will be holding the shares as represenative and benificary holder will be the foreign company and not the auditor. let me know your opinion if the auditor will be considered as holder of security of that company.

Ajay Mishra

Ajay Mishra (Expert)

23 October 2012 Hi

But if he hold shares of the company as representative of foreigner, then I think it will affect when he made Audit report of the company, because a statutory auditor is prohibited from expressing his opinion on financial statements of any business or enterprise in which one or more persons who are his ‘relatives’ within the meaning of Section 6 of the Companies Act, 1956 have, either by themselves or in conjunction with such member, a substantial interest in the said business or enterprise.

As a good corporate practice the auditor should not be representative of foreigner.

Arun Biyani

Arun Biyani (Expert)

23 October 2012 As a good practice, of course the auditor is not going to do this. i was just looking for technical aspect of it. foreign company will not become the relative as the relative as per section 6 read with schedule IA appears to be a natural person. and then if first condition is satisfied then there may not be any substantial interest. a hypotical situation may be whever one subscriber to MOA holds 9999 share and this foreign company holds 1 share. any way i also think this practice should not be adopted.

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