Appointment of auditor under new companies bill, 2013

Ajay Mishra (Company Secretary) (74327 Points)

26 August 2013  

 

APPOINTMENT OF AUDITOR UNDER NEW COMPANIES BILL, 2013(COMPANIES ACT)

 

The appointment of auditor under new Companies Bill, 2013 has made major changes in appointment procedure and tenure of appointment in comparison to the Companies Act, 1956. Section 224 to 233 of the  Companies Act, 1956 and Chapter X covering Clause 139 to 148 of the new Companies Bill, 2013 (the new Companies Act) deal with audit and auditors of the Company. This article is based on this comparison between new and old procedure of appointment of auditor in company.

Appointment of First Auditor

As per section 224(5) of the Companies Act, 1956, the first auditor or auditors of a company shall be appointed by the Board of directors within one month of the date of registration of the company; and the auditor or auditors so appointed shall hold office until the conclusion of the first annual general meeting. If the Board of director fail to appoint first director then the shareholders has power to appoint first auditor any time at general meeting for the period starting from the date of registration until the conclusion of the first annual general meeting of the company. The time period under the Companies Act, 1956 has not specified that when shareholder will appoint its first auditor, if the Board fail to appoint first auditor within one months.

At the other hand, the shareholders has power to appoint first auditor in general meeting with in a period starting from the date of expiry of one month from the date of registration of the company till the date of issue of notice of AGM to the shareholder for conducting AGM, giving detail of appointment of first auditor in AGM.

Whereas, under sub-clause (6) of clause 139 to the new Companies Bill, 2013 says that the first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within thirty 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 ninety days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

The clause 139(6) under the Companies Bill, 2013 give an extra duty on Board that if it failed to appoint first auditor then it will inform to the members for calling extraordinary general meeting for appointment of auditor, but such clause not specified when the Board will intimate to shareholders for calling EGM, it may be any time before the end of 90 days from the date of AGM.

For Example:

XYZ Private Limited is incorporated on 01.05.2013 and its firs AGM is on 31.012.2014, and then the Board has power to appoint first auditor before 01.06.2013, but it fail to appoint before that period, then he will give information to members for appointing first auditor on EGM till 30.09.2014.

The reason is that after getting information, the member will call EGM within 90 days for appointment of first auditor and that 90 days will always end before 90 days from the  date of AGM, i.e. 31.12.2014. It means Board has power to give intimation to members for appointing first auditor on or before 30.09.2014.

Whereas sub-clause (7) of clause 139 to the new Companies Bill, 2013 says that in the case of a Government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government, or Governments, or partly by the Central Government and partly by one or more State Governments, the first auditor shall be appointed by the Comptroller and Auditor-General of India (CAG) within sixty days from the date of registration of the company and in case the Comptroller and Auditor-General of India does not appoint such auditor within the said period, the Board of Directors of the company shall appoint such auditor within the next thirty days; and in the case of failure of the Board to appoint such auditor within the next thirty days, it shall inform the members of the company who shall appoint such auditor within the sixty days at an extraordinary general meeting, who shall hold office till the conclusion of the first annual general meeting.

In case of company mentioned in sub-clause (7), the power to appoint first auditor is with CAG within 60 days, if it fail, then Board of directors of such company will appoint first auditor and if Board of Director failed to appoint within 30 days, then members of the company will appoint first auditor. In Government Companies or companies mentioned in clause (7) above have three category of authority to appoint first auditor.

When we read sub clause (6) and clause (7) of Clause 139, the power to appoint first auditor by members on the intimation of the Board, will be restricted in time period. The said limitation on member to call EGM is a new clause in Companies Bill 2013 in comparison to the old Companies Act, 1956.