Doubt-Appointment of auditor when he is indebted

The Companies Act, 1956 will prevail over the Institute Guidelines.

Moreover, The Guidelines of the ICAI applies to all concern whther Company, Trust, AOP,BOI, etc. but the Companies Act, 1956 is applied to only Companies.

So, Rs. 1000/- is the Cap Limit.

-------------------------------------------

If you need further clarification than contact me

CS Ankur Shah (Practicing Company Secretary)

“Guru Gautam” Bungalow, Inside Parshwa Tower,

Nr. Shyamal Cross Road, 132ft. Ring Road,

Satellite, Ahmedabad – 15

Contact: + 91-9427633901

E-mail: ankur @ csankur.com, ankurjewel @ gmail.com

Blog: csankur.blogspot.com

Website: www.csankur.com

fully agreed wid Ankur Ji,

in case of companies - 1000/-

in case of others - 10000/-

for general understanding, we can say that -

Difference coz in case of company, the materiality level is low.

Can an Auditor or his family member make investment by booking a Flat / Plot in one of the project of his client (Pvt. Limited Company) dealing in Real Estate as Builder / Developer. Investment amount will be more than Rs.10.00 lacs.

As per companies Act of section 226 a person who is CA as defined in CA Act,1949 is appoint as an Auditor of company. Further in section 226(3), if a person who is investing in company which carry voting rights is also disqualified as appointment as an auditor, if he is indebited to company or give seurty to company in excess of Rs 1000 is also disqualified, notwithstanding the fact whether the same is ordinary course of company business. 

Mr Satenar sir in your case the person is disqualified to act as an auditor.

Pl clerify if am wrong.

Thanks in advance. 

Dear Babit,

Thanks for your reply but I don't agree with your explanation of Sec-226 (3). Sec-226 (3) is silent regarding investment carrying voting rights. Here, the Auditor is thinking of booking one flat with one of his client in real estate sector. It is purely a normal business transaction. He is not giving any loan to the company. The booking amount to be given to the company will be reflected as Flat Booking Advance in the books of the company till possession is handed over to the person who booked the flat. Even Section 226 is silent regarding investment made by family members of the auditor.

I still have some doubt that the Auditor will be disqualified in both the above situations. If you have case law in support of your above reply, please do inform me.

Thanks  

Originally posted by : CA.Satendar Kumar
	Can an Auditor or his family member make investment by booking a Flat / Plot in one of the project of his client (Pvt. Limited Company) dealing in Real Estate as Builder / Developer. Investment amount will be more than Rs.10.00 lacs.

Under Companies Act :-

Sec 226(3)(d) Indebtness/guarantee/security > Rs. 1000

Sec 226(3)(e) Holding any Security carrying voting right.

In ur case, the same is neither indebtness nor investments in form of securities. Its purely the nature of purchasing flat & the auditor or his family member will give Advance for booking flat.

Hence, the auditor is not disqualified.

Under Chartered Accountants Act :-

Second Schedule / Part I / Clause 4 - CA in Practice will be GPM, if he expresses his opinion on financial statement of any business or enterprise in which HE, HIS FIRM, or A PARTNER IN HIS FIRM HAS SUBSTANTIAL INTEREST.

(Note - Relatives are not covered)

In ur case, it is not an investment in business of the private limited company. It is a nature of purchase nd not the investment.

Hence, the auditor will not be GPM.