No doubt the Companies Act, 2013 is not a law but collection of legal puzzle. Compliance of its provisions became hell. This is not just because of poor drafting of law but poor reading of law. We student of the Companies Act, 2013 need to unlearn the Companies Act, 1956 first and finally. We need to know, learn, understand and educate ourselves that the Companies Act, 1956 is now only for reference purpose only.
This form ADT – 1 is required to be filed under sub – section (1) of section 139.
Sub section (1) operate subject to the provisions of this Chapter X of the companies Act, 2013 which means anything contrary given in this chapter shall be applicable. This phrase shall operate only when any provision is in contrary to but not in addition to this sub – section (1).
Law for Appointment:
This sub – section is applicable to every company including One Person Company and listed companies. This sub – section came into force on 1st April 2014 but applicability of this sub – section effectively trigger on the date of First Annual Meeting held on or after 1st April 2014. Every company shall without fail appoint an individual or a firm as an auditor in its First Annual General Meeting. The use of “Shall” denote at least one auditor but not only one auditor. The auditor shall hold office from the conclusion of that Annual General Meeting till the conclusion of its sixth Annual General Meeting. This means at least one auditor (if and only if there is more than one auditor) shall hold office for 5 Annual General Meetings. We should not read it as five years to save ourselves from any confusion. The manner and procedure of selection of auditors by the members of the company at such meeting shall be such as may be prescribed. This is why we have Rule 3 of the Companies (Audit and Auditors) Rules 2014 earlier discussed here.
The company shall place the matter relating to such appointment for ratification by members at every annual general meeting. This is first condition of appointment of auditor. Auditor’s appointment is for 5 Annual General Meetings subject to condition subsequent of annual ratification to the appointment. Second proviso gives us Conditions Precedent that: (a) before such appointment is made, the written consent of the auditor to such appointment, and (b) 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. This is why we have Rule 4 of the Companies (Audit and Auditors) Rules 2014 discussed earlier here. The certificate referred above shall also indicate whether the auditor satisfies the criteria provided in section 141.
Legal Follow – ups:
The company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Registrar within fifteen days of the meeting in which the auditor is appointed.
For the purposes of this Chapter, “appointment” includes reappointment. Very clear, with all logic, ratification shall not be treated as appointment neither as reappointment.
The explanation made it clear that appointment or reappointment is an event once in five-year hence Form ADT – 1 also.
Whatsoever written in resolution for appointment of auditor in First Annual General held on or after 1st April 2014 was as per law was up to conclusion of Sixth Annual General Meeting. All appointment of auditors made in during Annual General Meeting held in year 2014 – 15 shall be up to the Conclusion of Annual General Meeting to be held year 2019 – 20. The exception is where may be that Auditor is (a) Removed, (b) Resigned, (c) Rotated or (d) any other causal vacancy.
Query arise what to do if resolution passed in first annual general meeting under this sub – section mention appointment for one year. Simply, an amendment in that resolution in line with this sub – section will serve the purpose. As the Form ADT – 1 is in STP or auto approval mode, this should treat one ADT – 1 for 5 years and same SRN should work for 5 annual filling.
A company to which Rotation provision is applicable, appointment of auditor in Annual General Meeting was of course up to the conclusion of Annual General Meeting to be held year 2019 – 20 but because of rotation provision, company may appoint another auditor by application of rotation provision. According to second proviso of sub – section, certain companies need to rotate auditor with Three years from the date of commencement of this Act. The date of Commencement of this Act, may be read as 1st April 2014. This does not translate to 3 Annual General Meetings but up to the Annual General Meeting held on or before 31st March 2017.
Exception to General rules:
Companies on which Sub – section 139(5) is applicable shall have auditor only till conclusion of Annual General Meeting related to Financial Year to which his appointment relates. All compliance in Government Companies shall be annual without annual ratification of auditor but annual appointment or reappointment. Annual filing of ADT – 1 shall be required in such cases.
First Auditor under section 139(6) shall be appointed by the Board or members in Extra – Ordinary General Meeting which shall hold office till conclusion to First Annual General Meeting. No Form ADT – 1 is required to be filled. No other form should ask for SRN of form ADT – 1 for First Annual Filling of the company after its registration. Otherwise, stakeholders may refer case to Ministry.
Some professionals giving suggestion that SRN of ADT – 1 filed after 1st Annual General Meeting as per sub – section (1) should be entered. This should not work for reasons: (a) first auditor and auditor appointed in first Annual General Meeting may be different and (b) when they are same, this will problem in annual filing to be done after conclusion of 6th Annual General Meeting.
Same position shall be appointment of auditor under section 139(7) applicable to government.
Auditors appointed against casual vacancy shall hold office till conclusion to next Annual General Meeting only.
No appointment or reappointment:
Sub – section (10) of Section 139 has very interesting provision. Where at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company. This enabling provision under this sub – section does not save companies form consequences of non compliances under other sub – sections of this Section. However, auditor shall continue in office without attracting provision of sub – section (9) of Section 139.
Ratification is Special Business:
According to Section 102(2)(a)(iii) appointment of, and the fixing of the remuneration of, the auditors is a ordinary business not special business in an annual General meeting. According to Explanation to sub – section (1) of Section 139 for that chapter “appointment” includes reappointment. Very clear, with all logic, rectification shall not be treated as appointment neither as reappointment. Therefore, annual ratification of auditor shall be special business and need compliances accordingly.
Interestingly, Secretarial Standard on General Meeting (SS – 2) add the appointment or ratification thereof and fixing of remuneration of the Auditors as ordinary business. Being subordinate legislation, Secretarial Standard may not change the position mentioned in the Act. Therefore, a correct use of ‘and’ is made here. Annual Rectification may be treated ordinary business, only if, clubbed with annual fixing of remuneration of auditors.
Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.