Government of India has removed a dozen difficulties from the Companies Act, 2013. Yes, the Companies (Removal of Difficulties) Third Order, 2016 is twelfth order in Removal of difficulties series of Orders in these three years.
In this post we will discuss this Removal of Difficulties Order.
This Order shall be deemed to have come into force from 1st April 2014. This is significant because this order remove difficulties from Section 139, which came into force from 1st April, 2014.
Before this order, following proviso was there as third proviso to sub – section (2) of Section 139 –
“Provided also that every company, existing on or before the commencement of this Act which is required to comply with provisions of this sub-section, shall comply with the requirements of this sub-section within three years from the date of commencement of this Act.”.
This proviso read with its sub – section convey a meaning that companies specified in the sub – section shall require to rotate its existing auditor or firm of auditors within three years from the commence of this Act. We have discussed this provision earlier here.
Rule 6 of the Companies (Audit and Auditors) Rules, 2014 explain requirement of rotation with illustration. We have discussed this provision earlier here.
If present proviso has its say, all companies are required to comply with this requirement legally on or before 31st March 2017.
Practically and legally, companies appoint auditor from conclusion of present AGM to conclusion of next AGM (or in case of present Companies Act, 2013 form conclusion of present AGM to conclusion of sixth next AGM from present AGM. Therefore, according to this proviso companies under this sub – section are required to rotate its auditor in the annual General meeting to be held during year 2016.
This creates an interpretation and implementation gap.
Now, this removal of difficulties order substitutes the proviso with new proviso as under:
“Provided also that every company, existing on or before the commencement of this Act which is required to comply with the provisions of this sub-section, shall comply with requirements of this sub-section within a period which shall not be later than the date of the first annual general meeting of the company held, within the period specified under sub-section (1) of section 96, after three years from the date of commencement of this Act.”.
Now Instead of the any AGM held on or before, 31st March 2017 rotation of auditor shall take place in –
- First AGM after three years i.e. first AGM after 31st March 2017, and
- Such first AGM shall be held within the period specified under sub – section (1) of section 96.
First bullet point discussed above effectively gives one extra year to auditor in office and company to comply.
Second bullet point effectively says for most of the companies that such AGM shall be held on or before 30th September 2017. However in case of companies with NCLT permission for different Financial Year, such AGM may be held on different.
In case of default in holding that AGM after 31st March 2017 there shall be an additional default of non – compliance of this provision also.
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