PREAMBLE
The Company jurisprudence in India enshrines statutory auditors who audit the accounts of a company as representatives of the shareholders who appoint them at every Annual General meeting {AGM} to look after the interest of the shareholders.
In a significant case of Deputy Secretary v S N Dasgupta, AIR, 1956 , Cal 414, it was held by the court that the auditor is the servant of the shareholders and whose duty is to examine the affairs of the company on their behalf at the end of a year and report to them what he has found. The auditors owe a number of duties to the company and its shareholders.
It is an obvious statutory inference that at the AGM where the audited accounts are placed and approved by the shareholders, the statutory auditors should be present to attend to any queries / doubts the shareholders may have.
In that context the question arises whether the attendance of auditors at the AGM should be compulsory or not.
Section 231 of the Erstwhile Companies Act 1956 had mandated that all notices of, and other communications relating to, any general meeting of a company which any member of the company is entitled to have sent to him shall also be forwarded to the auditor of the company; and the auditor shall be entitled to attend any general meeting and to be heard at any general meeting which he attends on any part of the business which concerns him as auditor.
From this provision it is amply clear that the erstwhile law had given a right to the auditor to attend any general meeting,
including AGM and he has similar right to be heard at the meeting on business concerning him as an auditor, notably the final accounts which he has audited.
As can be seen from the erstwhile law, it was not mandatory for a statutory auditor to attend any general meeting, only that he had a right to get the notice of any general meeting, with corresponding right to attend and be heard thereat.
COMPANIES ACT 2013
With the advent of the new Companies Act 2013 the position has undergone some change.
The process involved in incorporating the new provision is worth noting. While examining the Companies Bill 2011 the Standing Committee on Finance {2011-12} of Parliament on Companies Bill 2011 dated June 2012 had suggested in its 57th Report of that:
“Attendance of auditors be made mandatory only in annual general meeting instead of in all the general meetings”
Against this suggestion the Ministry of Corporate Affairs had mentioned that:
“These provisions are same as under section 231 of present Companies Act, 1956 and was repeated in the 2009 Bill. Hon‘ble Committee did not make any recommendation to modify these provisions. No difficulty has ever been faced in giving effect to the relevant provision”.
From the above it appears that the suggestion did come from the Standing Committee that attendance of auditors be made mandatory for AGM. For other general meetings the attendance be optional.
From the aforesaid background the following section has been brought in the statute book by way of Companies Act 2013.
Notes on Clauses in Companies Bill 2011 mentions as follows:-
Clause 146.— This clause corresponds to section 231 of the Companies Act, 1956 and seeks to provide that auditor or his representative, qualified to be an auditor, shall get all the notices of general meetings and shall attend the same and be heard on any part of the business concerning him as the auditor.
The section is as follows:-
Section146. - All notices of, and other communications relating to, any general meeting shall be forwarded to the auditor of the company, and the auditor shall, unless otherwise exempted by the company, attend either by himself or through his authorised representative, who shall also be qualified to be an auditor, any general meeting and shall have right to be heard at such meeting on any part of the business which concerns him as the auditor
ANALYSIS OF THE SECTION
This provides that:-
a. All notices of, and other communications relating to, any general meeting mandatorily be forwarded by the company to its statutory auditor.
b. Auditor is statutorily required to attend any general meeting either by himself or through his authorised representative, who shall also be qualified to be an auditor.
c. Auditor is however permitted to be exempted by the company to attend the general meeting.
d. Auditor shall have the right to be heard at such general meeting on any part of the business which concerns him as the auditor.
e. General meeting will include AGM as well as Extraordinary General meeting or any other general meeting
f. The pertinent matter here is that although the statutory auditor has been statutorily mandated to attend any general meeting, the concerned company may exempt him from attending. It is reasonable to interpret and also keeping in view the practises of good corporate governance that the exemption will be granted by the concerned company on justified and reasonable grounds.
CONCLUSION
Keeping in view the onerous duties of statutory auditors in a company and the fact that an AGM is an ideal forum for them to discuss issues with the shareholders, give clarifications, allay doubts etc relating to accounts, it may have been better law to have made the attendance of auditors or his representative at the AGM mandatory without any exemption or with very limited exemptions. Perhaps review of this law would be made in not too distant future.
{AMITAV GANGULY}
CAclubindia
