Re-appointment of auditors

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Dheeraj N Kamath (Querist)
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13 April 2011 How is an auditor automatically getting re-appointed? Does the company need to do anything? what happens if they don't issue ordinary resolution?

Mandar

Mandar (Expert)
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25 April 2011 Appointment of auditor shall be an ordinary business

As per section 173(l)(a)(iv) of the Act, the appointment of, and the fixing of the remuneration of the auditors shall be an ordinary business to be transacted at an Annual General Meeting of a company. Only an ordinary resolution is to be passed for this purpose except, in the circumstances stated u/s 224A requiring the passing of a special resolution.

Re-appointment of the retiring auditor(s) [Section 224(2)]

As per section 224(2), a retiring auditor shall be re-appointed subject to the limit on maximum number of audits as stated u/s 224(1B). However, in the following cases, a retiring auditor shall not be reappointed:—

(i) he is not qualified for re-appointment;

(ii) he has given the company a notice in writing of his unwillingness to be re-appointed;

(iii) a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be re-appointed; or

(iv) where notice has been given of an intended resolution to appoint some other person or persons in the place of a retiring auditor, and by reason of the death, incapacity or disqualification of that person or of all those persons as the case may be, the resolution cannot be proceeded with.

Deemed re-appointment == Require some action on the part of the company

As per Department's Circular No. 5/72, dated 21-2-1972, the appointment or reappointment of auditors at the annual general meeting is one of the items of ordinary business to be transacted at such a meeting. As provided by section 224(2) of the Act at any annual general meeting, a retiring auditor shall be re-appointed except, in four types of cases referred to therein. The expression shall be re-appointed, postulates some action on the part of the company resulting in the auditor getting re-appointed or automatically re-appointed at the annual general meeting.

It has been clarified that passing of the resolution for that purpose at the annual general meeting is essential for the re-appointment of the retiring auditor who is still qualified and willing to act. Till this is done, a retiring auditor cannot be said to have been re-appointed as contemplated by the section. In this view, it is not correct to say that in the absence of the resolution to the effect that the retiring auditors shall not be re-appointed; the retiring auditors shall stand re-appointed as auditors of the company.

Appointment of auditor is mandatory at each annual general meeting

The auditor(s) appointed at the last annual general meeting ceases to hold office at the conclusion of the next annual general meeting. Therefore, the auditor(s) must be appointed at each annual general meeting to hold office till the conclusion of the next annual general meeting. It has been held in the case of the Institute of Chartered Accountants v Jnanendranath Saikia (1955) 25 Comp Cas 53, 55 (Assam) that the appointment of auditor is mandatory in the annual general meeting for the ensuing year.