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Auditor appointment

ARUSHI MITTAL (trainee) (55 Points)

13 March 2016

Suppose there is a co. Xyz

Auditor A is appointed as first auditor by board within 30 of registration. Now as per sec 139 (6) , 139 (7) auditor A hold office till conclusion of first agm.

Now sec 139 (2) rotation of auditor is applicable on co. Xyz .

One of the rule is a break in term for a continuous period of 5 year shall be considered as fulfilling the requirement of rotation

So my queation is , at first agm can we appoint auditor A who is suppose to hold the office till the conclusion of 6th agm

If yes - the total term will became 6 years ?

If no - why would a auditor prefer to be appointed as first auditor if he can only serve for a year and then wait for 5 years?

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4 Replies

CA Prateek Garg (CA in Practice) (1447 Points)
Replied 13 March 2016

SECTION 139(2)

No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint—

(a) an individual as auditor for more than one term of five consecutive years; and

(b) an audit firm as auditor for more than two terms of five consecutive years:

Provided that—

(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:

A plain reading of relevant provision suggests that prohibition is only for appointment more than 1 or 2 terms of complete 5 years.

Since a 1 year term of first auditor can’t be deemed as a complete 5 year term hence I don’t think that section 139(2) prohibits such appointment of first auditor for a complete term of 5 years.

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ARUSHI MITTAL (trainee) (55 Points)
Replied 13 March 2016

But one of the rule of rotation is a break in continues period of 5 year will qualify as fulfilling the requirement of rotation.

And once the requirement of rotation is fulfilled auditor can't be appointed for 5 years

So for first auditor after one year it will qualify as fulfilling the requirement of rotation and hence he will have to wait 5 years

CA Prateek Garg (CA in Practice) (1447 Points)
Replied 14 March 2016

Madam.. Please read the law..

To interpret a law you have to read it in its letter and spirit

As per first proviso to section 139(1) requirement of 5 year break applies only after completion of completer term of 5 year.

Since 1 year term of first auditor cant be deemed as complete 5 year term hence requirement of 5 year cooling period under proviso to 139(1) does not apply in this case

CA Piyush (CHARTERED ACCOUNTANT - PRACTICE) (361 Points)
Replied 15 March 2016

Prateek is right first auditor has tenure of one year which is fixed by law. And sec 139(2) applicable for appointment in first agm or every 6th agm so its subsequent auditor case. First auditor is appointed by bod or egm