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Directorship of a CA in a Pvt Ltd Co

Aditi Kadur (Student) (32 Points)

08 December 2008

Hi All

I would like to know if a CA can be a mere director in a Pvt Ltd company

I am already aware that a person having COP cannot be a full time director or managing director. But my query is can he be a mere director and not a full time/managing director.

Also, if he can be a mere director can he do so in a pvt ltd comopany where his relatives have substantial interest? If so who are the people who come under the category of relatives and what is substantial interest?

Please also specify the Sections i can refer to in this regard

Thanks

Aditi

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6 Replies

Pavan Jain S (Chartered Accountant) (1575 Points)
Replied 08 December 2008

As per section 226 of the Companies Act, 1956, any person who is a officer or employee of the company cannot be appointed as statutory auditor of the Company. Further, as per section 2(30) of the Companies Act, 1956, the term 'officer', interalia, includes director of the Company. Thus, a director of a Company (Whether public or private), cannot be appointed as its statutory auditor even though he does not hold substantial interest in that company.

A CA can hold the office of director in any company provided neither he or his firm or any of his partners are appointed as statutory auditors of that company. Else, it constitutes a professional misconduct under clause IV of Schedule II to the CA Act, 1949.

Pursuant to amendment made to the CA Act in 2006, a CA can be appointed as a WTD/MD of a Company engaged in management consultancy services.

A CA cannot hold the office of director in a company in which any of his relatives has substantial interest. This is for the reason that a auditor is required to maintain highest standards of intergrity and both be and appear to be independant. If he hold such office, it will constitute professional misconduct under CA Act, 1949.

The term 'Relative' has the same meaning as assigned u/s 2(41) of the Companies Act,1956. The term 'Substantial Interest' is neither defined in the CA Act or Companies Act. In my opinion, any holding which can be construed as being able to influence the indepence of a auditor can be regarded as substantial interest.

The aforesaid provisions are applicable to all companies, whether public or private.

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Aditi Kadur (Student) (32 Points)
Replied 09 December 2008

Ok i understand if you are statutury auditor you cannot be a director but what if i'm not statutury auditor. I'll give you an exapmle

Mr A is a practising CA. is wife has a business which gets converted from a partnership firm to a private limited company. His relatives become dtakeholders with substantial interest. Mr A has his own CA firm but is not statutory auditor of the partnership firm or the private limited company.

In the above case i am aware that wheter he is stautory auditor or not he cannot be Managing director/full time director. I would like to know in the above case can he be just a mere director who does not take the position of a full time director/managind director considering he's not stautory auditor of the company

Pavan Jain S (Chartered Accountant) (1575 Points)
Replied 09 December 2008

Yes. He can be a Ordinary Director of a Company in which his relatives has substantial interest.

Aditi Kadur (Student) (32 Points)
Replied 09 December 2008

Can you please specify the section which permits or specifically mentionms this provision

Sujith (Chartered Accountant) (83 Points)
Replied 09 December 2008

Aditi !!! I dont feel there is any specific section either in Company Law or in CA Act which would permit a CA to be a non-exec director without substantial. Its implied in the above section's provision where there is specific mention of Statutory Auditor and Substantially interested shareholder (be it director or not).

So the restriction is only when the combination of Stat. Aud and Substantially interested auditor or his relative is existing in the circumstances......

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Pavan Jain S (Chartered Accountant) (1575 Points)
Replied 09 December 2008

There is no specific section in this regard in Companies Act, 1956. Ya.. Clause 11 of First Schedule to Chartered Accountants Act, 1949, specifically provides that a CA in practice can become a non executive director of a Company unless he or any of his partners are interested in such company as a auditor