Query


1. A company was being managed by one group of persons upto February 1992, since its incorporation. In February 1992, some clients of the querists acquired the entire share capital of the company. Thereafter they decided to appoint the querists as statutory auditors of the company. The company called its annual general meeting on September 10, 1992. Notice of the said meeting was duly sent to the retiring auditors who, however, did not attend the meeting. At the said meeting, the resolution for appointing the querists as auditors of the company, from conclusion of that meeting to conclusion of the next annual general meeting, was passed unanimously. After being so appointed, the querists intimated to the retiring auditors about their appointment as auditors of the said company, and asked for a ‘no objection’ from them. The retiring auditors, however, informed that in not reappointing them as auditors of the company, the company had not followed the procedure laid down for this purpose in the Companies Act. Therefore, their removal as the auditors of the said company is not proper. (The querists have submitted copies of various correspondence mentioned above, for the perusal of the Committee). The querists, however, feel that not reappointing a retiring auditor does not tantamount to the removal of the auditor.



2. The querists have further stated that after the receipt of the said communication from the retiring auditors, the company adjourned the said annual general meeting for December 30, 1992. During the intervening period, the company received notice of a resolution from a member of the company, proposing appointment of the querist as auditors of the company, in place of the retiring auditors. This notice was also forwarded to the retiring auditors. At the adjourned annual general meeting, held on December 30, 1992, the resolution for appointment of the querists as auditor of the company, for a period upto conclusion of the next annual general meeting, from the conclusion of the said meeting, was passed.



3. The querists have also informed that the Income-tax returns of the company for assessment years 1991-92 and 1992-93 could not be filed due to non-availability of audit reports. For this the company may have to face substantial penalties. Also, the retiring auditors are unnecessarily harassing the company for change of auditors.



4. The querists have sought the opinion of the Expert Advisory Committee as to whether they can accept their appointment as statutory auditors of the said company, in the given circumstances.



Opinion November 11, 1993



1. As per the Advisory Rules of the Expert Advisory Committee, the Committee offers opinion only in respect of technical matters pertaining to accounting, auditing and related matters. The opinion of the Committee expressed hereinafter is, therefore, restricted to the question of compliance with section 225 of the Companies Act, 1956. The Committee has not gone into the other issues that might arise in this regard.



2. The Committee notes sub-section (1) of section 190, and sub-section (1) and (2) of section 225 of the Companies Act, 1956, which read as follows:



“190. (1) Where, by any provision contained in this Act or in the articles, special notice is required of any resolution, notice of the intention to move the resolution shall be given to the company not less than fourteen days before the meeting at which it is to be moved, exclusive of the day on which the notice is served or deemed to be served and the day of the meeting.”



“225. (1) special notice shall be required for a resolution at an annual general meeting appointing as auditor a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be reappointed.



(2) On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the retiring auditor.”



3. The Committee notes para 10.2 of ‘Code of Conduct’, issued by the Institute of Chartered Accountants of India, which reads as follows:



“10.2 If any annual general meeting is adjourned without appointing an auditor, no special notice for removal or replacement of the retiring auditors received after the adjournment can be taken note of and acted upon by the company, since in terms of section 190 (1) of the Companies Act, special notice should be given to the company at least fourteen clear days before the meeting in which the subject matter of the notice is to be considered. The meeting contemplated in section 190 (1) undoubtedly is the original meeting.”



4. The Committee is, therefore, of the view that the notice for a resolution proposing appointment of a person, other than the retiring auditor, as auditor of the company shall be given not less than fourteen days before the commencement of the meeting, at which it is sought to be moved. Receipt of a notice after commencement of the original meeting which is adjourned for a future date, after such commencement but before holding of the adjourned meeting would not be sufficient compliance with section 190 (1) and 225 of the Companies Act, 1956.



5. On the basis of the above, the Committee is of the opinion that in the facts and circumstances of the query, the querist should not accept the appointment as the auditors of the said company.