1.1 Query: Appointment of Auditors 1.XYZ Ltd. was a Government company under section 619-B, upto 1.4.89. The appointment of auditors by Company Law Board in consultation with Comptroller & Auditor General of India has been made up to the year ended 31.3.87 and the auditors for the year ended 31.3.88 and 31.3.89 are yet to be appointed.
2.The audit for the year ended 31.3.86 was finalised recently and approved in adjourned annual general meeting. Audit for the years ended 31.3.87, 31.3.88 and 31.3.89 is pending. The AGMs in respect of these years stand adjourned for want of accounts.
3.The company, on ceasing to be a Government company form 1.4.89, appointed AB & Associates, Chartered Accountants, as auditors for conducting the audit of the accounts for the year 1.4.89 to 31.3.90, in its AGM held on 30.9.89 for the adoption of accounts for the year ended 31.3.89, though no accounts were ready for the year ended 31.3.89 and the said AGM also stands adjourned for the want of accounts. No notice for removal of previous auditors was given as no auditor existed for the year ended 31.3.88, on the date of the said AGM.
4. The querist has referred the following issues for the opinion of the Expert Advisory Committee:
(a) Whether the appointment of AB & Associates is regular for the year 1989-90, whereas auditors for the year 1987-88 and 1988-89 are yet to be appointed by the Company Law Board in consultation with C & A.G. and the company has not given any notice for removal of previous auditors under section 225, being none for the time being.
(b) To whom should the new auditors (AB & Associates) refer for no objection as there was no auditor before 31.3.89 for the time being?
Opinion February 13, 1991
1. The Committee notes section 619 of the Companies Act, 1956, which states, inter alia:
“619 Application of sections 224 to 233 to Government Companies-
(1) In the case of a Government company, following provisions shall apply, notwithstanding anything contained in sections 224 to 233.
(2) The auditor of a Government company shall be appointed or reappointed by the Central Government on the advice of the Comptroller and Auditor General of India:
Provided that the limits specified in sub-sections (1-B) and (1-C) of section 224 shall apply in relation to the appointment or reappointment of an auditor under this sub-section ……”
2.The Committee also notes that Para 10.1 of the Guidelines issued by the Council of the Institute for the appropriate procedure of appointment of auditors, [Page 34 of Code of Conduct, Eighth Edition 1988] inter alia, states that “……….in case a new auditor is appointed at the original meeting (which is adjourned) such auditor can assume office only after the conclusion of such adjourned meeting.” The Committee is, therefore, of the view that M/s. AB & Associates can assume office only when, the AGM which has been adjourned for want of audited accounts for the year ended 31.03.89 is concluded (i.e., the AGM at which they were appointed is concluded).
3.The Committee notes that in the present case, the audit for the year ending 31.3.1987 and 31.3.1988 is also pending and the auditors for the audit of the accounts for the year ended 31.3.1989 are yet to be appointed. Therefore, in view of the Committee it is not logical to appoint the auditors M/s. AB & Associates, since they can assume office only on the conclusion of the AGM at which they were appointed. This view of the Committee is based on the provisions of section 224 of the Companies Act, 1956, according to which the auditors M/s. AB & Associates shall hold office from the conclusion of the AGM in which they were appointed till the conclusion of next AGM.
4.On the basis of the above, the Committee is of the following opinion in respect of the issues raised in para 4 of the query:
(a) M/s. AB & Associates can assume office only after the AGM which has been adjourned for the want of audited accounts for the year ended 31.03.89 is concluded. The procedure laid down in section 225 may not be followed for the appointment of the auditors for the audit of the accounts of the year 1989-90 in the facts and circumstances of the present case.
(b) M/s. AB & Associates can assume office only after the AGM which has been adjoined for the want of the audited accounts for the year ended 31.3.89, is concluded. Therefore, M/s. AB & Associates should communicate with the auditors for the immediately preceding year as and when M/s. AB & Associates can assume office as auditors. The question of communication before they can assume the office as auditors will not arise.
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