3.4 Query:     

Application of section 224 (1-B) of the Companies Act, 1956, to a chartered

accountant in full-time employment holding certificate of practice

1.  Mr. XYZ, chartered accountant, holding a certificate of practice, is also in full-time employment in a company. He has been approached to take-up an audit of a private limited company. He has sought the opinion of the Expert Advisory Committee as to whether his appointment will be valid.

2. Mr. XYZ, is of the view that the changes made in section 224 (1-B) by Companies (Amendment) Act, 1988, affect only the person who is a partner in a firm and not a proprietary firm or an individual. He has based his view on the provisions of section 224 (1-B) and the proviso thereto, which have been reproduced below:

“……shall appoint or re-appoint any person who is in full-time employment elsewhere or firm as its auditor if such person or firm is, at the date of such appointment or reappointment, holding appointment as auditor of the specified number of companies or more……..”

Provided that in case of a firm of auditors. “specified number of companies”, shall be construed as the number of companies specified for every partner of the firm who is not in full-time employment elsewhere, (emphasis supplied by the querist).

3. The querist has further informed that the statement of objects and reasons also state that the ceiling on number of audits per partner be not circumvented by appointment as partners, such persons who are in whole-time employment elsewhere.

4.   The querist feels that if the intention had been that a person in the whole-time employment elsewhere be appointed, the changes could have been made in section 226 of the Companies Act, 1956 which specifies the disqualifications of auditors.

                                                                                             Opinion                     April 25, 1991

The Committee is of the opinion that based on the wording as it stands at present in section 224(1-B) of the Companies Act, 1956, it is possible to appoint a chartered accountant in full-time employment and holding certificate of practice as the auditor of a private limited company.

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