Appointment of statutory auditors and consideration of

annual accounts in the annual general meeting.

1.A private limited company held its annual general meeting on 31^st March, 1982. The accounts for the year ending 30^th September, 1981 could not be placed before the annual general meeting is the Auditors’ Report was not received by that date. The agenda for the annual general meeting included re-appointment of the retiring auditors and they were duly appointed.

2.The next annual general meeting of the company was held on 10^th March,1983. The accounts for the years ending 30^th September, 1981, and 30^th September, 1982, were not placed before the annual general meeting as the Auditors’ Report was not received by that date. The agenda for the meeting included appointment of new auditors in place of retiring auditors (after having given due effect to Section 225 (1) of the Companies Act) and the new auditors were duly appointed. This meeting was adjourned to a subsequent date (date no fixed at the annual general meeting), because the annual accounts of the company were not audited.

3.The retiring auditors, in their letter of consent of the new auditors, have expressed that as both annual general meetings still stand adjourned, the new auditors cannot give their report on the accounts for the year ending 30^th September, 1981 and 30^th September, 1982.

4.The following issues have been raised for the opinion of the Expert Advisory Committee:

(i) Can the Management lay the unaudited annual accounts of the previous year in the adjourned annual general meeting and conclude them? If yes, can these be filled with the Registrar of Companies as required under Section 220 of the Companies Act? or

Can the company conclude its annual general meeting without laying the annual accounts before it? If yes, how the comply with the previsions of Section 220 of the Companies Act?

(ii) When will the tenure of the new auditors start? Is it from 10^th March, 1983, i.e., the day of passing of resolution for their appointment or will it be only after the conclusion of the adjourned annual general meeting? Can the new auditors report on the Balance Sheet as on 30^th September, 1981 and 30^th September, 1982.

Opinion April 28, 1983

1. Regarding the first issue raised by the querist, the Committee notes that Section 210 of the Companies Act requires a company to lay before every annual general meeting, a balance sheet and a profit and loss account for the period. Sections 216 and 218 provide that the auditor’s report and other specified documents shall be attached/annexed to the annual accounts. Those provisions appear to indicate that unaudited balance sheet and profit and loss account cannot be laid before the annual general meeting. It may also be mentioned that since the meeting had been adjourned so that the audited accounts could be laid before it, the Committee suggests that the audited accounts should be considered in the adjourned meeting so that it can be concluded. The Committee further notes that Section 220 of the Act requires that the balance sheet and profit and loss account shall be filed with the Registrar together with all documents which are required by the Act to be attached/annexed thereto. In view of the requirements of Sections 216 and 218 referred of earlier the Committee is of the opinion that unaudited balance sheet and profit and loss account cannot be filled with the Registrar.

2. In respect of the second issue raised by the querist, the Committee notes that the Institute of Chartered Accountants of India has issued a Guidance Note No. LVI on ‘clause 9 of Part I of the first schedule to Chartered Accountants Act, 1949’ which is reproduced on Page 719 of the March, 1981 issue of the journal ‘The Chartered Accountant’. Para 10.1 of the said Guidance Notes states as under:

“Sometimes the annual general meeting is adjourned without conducting any business or after conducting business in respect of some of the items on the agenda. The items in respect of which the business is conducted may or may not include the item relating to appointment of auditors. Under Section 224(1) the retiring auditors holds office till the conclusion of the annual general meeting. Therefore, when the annual general meeting is adjourned in the circumstances stated above, the retiring auditor will continue to hold the office of auditor till the adjourned meeting is held and the business listed in the agenda of the meeting is concluded. In case a new author is appointed at the original meeting (which is adjourned) such auditor can assume office only after the holding and conclusion of the adjourned meeting.”

3.On the basis of the above, the committee is of the opinion that since the annual general meeting was adjourned, the retiring auditor will continue to hold his office till the adjourned meeting is held and the business listed in the agenda for the meeting is concluded. Thus, the new auditor will assume office from the date of the conclusion of the adjourned annual general meeting and not from the date of passing of resolution i.e. 10^th March 1983. In view of this, the question of new auditors reporting on the accounts for the years ending 30^th September, 1981 and 30^th September, 1982, does not arise.