Procedures under Companies Act, 2013

Appointment of an Auditor at the first Annual General Meeting

Section 139(1) lays down that every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting. Provided that the company shall place the matter relating to such appointment for ratification by members at every annual general meeting.

Key Considerations:

  • Auditor shall be appointed in First annual general meeting to hold office till the conclusion of sixth annual general meeting of the Company. . [Section 139 (1) and Rule 3(7) of Companies (Audit and Auditors) Rules, 2014]
  • Tenure of auditor appointed is for 5 years subject to ratification by members at every annual general meeting by passing an ordinary resolution. [Section 139 (1) and Rule 3(7) of Companies (Audit and Auditors) Rules, 2014]
  • Where a company is required to constitute an Audit Committee under section 177, the committee, and, where a company is not required to constitute an Audit Committee, the Board, shall take into consideration the following:
  1. Qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor
  2. Whether qualifications and experience of porposed auditor are commensurate with the size and requirements of the company
  3. Any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India or any competent authority or any Court.

[Rule 3(1) of Companies (Audit and Auditors) Rules, 2014]

  • The Audit Committee or the Board, as the case may be, may call for such other information from the proposed auditor as it may deem fit. [Rule 3(2) of Companies (Audit and Auditors) Rules, 2014]
  • Where a company is required to constitute an Audit Committee under section 177, the committee shall recommend the name of an individual or a firm as auditor to the Board for consideration, and, where a company is not required to constitute an Audit Commitee, the Board, shall consider and recommend an individual or a firm as auditor to the members in the annual general meeting for appointment. Where a company is required to constitute an Audit Committee under section 177, all appointments shall be made after taking into account the recommendations of such committee. [Section 139(11) and Rule No. 3 (3) of the Companies (Audit and Auditors) Rules, 2014]
  • Where Audit Committee recommend the name of an individual or a firm as auditor to the Board and the Board agrees with the recommendation of the Audit Committee, it shall further recommend the appointment of an individual or a firm as auditor to the members in the annual general meeting. [Rule No. 3 (4) of the Companies (Audit and Auditors) Rules, 2014]
  • Where the Board disagrees with the recommendation of the Audit Committee, it shall refer back the recommendation to the committee for reconsideration citing reasons for such disagreement. If the Audit Committee, after considering the reasons given by the Board, decides not to reconsider its original recommendation, the Board shall record reasons for its disagreement with the committee and send its own recommendation for consideration of the members in the annual general meeting; and if the Board agrees with the recommendations of the Audit Committee, it shall place the matter for consideration by members in the annual general meeting. [Rule No. 3 (5) and 3(6) of the Companies (Audit and Auditors) Rules, 2014]

Following classes of Companies are required to constitute an audit Committee:

  • Every Listed Public Companies;
  • Public companies with a paid up capital of ten crore rupees or more;
  • Public companies having turnover of one hundred crore rupees or more;
  • Public Companies having aggregate outstanding loans or borrowings or debentures or deposits, exceeding Rupees 50 crore or more. [Sec. 177 & Rule No. 6 of Companies (Meetings of Board and its Powers) Rules, 2014]

The following procedure is to be followed for appointment of an auditor at the first Annual General Meeting [Section 139 & 141 and Rule No. 3, 4 and 10 of the Companies (Audit and Auditors) Rules, 2014]-

  1. Issue not less than 7 days notice and agenda of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting to consider appointment of an individual or a firm as an auditor of the Company. Also follow the procedure prescribed for issuing and signing of notice of Board Meeting.
  1. Obtain written consent and a certificate from the proposed auditor to the effect of eligibility under section 139 & 141 of the Act. [Second and third proviso to Section 139(1)]

The certificate obtained from the proposed auditor shall certify that:-

  1. He is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and Rules and Regulations made therein.
  2. The proposed appointment is as per the term provided under the Act.
  3. The proposed appointment is within the limit laid down in the Act.
  4. The list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.
  5. The proposed auditor satisfies the criteria provided in section 141. [Rule No. 4 & 10 of the Companies (Audit and Auditors) Rules, 2014]
  1. Hold a meeting of Board of Directors to discuss besides others the following matters:
  1. To pass Board Resolution for the appointment of Auditor of the Company subject to approval of shareholders, to fix their remuneration and to authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds and things as may be necessary to give effect to the Boards decision.
  2. To fix the day, date, time and venue of the Annual General meeting.
  3. To draft and approve the notice convening the Annual General Meeting.
  4. To authorize the Director or Company Secretary to sign and issue notice of the Annual general meeting.

  1. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Also follow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes. (Secretarial Standards-1 )
  1. Send notice of the Annual General meeting proposing the aforementioned resolution to all the shareholders, directors, auditors and other persons entitled to receive it by giving not less than clear 21 days or shorter period notice in writing or through electronic mode in accordance with the Section 101 of the Act. Also follow the procedure prescribed for issuing and signing of notice of General Meeting.
  1. Hold the Annual General Meeting on fixed day and besides other ordinary or special businesses; pass an ordinary resolution [Section 114 (1)] by simple majority for appointment of auditor of the company to hold office from the conclusion of this annual general meeting till the conclusion of sixth annual general meeting of Company subject to ratification by members at every annual general meeting.
  1. Follow the procedure prescribed for preparing, signing and compiling of minutes of General Meeting
  1. Inform the Auditor concerned of his appointment and file a notice of such appointment with the Registrar in Form No. ADT-1 within 15 days of the annual general meeting.[Fourth Proviso to Section 139(1) and Rule 4(2) of the Companies (Audit and Auditors) Rules, 2014]

Notes:

  1. The auditor so appointed shall hold office from the conclusion of that meeting till the conclusion of sixth annual general meeting of the Company and thereafter till the conclusion of every sixth meeting and such appointment shall be subject to ratification in every annual general meeting till the sixth such meeting by way of passing of an ordinary resolution. [Section 139(1) and Rule No. 3 of the Companies (Audit and Auditors) Rules, 2014]
  1. If the appointment is not ratified by the members of the company, the Board of Directors shall appoint another individual or firm as its auditor or auditors. [Explanation to Rule No. 3(7) of the Companies (Audit and Auditors) Rules, 2014]

Procedure Authors

ACS Divya Jain
ACS Palak Jain
ACS Ankita Jain
ACS Sugandh Jain
ACS Mansi Kapor
ACS Bhawna Sharma


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