Appointment of Auditor in Casual Vacancy

Introduction

Casual vacancy is those vacancies which are not foreseen by the Company and the position got vacated at sudden.

This write up briefly lays down the process to appoint auditor in case of casual vacancy in a Company.

As per section 139(1) of the Companies Act,2013, an auditor is appointed by a Company for a term of five year to hold the office from annual general meeting in which he is appointed till the conclusion of subsequent 5th annual general meetings.

Section 139(2) states terms for appointment of auditor in listed companies and some classes of Companies having prescribed share capital.

Now, in case any auditor resigns before completion of his five-year term or resigns during the audit of any financial years, such vacancy will be treated as casual vacancy. This resignation may be because of many reasons like

1. Death of auditor
2. Health situations
3. Mental illness
4. Professional incapacity etc.

For example: ABC Limited has appointed Mr. X & Co. as auditor for a term of five year commencing from year 2021-22 till 2025-26.

If the auditor resigns after completing audit of one year only i.e. 2021-22 then casual vacancy will arise.

Similarly, Mr. X & Co. tenders’ resignation without conducting audit for even for 2021-22 or conducted half audit only and resigns, this also will be considered as casual vacancy.

In all such cases, Company needs to appoint some other auditor on immediate basis to fill the vacancy.

Section 139(8) of Companies Act,2013 prescribes the process to fill casual vacancy in cases of Company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India and other Companies whose accounts are not subject to audit by an auditor appointed by the Comptroller and Auditor-General of India.

• In the case of a company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India, the vacancy will be filled by the Comptroller and Auditor-General of India within thirty days.

If Comptroller and Auditor-General of India fails to appoint auditor within thirty days then Board of Directors of the Company will fill the vacancy within next 30 days.

• In all other cases, the vacancy will be filled by the Board of Directors of the Company and the appointment should be approved by the members of the Company at a general meeting held within 3 months from the recommendation of the Board and the auditor hold the office till the conclusion of the next annual general meeting;

Process for appointment of Auditor if auditor has resigned without completing audit:

Upon resignation the Company should approach any other auditor who are eligible to get appointed as statutory auditor and obtain their consent and eligibility certificate pursuant to section 141 of the Companies Act,2013.

After receipt of consent the Company should follow below given process:

1. Any director or person authorised by the Board will dispatch a notice to call for Board Meeting. Notice shall be given as per section 173 of Companies Act,2013 read with secretarial standard 1 on Board Meetings.

2. Conduct Board Meeting to take note of resignation of existing statutory auditor and to appoint new statutory auditor subject to members approval at ensuing general meeting.

3. File form ADT-1 within 15 days from appointment of the new auditor.

4. In ADT-1 SRN of ADT-3 is to be filled thus it is necessary that auditor should fill ADT-3 within 15 days from his date of resignation.

5. The Company will thereafter dispatch notices for calling an Extra Ordinary General Meeting/Annual General Meeting (AGM) to all the members in accordance with provisions section 101 of Companies Act,2013 read with secretarial standard 2 on General Meetings.

6. If Extra Ordinary General Meeting is conducted, then pass ordinary resolution for approval of appointment of auditor.

7. If Annual general meeting of the Company is conducted, pass two resolutions, one for appointment of auditor at Casual vacancy and other for appointment of auditor for further tenure.

8. After general meeting file ADT-1 for appointment of auditor.

Process for appointment of Auditor if auditor has resigned from conclusion of Annual General Meeting

Upon resignation the Company should approach any other auditor who are eligible to get appointed as statutory auditor and obtain their consent and eligibility certificate pursuant to section 141 of the Companies Act,2013.

After receipt of consent the Company should follow below given process:

1. Any director or person authorised by the Board will dispatch a notice to call for Board Meeting. Notice shall be given as per section 173 of Companies Act,2013 read with secretarial standard 1 on Board Meetings.

2. Conduct Board Meeting to take note of resignation of existing statutory auditor and to appoint new statutory auditor subject to members approval at ensuing general meeting.

3. The Company will thereafter dispatch notices for calling Annual General Meeting (AGM) to all the members in accordance with provisions section 101 of Companies Act,2013 read with secretarial standard 2 on General Meetings.

4. At Annual General Meeting pass ordinary resolution for approval of appointment of auditor.

5. After general meeting file ADT-1 for appointment of auditor.

6. In ADT-1 SRN of ADT-3 is to be filled thus it is necessary that auditor should fill ADT-3 within 15 days from his date of resignation i.e. from date of AGM.

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