Page 218 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes Appointment/Reappointment of Auditor by Special Resolution

Section 224-A was introduced by the Companies Amendment Act, 1974 enumerating the cases in
which an auditor can be appointed only by a special resolution. Where twenty-five per cent or
more of the subscribed share capital of a company is held jointly or singly by a public financial
institution, a Government company, Central Government, any State Government, any institution
established by a State Act in which the State Government holds not less than 51% of the subscribed
capital, a nationalized bank or an insurance company carrying on general insurance business,
the appointment or reappointment of an auditor can be made only be made by a special resolution.
Thus, this provision implies that a company in which 25% or more of the subscribed share
capital is held by any of the aforesaid institutions can appoint or reappoint auditors only with
the concurrence of such institutions. If a company in which 25% or more of the subscribed share
capital is held by any of the institutions listed in this Section omits or fails to pass at its annual
general meeting a special resolution appointing or reappointing an auditor, it shall be deemed
that no auditor has been appointed by the company. Even if an ordinary resolution is passed
unanimously, the auditors cannot be deemed to have been validly appointed. In such an event,
the company is required to give notice of that fact within seven days to the Central Government
as required by Section 224(3) and the Central Government may appoint a person to fill the
vacancy.
Tenure of Office of Auditors

An auditor appointed in the annual general meeting holds the office from the conclusion of the
annual general meeting at which he is appointed until the conclusion of the next annual general
meeting. In any case where an annual general meeting is not held within the period prescribed
by the Companies Act, unlike in the case of directors retiring by rotation who will be deemed to
have ceased to hold office on the last day of the period within which the annual general meeting
should have been held, in the case of an auditor inasmuch as he is appointed to hold office up to
the conclusion of the next annual general meeting, he will continue until the next annual general
meeting is held and concluded. The auditor cannot be deemed to have retired on the date when
the meeting ought to have been held.
Reappointment of Retiring Auditor

At any annual general meeting a retiring auditor is reappointed, except in the following four
situations: (1) when he is not qualified for reappointment; (2) when he has given to the company
notice in writing of his unwillingness to be reappointed; (3) a resolution has been passed at that
meeting appointing somebody instead of him or providing expressly that he shall not be
reappointed; or (4) where notice has been given of an intended resolution to appoint some
person or persons in the place of a retiring auditor , and by reason of the death, incapacity or
disqualification of that person or of all those persons, as the case maybe, the resolution cannot
be proceeded with. This provision on reappointment is a step in the direction of ensuring
auditor independence as the auditor cannot be replaced except in the specific circumstances
enumerated in the Act. However, the retiring auditor cannot be deemed to be reappointed or
automatically reappointed at the annual general meeting. The expression “shall be reappointed”
used in the provision in the Companies Act postulates some action on the part of the company
resulting in the reappointment of the retiring auditor. Thus, the passing of the resolution for this
purpose at the annual general meeting is essential for the reappointment of the retiring auditor
if he is still qualified and willing to act. For appointing a person other than the retiring auditor
or to provide that the retiring auditor shall not be reappointed, a special notice has to be given
proposing that such a resolution would be moved at the next annual general meeting. On receipt
of the special notice, the company should send a copy thereof to the retiring auditor. The form,

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