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Unit 10: Share Capital

The private companies are not to be taken into account for calculating the number of companies Notes
which an auditor can audit.
A person will not be eligible for appointment as an auditor of a company if be, after a period of one
year from the commencement of the Amendment Act is holding any security in that company.

Every auditor so appointed, must within thirty days of the receipt from the company of the
intimation of his appointment, inform the registrar in writing that he has accepted the appointment
or has refused the same.
Appointment of auditor by special resolution only (s.224-A)
(1) In the case of a company in which not less than 25 per cent of the subscribed share capital

is held, whether singly or in any combination, by: (a) a public financial institution or a
Government Company or Central Government or any State Government, or (b) any fi nancial
or other institution established by any Provincial or State Act, in which a State Government
holds not less than 51 per cent of the subscribed share capital, or (c) a nationalised bank
or an Insurance Company carrying on general insurance business, the appointment or re-
appointment at each AGM of an auditor or auditors shall be made by a special resolution.
(2) In case any company referred to in (1) above omits or fails to appoint an auditor or auditors
in the manner as aforesaid, it shall be deemed that no auditors or auditors had been
appointed by the company at its AGM and thereupon the Central Government shall be
empowered to fill the vacancy.

Re-appointment of auditors. Section 224(2) provides for automatic reappointment of auditors.
At every AGM, retiring auditor, by whatever authority appointed, is automatically reappointed,
unless (i) he is not qualified for reappointment, or (ii) he has given a written notice to the company

of his unwillingness to be re-appointed, or (iii) a resolution has been passed at that meeting
appointing somebody instead of him, or providing expressly that he shall not be re-appointed,
or (iv) where notice has been given of any intended resolution to appoint some person in his

place, but owing to that person’s death, incapacity or disqualification, the resolution had to be
dropped.
Section 224(3) empowers the Central Government to appoint an auditor, where no auditors are
appointed at the AGM of a company. The company is under an obligation to inform the Central
Government within one week of the holding of the AGM, where no auditors are appointed.

10.5.3 Remuneration of Auditors

It is fixed by the Board of Directors as regards appointments made by it. As regards other

appointments, the company in general meeting fixes the remuneration.
Section 225 makes provision for a resolution relating to appointment or removal of auditor.
A special notice must be given of a resolution at the AGM (i) to appoint a person other than a
retiring auditor; or (ii) to provide that a retiring auditor shall not be re-appointed. When the
company receives this notice, it must forthwith send a copy of it to the retiring auditor. The
retiring auditors may make a written representation to the company and ask that the same
should be sent to all the members. The company must, unless it receives the representation too
late (i) state the fact of the representation having been made, in any notice of the resolution given
to the members; and (ii) send a copy of the representation to every member to whom notice of the
meeting is sent. If a copy is not sent out in this way because the representation was received too
late or because of the company’s default, then the auditor may demand that his statement shall
be read out at the meeting. He shall, of course, have the right to be heard orally at the meeting.
However, the copies of the representation need not be sent out, nor need the representation be
read out, if the company or any aggrieved person applies to the Central Government and the
thinks that the auditor is abusing his rights to secure needless publicity for defamatory matter.

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