Auditor Exemption From General Meeting Under Section 146 of Companies Act

Statutory Auditor Seeking Exemption From Attending General Meetings Under Section 146 of the Companies Act, 2013

Summary: Section 146 of the Companies Act, 2013 requires the company to forward all notices and communications relating to every general meeting to its statutory auditor and requires the auditor to attend such meeting personally or through an authorised representative qualified to act as an auditor, unless exempted by the company. The auditor also has the right to be heard on business concerning the auditor in that capacity. Accordingly, an auditor may request exemption or leave of absence but cannot independently treat attendance as optional; the exemption becomes effective only when granted by the company through the appropriate authority. Section 146 does not prescribe a separate statutory form, time limit or filing requirement for requesting exemption. Secretarial Standard-2 reinforces the attendance requirement and separately deals with the attendance of the secretarial auditor. Genuine circumstances such as illness, personal emergencies, travel difficulties and unavoidable professional commitments may support an exemption request. Where sensitive or audit-related business is involved, however, attendance personally or through a qualified authorised representative should be considered. For listed companies, shareholder rights under Regulation 4(2)(a) of the SEBI LODR Regulations are also relevant. Contravention may have consequences under Section 147(1) and Section 118(11), while the statutory auditor may separately face professional or other legal consequences. A written request, company approval and proper recording of the exemption provide an appropriate compliance trail.

Introduction

The statutory auditor occupies an important position in the corporate governance framework. In addition to examining the financial statements and reporting to the members, the auditor is required to remain available for discussions concerning the audit and the auditor’s report at the general meetings of the company.

Section 146 of the Companies Act, 2013 deals with the attendance of auditors at general meetings. It requires the company to send all notices of, and other communications relating to, every general meeting to its auditor. The auditor is required to attend the meeting either personally or through an authorised representative, unless the company grants an exemption.

Statutory Framework Under Section 146

Section 146 contains three principal requirements:

(i) Forwarding of notice: All notices of, and communications relating to, every general meeting must be sent to the statutory auditor.

(ii) Attendance: Unless exempted by the company, the auditor must attend every general meeting either personally or through an authorised representative.

(iii) Right to be heard: The auditor has the right to be heard on any part of the business that concerns the auditor in that capacity.

Where the auditor attends through an authorised representative, the representative must also be qualified to act as an auditor. Therefore, an employee or other representative who does not satisfy the applicable qualification requirement should not be nominated merely for administrative convenience.

The provision applies not only to the annual general meeting but also to other general meetings, including extraordinary general meetings, unless the company has granted an exemption for the relevant meeting or otherwise validly exempted the auditor.

Meaning of Exemption or Leave of Absence

Section 146 does not prescribe a separate statutory form, time limit or filing requirement for an auditor’s exemption request. Also, the Companies Act, 2013 does not define the term “exemption”. However, the Oxford Dictionary defines it as “official permission not to do something or pay something that you would normally have to do.”

The expression “leave of absence” is commonly used in practice when the directors of a company request the company to excuse their attendance at a particular Board meeting. Strictly speaking, Section 146 refers to exemption by the company rather than to a formal statutory “leave” procedure. Accordingly, the auditor should make a written request and obtain a clear written exemption from the company before relying on non-attendance.

Therefore, it can be said that an exemption is similar to leave of absence, but it is in the nature of permission sought by the auditor from the company.

Secretarial Standard-2 Requirements

Secretarial Standard-2 on General Meetings, issued by the Institute of Company Secretaries of India and approved by the Central Government under Section 118(10), reinforces the requirement under Section 146.

Paragraph 4.2 of the revised SS-2 provides that the auditors, unless exempted by the company, must attend general meetings either personally or through an authorised representative. The authorised representative must also be qualified to be an auditor. The auditor has the right to be heard on the part of the business concerning the auditor.

Consequently, a company should not casually omit the auditor from the meeting process. It should either ensure attendance or preserve a proper record of the exemption granted by the company.

Can the Auditor Independently Take Leave?

The auditor may request leave of absence, but the auditor cannot unilaterally convert the statutory attendance requirement into an optional obligation. The wording of Section 146 is important: attendance is required “unless otherwise exempted by the company.”

Thus, the auditor’s letter is a request for exemption. The exemption becomes effective only when accepted or granted by the company through an appropriate authority.

In practice, the authority competent to grant the exemption may depend on the company’s internal governance arrangements, articles of association and established procedure. As a matter of good governance, the matter should preferably be placed before the Board or dealt with under the authority responsible for convening and conducting the general meeting. The company should also ensure that the exemption is properly recorded in the minutes or supporting records.

Grounds for Requesting Exemption

The Act does not prescribe an exhaustive list of grounds on which exemption may be granted. The request should, however, be based on a genuine and reasonable circumstance.

Illustrative Grounds

• serious illness or medical treatment;
• unavoidable personal circumstances;
• a family emergency;
• travel difficulties or unavoidable professional commitments;
• absence from the jurisdiction, where personal or authorised representation is not practicable; or
• other circumstances that make attendance impracticable.

The reason need not always be disclosed in excessive detail. A brief statement such as “due to unavoidable personal circumstances” may be sufficient, particularly where the matter is private. However, the request should be clear, specific to the relevant meeting and made sufficiently in advance.

Where the meeting includes sensitive, contentious or audit-related business, the auditor should consider attending personally or through a qualified authorised representative rather than seeking exemption.

The auditor’s right to be heard is particularly relevant where the agenda includes:

• consideration of the financial statements;
• qualification, adverse remark or disclaimer in the audit report;
• material uncertainties or going-concern matters;
• significant related-party transactions;
• internal control deficiencies;
• fraud-related disclosures;
• resignation, removal or change of auditor;
• appointment or re-appointment of the auditor; or
• any matter involving the auditor’s conduct, independence or remuneration.

Listed Companies: Protection of Shareholder Rights

Regulation 4(2)(a) of the SEBI LODR Regulations requires a listed entity to protect and facilitate shareholders’ rights. These include the right to participate effectively and vote at general meetings, receive information concerning fundamental corporate changes, ask questions to the Board, propose resolutions subject to reasonable limitations and obtain appropriate redress for grievances.

The presence of the statutory auditor may be particularly relevant where the business before the meeting concerns audited financial statements, audit qualifications, modified opinions, internal-control weaknesses, fraud-related matters, going-concern uncertainties or the appointment, re-appointment, removal or resignation of the auditor.

Therefore, although the company may grant an exemption under Section 146, the decision should be taken after considering whether the auditor’s attendance is necessary to enable shareholders to exercise their rights effectively.

Statutory Auditor and Secretarial Auditor

The statutory auditor and the secretarial auditor are distinct professionals. Section 146 specifically concerns the statutory auditor. SS-2 separately addresses the attendance of the secretarial auditor at the annual general meeting, unless exempted by the company (Paragraph 4.3).

Penal Consequences

(A) Section 147(1)

Section 147(1) of the Companies Act, 2013 provides that where any provision of Sections 139 to 146 is contravened:

• the company is punishable with a fine of not less than Rs. 25,000, which may extend to Rs. 5,00,000; and
• every officer of the company who is in default is punishable with a fine of not less than Rs. 10,000, which may extend to Rs. 1,00,000.

Therefore, a contravention of Section 146, including failure to properly deal with the statutory auditor’s attendance at a general meeting, may attract liability for the company and the company’s defaulting officers.

(B) Section 118(11)

Section 118(11) of the Companies Act, 2013 provides that where any default is made in complying with the provisions of Section 118, which includes mandatory adherence to Secretarial Standards under Section 118(10):

• the company shall be liable to a penalty of Rs. 25,000; and
• every officer of the company who is in default shall be liable to a penalty of Rs. 5,000.

(C) Consequences for the Statutory Auditor

The above two penal provisions do not specify any fine or punishment for the statutory auditor. This does not mean that the auditor has no professional or legal responsibility. The auditor may still face consequences in an appropriate case under:

• professional standards and disciplinary proceedings under the Chartered Accountants Act, 1949;
• the auditor’s engagement terms;
• negligence or breach-of-duty principles;
• other applicable provisions of the Companies Act;
• fraud-related provisions, where the facts support such action; or
• securities-law requirements, where the company is listed and the auditor’s conduct affects disclosures or investor interests.

(D) Other Consequences

Failure of the auditor to attend a general meeting without a company-approved exemption may create a compliance issue under Section 146. It may also result in an adverse observation during secretarial audit, internal compliance review or regulatory scrutiny.

Practical Procedure

The practical procedure generally involves:

1. the company forwarding the notice and accompanying documents to the auditor, as mandated under Sections 101 and 146;
2. the auditor submitting a written request for exemption-cum-leave of absence;
3. the auditor stating the reason for non-attendance, where appropriate;
4. the Board or the company granting the exemption; and
5. the company recording the exemption and the auditor’s absence in the minutes of the meeting.

Specimen Request for Exemption

Date: [●]

To

The Board of Directors
[Name of the Company]
[Registered Office Address]

Subject: Request for exemption from attending the [Annual General Meeting/Extraordinary General Meeting] under Section 146 of the Companies Act, 2013

Dear Sir/Madam,

We refer to the notice convening the [●] Annual General Meeting/Extraordinary General Meeting of [Name of the Company], scheduled to be held on [day], [date] at [time] at [venue/mode].

We acknowledge receipt of the notice and accompanying documents relating to the meeting.

Due to [briefly state the reason, for example, unavoidable professional commitments/medical reasons/unavoidable personal circumstances], we are unable to attend the aforesaid meeting either personally or through an authorised representative qualified to act as an auditor.

Accordingly, we request the Company to kindly exempt us from attending the aforesaid general meeting in accordance with Section 146 of the Companies Act, 2013.

We confirm that this request is limited to attendance at the aforesaid meeting and does not affect our other statutory duties, responsibilities or rights as the statutory auditor of the Company.

We further confirm that we have issued our Independent Auditor’s Report dated [date] on the financial statements of the Company for the financial year ended [date], which contains no qualification, reservation or adverse remark.

We request you to kindly communicate the Company’s approval of this request, place the same before the Annual General Meeting and make an appropriate note in the records and minutes of the meeting.

Yours faithfully,

For [Name of Audit Firm]
ICAI FRN: [●]

[Name of Partner/Proprietor]
Partner/Proprietor
Membership No.: [●]

Place: [●]