Appointment of Auditor In Causal Vacancy Under Companies Act 2013

Section Attracts 139(8) of Companies Act 2013

Situation where Casual vacancy arise the term casual vacancy (not defined anywhere in companies act 2013) means vacancy arise due to death, resignation and disqualification of auditor. Here the article discussed only how to fill casual vacancy due to resignation of auditor.

1. If Auditor is appointed by CAG (Comptroller and Auditor General)

• Resignation Letter mentioning reasons for such resignation to be given to CAG
• CAG will appoint New Auditor within 30 days.
• If CAG does not appoint within 30 days then Board of Directors will appoint New Auditor within next 30 days.

2. If Auditor is not appointed by CAG

Step First -Taking previous auditor Resignation letter and file the same to concern ROC.

Applicable Provision Section 140(2) and 140 (3) of companies act 2013

• The auditor who makes resign gives the intimation to the company and registrar in form ADT-3 within 30 days from his resignation.
• Further the auditor must prescribe the reason and facts as may be relevant to his resignation.
• If the auditor does not comply with the section 140(2) he or it shall be liable for the penalty of Rs 50,000/- or an amount equal to the remuneration to the auditor, whichever is less and in case of continuing failure, with further penalty of Rs 500/- for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.

Note: – Attachment for e-form ADT -3 is the Resignation Letter only.

Step Second- Appointment of new auditor in EGM

 Applicable Provision Section 139(8) of companies act 2013

According to Section 139(8)(i) of the Companies Act, 2013, any casual vacancy in the office of  an auditor shall in the case of a company other than a company whose accounts are subject to audit by CAG, be filled by the Board of Directors within 30 days, but if such casual vacancy is as a result of the resignation of an auditor, such appointment shall also be approved by the company at a general meeting convened within three months of the recommendation of the Board and he shall hold the office till the conclusion of the next annual general meeting.

Once a casual vacancy of Auditor due to resignation takes place, following steps needs to be complied.

1. Obtain Form ADT-3 from the resigning Auditor duly filed with the Registrar.

2. Obtain consent letter from the proposed auditor confirming his eligibility to be appointed.

3. The Company shall issue letter of intention to add new Auditor for his appointment in the company.

4. Proposed Auditor shall obtain NOC from the resigning Auditor.

5. Company shall convene a board meeting within 30 days from arising of such casual vacancy after giving notice to all directors and pass a resolution for appointment of new Auditor.

6. Inform the auditor so appointed with a copy of board resolution

7. Issue notice for conduct of Extra Ordinary General Meeting (EGM) within 3 months from the date of recommendation of the Board.

8. Hold EGM and pass ordinary resolution to confirm the appointment of the proposed Auditor.

9. File Form ADT-1 with the ROC within 15 days from the date of appointment in the EGM.

Note: Attachment of e-form ADT-1 are:

• Copy of Intimation sent by the Company i.e notice of EGM
• Consent & Certificate of the Auditor.
• EGM Resolution and Notice

Practical Points to be discusses:

1. The auditor appoint in casual vacancy hold the office for the upcoming Annual general meeting only and will be appointed again in AGM for next five years.

2. Form ADT-1 filled with in 15 days from the date of EGM where his appointment gets approved by the members.

3. For fill the vacancy arises due to resignation, First need to file form ADT-3 by the previous auditor who resigned because without resignation of previous auditor, new/proposed auditor cannot be appointed meanwhile practically for filling the form ADT-1 for new auditor, the SRN of ADT-3 is required in Form ADT-1.

4. Form MGT-14 is not required to file for private limited company regarding members meeting because it’s the ordinary resolution to be passed in EGM.

5. It is required to give in brief note in board report regarding the resignation and appointment of auditor for the respective financial year.

6. This is to be noted that there are two ADT-1 forms will be filled to concern ROC one for EGM to upcoming AGM and second for AGM to next five years.

7. If the auditor resign the company before finalize the financial for the previous financial year, the new auditor should be appointed in EGM before holding Annual general meeting.

For Example: Mr. A auditor of the company has resigned on 01^st July 2022 and the accounts are not be audit for the financial year 2021-22. Then the company board recommend new auditor within 30 days in board meeting and approved at a general meeting convened within three months of the recommendation of the Board. If upcoming AGM is coming within 3 months although calling EGM is mandatory because in law it clearly mention that appointment of auditor must be in general meeting by member. This auditor holds the office till the upcoming annual general meeting.

Note: In form ADT-1 date of auditor appointment will be the date of EGM, where auditor appointment will be approved by the members.

9. But if the resigning auditor, audited the accounts for the financial year 2021-22, then new auditor will be appoint in board meeting and After Board Approval, AGM will be held in upcoming 3 months from the board approval, than no requirement to call EGM. Directly appoint the new auditor in AGM for five years, but give the brief note about the casual vacancy of auditor in AGM Notice.

10. While filling ADT-1 for appointment in EGM the period of audit will be that financial year only and if auditor is appointed in AGM the period of audit will be term of five years (means upcoming 5 financial years).

Disclaimer: The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the author are personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority without the written.