All the Companies registered under the Companies Act, 2013 including Government Companies are required to maintain books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the Company and get the book of accounts audited. Therefore, after the incorporation of a Company, an auditor is required to be appointed by the Company.
Definition of Government Company:
As per Section 2(45) of the Companies Act, 2013:
“Government Company” means any company in which not less than fifty-one percent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a Company which is a Subsidiary Company of such a Government Company;
The “paid-up share capital” shall be construed as “total voting power”, where shares with differential voting rights have been issued.
Appointment of the first auditor:
As per Section 139(7), in case of a Government Company or any other Company-owned or controlled, directly or indirectly, by the Central Government, or by any State Government, or Governments, or partly by the Central Government and partly by one or more State Governments, the first auditor shall be appointed by:
- The Comptroller and Auditor-General of India within sixty days from the date of registration of the Company and in case the Comptroller and Auditor-General of India does not appoint such auditor within the said period;
- The Board of Directors of the Company shall appoint such auditor within the next thirty days and In the case of failure of the Board to appoint such auditor within the next thirty days;
- The Board shall inform the members of the Company who shall appoint such auditor within the sixty days at an Extraordinary General Meeting, who shall hold office till the conclusion of the first Annual General Meeting.
As per Section 139(1), the Company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Registrar of Companies within fifteen days of the meeting in which the auditor is appointed. The notice to the Registrar about appointment of auditor shall be in Form ADT-1.
Appointment of subsequent Auditor(s):
As per Section 139(5) in the case of a Government Company or any other Company-owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, the Comptroller and Auditor-General of India shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as an auditor of Companies under the Companies Act, 2013, within a period of one hundred and eighty days from the commencement of the financial year, who shall hold office till the conclusion of the Annual General Meeting.
The Company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Registrar of Companies within fifteen days of appointment. The notice to the Registrar about appointment of auditor shall be in Form ADT-1.
Appointment of an Auditor to fill the casual vacancy:
As per Section 139(8), any casual vacancy in the office of an auditor of a company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor General of India shall be filled by the Comptroller and Auditor General of India within thirty days. However, in case the Comptroller and Auditor General of India does not fill the vacancy within the said period, the Board of Directors shall fill the vacancy within next thirty days.
As per Section 140(2), the auditor who has resigned from the Company shall file within a period of thirty days from the date of resignation, a statement in the form ADT-3 with the Company and the Registrar, and in case of Companies referred to in sub-Section (5) of Section 139, the auditor shall also file such statement with the Comptroller and Auditor General of India, indicating the reasons and other facts as may be relevant with regard to his resignation.
The Company shall inform the auditor who has been appointed in place of the auditor who has resigned from the Company of his or its appointment, and also file a notice of such appointment with the Registrar of Companies within fifteen days of appointment. The notice to the Registrar about appointment of auditor shall be in Form ADT-1.
Supplementary Audit:
As per Section 143(6), the Comptroller and Auditor General of India shall have a right to conduct a supplementary audit of the financial statement of the Company by such person or persons as he may authorise in this behalf and comment upon or supplement such audit report, within sixty days from the date of receipt of the audit report under Section 143(5).
Test Audit:
As per Section 143(7), the Comptroller and Auditor General of India may, in case of any Company covered under sub-Section (5) or sub-Section (7) of Section 139, if he considers necessary, by an order, cause test audit to be conducted of the accounts of such Company and the provisions of Section 19A of the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971, shall apply to the report of such test audit.
Applicability of the provisions of Section 139(5) and 139(7) of the Companies Act, 2013 which deal with appointment of auditors by Comptroller and Auditor General of India (C&AG) to ‘Deemed Government Companies’:
‘Deemed Government Companies’ as per Section 619B of the Companies Act, 1956:
A Company in which not less than fifty-one percent of the paid-up share capital is held by one or more of the following or any combination thereof, namely:
(a) The Central Government and one or more Government Companies;
(b) Any State Government or Governments and one or more Government Companies;
(c) The Central Government, one or more State Governments and one or more Government Companies;
(d) The Central Government and one or more corporations owned or controlled by the Central Government;
(e) The Central Government, one or more State Governments and one or more corporations owned or controlled by the Central Government;
(f) One or more corporations owned or controlled by the Central Government or the State Government;
(g) More than one Government Company.
Clarification by Ministry of Corporate Affairs:
1. Doubts have been raised about applicability of Section 139(5) and 139(7) of the Companies Act, 2013, which deal with appointment of auditors by Comptroller and Auditor General of India (C&AG), to ‘deemed Government Companies’ referred to in Section 619B of the Companies Act 1956 (Old Act) i.e. Companies where ownership or control lies with two or more Government Companies or corporations etc. in the manner detailed in Section 619B ibid, Stakeholders have pointed out that the Companies Act, 2013 does not contain specific provisions about ‘deemed Government Companies’ on the lines of Section 619B of the Old Act. Clarification has been sought whether, under the Companies Act, 2013, such deemed Government Companies would be subject to audit by the C&AG in the same manner as Government Companies.
2. The above issue has been examined and it is clarified that the Companies Act, 2013 does not alter the position with regard to audit of such ‘deemed Government Companies’ through C&AG and thus such Companies are covered under sub Section (5) and (7) of Section 139 of the Companies Act, 2013.
3. Further, it has also been observed that the words “any other Company owned or controlled, directly or indirectly by the Central Government and partly by one or more State Governments” appearing in sub-Sections (5) and (7) of Section 139 of the Companies Act, 2013 are to be read with the definition of [i]‘control’ in Section 2(27) of the Companies Act, 2013. Thus documents like articles of association and shareholders agreements etc. envisaging control under Section 2(27) are to be taken into account while deciding whether an individual Company, other than those referred in paragraph 1-2 above, is covered under Section 139(5)/(7) of the Companies Act, 2013.
[i] “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
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