Appointment of Statutory Auditors and Casual Vacancies under Companies Act, 2013 and Understanding Section 139(2) and Its Implications
Introduction: Under the Companies Act, 2013, the appointment of statutory auditors plays a crucial role in ensuring transparency and financial compliance within companies. In this discussion, we will delve into the nuances of Section 139(2) and its implications for auditors, including the handling of casual vacancies.
As per the Companies Act 2013 – Statutory Auditors
1. Appointment of Statutory Auditor:
Every company, except for a government company, is required to appoint a statutory auditor or auditors at its first Annual General Meeting (AGM). The auditor or auditors so appointed hold office until the conclusion of the sixth AGM of the company.
2. Casual Vacancy:
If a casual vacancy arises in the office of the statutory auditor before the conclusion of their term, the company must fill this vacancy in accordance with the provisions of Section 139(8) of the Companies Act, 2013.
3. Term of a Statutory Auditor:
As per Section 139(2), the term of a statutory auditor is generally from the conclusion of one AGM until the conclusion of the sixth AGM. This is a period of five years.
4. Casual Vacancy as a Term:
In the context of Section 139(2), a “casual vacancy” can be thought of as an interruption or break within the five-year term. If, for some reason, the statutory auditor appointed at the AGM cannot continue in office during this five-year period, the appointment to fill the casual vacancy is made for the remainder of the original term.
For example, if an auditor is appointed at the first AGM and resigns or is removed after two years (before the conclusion of the third AGM), a new auditor is appointed to fill the casual vacancy. This new auditor will serve for the remainder of the original five-year term (i.e., for the next three years until the conclusion of the sixth AGM).
In the scenario as described, where a new auditor is appointed to fill a casual vacancy during the original statutory auditor’s term, the period served to complete the original term should not be considered as a full term under Section 139(2) of the Companies Act, 2013. Instead, it should be seen as a period served to complete the original auditor’s term.
Here’s how it typically works:
1. Original Auditor’s Term: Suppose an auditor was originally appointed for a term of five years, as per Section 139(2), starting from the conclusion of one Annual General Meeting (AGM) until the conclusion of the sixth AGM.
2. Casual Vacancy: If the original auditor resigns or is removed after serving for, say, two years, a new auditor is appointed to fill the casual vacancy.
3. New Auditor’s Term: The new auditor is appointed to complete the remainder of the original auditor’s term. In this case, the new auditor would serve for the remaining three years of the original five-year term.
4. Eligibility for Reappointment: After completing the remainder of the original term, the new auditor would be eligible for reappointment for two more consecutive terms of five years each, subject to the provisions of the Companies Act and compliance with the requirements for auditor appointment and rotation.
So, in the given example, the new auditor who filled the casual vacancy would be eligible for reappointment for two more terms of five years each after completing the remainder of the original auditor’s term. This is in accordance with Section 139(2) of the Companies Act, 2013, assuming all eligibility and rotation requirements are met.
Statutory Auditors As per the Companies Act 2013
|
1. Appointment of Statutory Auditor: |
2. Casual Vacancy: | 3. Term of a Statutory Auditor: | 4. Casual Vacancy as a Term: |
| Every company, except for a government company, is required to appoint a statutory auditor or auditors at its first Annual General Meeting (AGM). The auditor or auditors so appointed hold office until the conclusion of the sixth AGM of the company. | If a casual vacancy arises in the office of the statutory auditor before the conclusion of their term, the company must fill this vacancy in accordance with the provisions of Section 139(8) of the Companies Act, 2013. | As per Section 139(2), the term of a statutory auditor is generally from the conclusion of one AGM until the conclusion of the sixth AGM. This is a period of five years. | In the context of Section 139(2), a “casual vacancy” can be thought of as an interruption or break within the five-year term.
If, for some reason, the statutory auditor appointed at the AGM cannot continue in office during this five-year period, the appointment to fill the casual vacancy is made for the remainder of the original term. |
For example, if an auditor is appointed at the first AGM and resigns or is removed after two years (before the conclusion of the third AGM), a new auditor is appointed to fill the casual vacancy. This new auditor will serve for the remainder of the original five-year term (i.e., for the next three years until the conclusion of the sixth AGM).
In the scenario as described, where a new auditor is appointed to fill a casual vacancy during the original statutory auditor’s term, the period served to complete the original term should not be considered as a full term under Section 139(2) of the Companies Act, 2013. Instead, it should be seen as a period served to complete the original auditor’s term.
Here’s how it typically works:
1. Original Auditor’s Term: Suppose an auditor was originally appointed for a term of five years, as per Section 139(2), starting from the conclusion of one Annual General Meeting (AGM) until the conclusion of the sixth AGM.
2. Casual Vacancy: If the original auditor resigns or is removed after serving for, say, two years, a new auditor is appointed to fill the casual vacancy.
3. New Auditor’s Term: The new auditor is appointed to complete the remainder of the original auditor’s term. In this case, the new auditor would serve for the remaining three years of the original five-year term.
4. Eligibility for Reappointment: After completing the remainder of the original term, the new auditor would be eligible for reappointment for two more consecutive terms of five years each, subject to the provisions of the Companies Act and compliance with the requirements for auditor appointment and rotation
So, in the given example, the new auditor who filled the casual vacancy would be eligible for reappointment for two more terms of five years each after completing the remainder of the original auditor’s term.
This is in accordance with Section 139(2) of the Companies Act, 2013, assuming all eligibility and rotation requirements are met.
Conclusion:
In summary, when a new auditor fills a casual vacancy during the original statutory auditor’s term, the period served to complete the original term should not be considered a full five-year term under Section 139(2) of the Companies Act, 2013. Instead, it should be regarded as the period required to fulfill the original auditor’s term.
These regulations ensure the consistent oversight of a company’s financial matters while allowing flexibility to address unforeseen circumstances that may disrupt the auditing process. Compliance with these provisions is crucial to maintaining transparency and accountability in corporate governance.
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