–          CA Dindayal Dhandaria, B.Com.(Hons.), F.C.A.

Section 230 of the Companies Act, 1956, reads as under:

“230. The auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.”

The proposed Companies Bill, 2012 does not contemplate any verbatim corresponding provision. However, somewhat similar provision is contemplated in the Bill, not as a separate provision, but as part of the provision relating to “Signing of audit report, etc.” contained in section 145 thereof. The said section 145 reads as under:

Auditor to sign audit reports, etc.:

145. The person appointed as an auditor of the company shall sign the auditor’s report or sign or certify any other document of the company in accordance with the provisions of sub-section (2) of section 141, and the qualifications, observations or comments on financial transactions or matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.”

[emphasis supplied]

On comparison of the above-noted two provisions, it is amply clear that whereas the existing provisions contained in the Companies Act, 1956 mandated that the auditor’s report shall be read before the company, in its entirety, in general meeting and that it shall be open to inspection by any member of the company; the provisions proposed to be enacted by Companies Bill, 2012 contemplate that only the following extracts, etc. from an auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company:

“the qualifications, observations or comments on financial transactions or matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report.”

From above, an impression is irresistible that the Companies Bill, 2012 does not mandate the entire auditor’s report to be read before the general meeting and the same need not be kept open for inspection by any member of the company. Instead of this, it would be sufficient compliance with law if only the qualifications, observations or comments on financial transactions or matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report are read out before the general meeting and only portions of audit report relating thereto are kept open for inspection by any member of the company.

It may be the intention of the legislature that attention of the members should be drawn pointedly to any adverse qualifications, observations or comments on financial transactions or matters in an audit report.  But there is no justification for preventing members of the company who are the virtual owners thereof and who appoint an auditor from inspecting his report in full form. 

Even otherwise, there is no justification for adopting “spoon-feeding” measures for those investors who are not alert and cannot read out an auditor’s report so as to differentiate between the bold/italic portions from other portions of an audit report. [The adverse qualifications, etc. are stated in bold/italic letters by an auditor.] If so, it is doubtful that the reading of such portions at a general meeting is going to help a non-vigilant member.

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Tags : Companies Act (1817) Companies Act 2013 (1591)

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