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Many CA Firms including Big Firms may get disqualified to be Auditor Without knowing that the they got disqualified to continue as Auditor

Many CA firms including big Firms may lose audit of Companies due to the certain new impractical disqualifications inserted in the new Companies Act.  Sec 141(3) of the Companies Act, 2013 states that the following persons shall not be eligible for appointment as an auditor of a company, namely:—

Ø  is holding any “security” of or interest (beneficial owner)  in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company.

However, the “relative” may hold security or interest in the company of face value not exceeding  one thousand rupees or “such sum” as may be prescribed ;

COMMENTS: Draft Rules on the New Company Law, prescribes Rs 1 Lakh as “such sum”. The expression, relative has been defined in the New Companies Act. The expression ‘‘relative’’ has been defined under Sec 2(77). “Relative” with reference to any person, means anyone who is related to another, if—

(i) they are members of a Hindu Undivided Family;

(ii) they are husband and wife; or

(iii) one person is related to the other in such manner as may be prescribed;

Brothers are the members of a HUF and hence covered u/s 2(77) as relative.

EXAMPLE:  XYZ is an auditor of  ABC Ltd. Brother of one of the partner of XYZ who is staying in the USA purchased the security of ABC Ltd. exceeding the prescribed amount . XYZ will be disqualified to be the auditors of ABC Ltd..

ISSUES:

1.       How XYZ will come to know that the brother of a partner has purchased such security?

2.       Is it practically possible to implement such provision?

SUGGESTIONS: IT IS SUGGESTION TO DEFINE RELATIVE FOR THE PURPOSE OF THIS SECTION. SUCH DENITION MAY BE AS FOLLOWS:

“Relative” with reference to any person, means anyone who is related to another, if—

(i) they are husband and wife; or

(ii) they are dependent relatives; or

(iii) one person is related to the other in such manner as may be prescribed;

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0 responses to “CA Firms may get disqualified to be Auditor without Knowing”

  1. vimal says:

    I have a Query related to auditors Qualification .

    XYZ Ltd is a listed company.
    Mr. A is a non executive director (not Independent Director) of the company.
    Statutory Auditor of the company is relative of Mr. A.
    Now as per Section 141(3) of the Companies Act 2013 stating Eligibility, qualifications and disqualifications of auditors,
    “person whose relative is a director or is in the employment of the company as a director or key managerial personnel shall not be eligible for appointment as an auditor of a company.”

    So, what is the time limit and procedure to change the auditor as per the new act?
    Further can such auditor conduct the audit of the company for the last financial year ended on 31st March 2014?

    Requested to reply for the same.

  2. Ujwal Jain says:

    CA Yashesh Jhakelia the brother of Non Hindu Partner will also be disqualified according to section 2 clause (77) sub-clause(iii) read with rule 1.4 of Companies Rules, 2013

  3. Ujwal Jain says:

    What if the HUF is not registered ? Still the auditor would be disqualified?

  4. CA. Yashesh A. Jakhelia says:

    According to a simple reading of this operative portion, in one’s understanding, it clearly envisages a subsisting disqualification even at the point in time of ‘appointmant’. If so, at best, that is an aspect to be taken care even at the time of appoiting a person / firm as ‘auditor’.

    Even a point to be noted that a brother of a non-Hindu Partner in this case XYZ will not become disqualify. Because for every Hindu person his brother will become member of his Father’s HUF registered or unregistered.

    HUF will cover each & every family member of a Hindu Family living together or nuclear. If a Firm is having a Married Hindu Woman as a Partner than her Brother in law, unmarried sister in law, father & Mother in law will get attracted as Relative.

  5. vswami says:

    “….the following persons SHALL NOT BE ELIGIBLE FOR APPOINTMENT as an auditor of a company, namely,…”(FONT supplied)

    According to a simple reading of this operative portion, in one’s understanding, it clearly envisages a subsisting disqualification even at the point in time of ‘appointmant’. If so, at best, that is an aspect to be taken care even at the time of appoiting a person / firm as ‘auditor’.

    It is worthwhile checking as to whether the law anywhere else specifically provides how exactly the provision will operate/be implemented, if it is only after having been apointed,the objectionable ‘holding’ comes into being /sets in.
    Is any different view at all possible ?

  6. vswami says:

    “….states that the following persons SHALL NOT BE ELIGIBLE FOR APPOINTMENT as an auditor of a company, namely:—..”

    The provision, according to a simple reading,clearly envisages, and covers within its mischief, only should there be a subsisting disqualification at the time of appointment itself. As such,at best, requires to be taken care even before appointment.

    In terms, it seems to have no application to a case in which the objectionable ‘holding’, so as to disqualify, comes into being only after the point in time of appointment.

    Is there any other angle posing a genuine doubt?

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