CA Dindayal Dhandaria, B.Com.(Hons.), F.C.A.-
The existing provisions of the Companies Act, 1956 (hereinafter referred to as “the Act”) contemplate two situations, viz;
(a) where the company has only one auditor; and
(b) where it has more than one auditor.
In later case, the remaining auditor or auditors continue to act as auditors and thus, no vacancy is recognised. In former case, if the vacancy is caused by resignation of an auditor, only the central government is empowered to fill up the same. It means that resignation by an auditor is treated as a serious matter requiring intervention by the central government.
The Companies Bill, 2012 (hereinafter referred to as “the Bill”) proposes to transfer this power from the Central Government to the Board of Directors of the company itself. It proposes to classify the companies into the following two categories for this purpose:
(a) a company other than a company whose accounts are subject to audit by an auditor appointed by the C. & A.G.; and
(b) a company whose accounts are subject to audit by an auditor appointed by the C. & A.G.
The Bill proposes that in case of companies falling in category (b) above, the casual vacancy shall be filled up by the C. & A.G. within 30 days and failing him, by the Board of Directors of the Company itself.
In respect of the companies falling in category (a) above, the Bill proposes that the casual vacancy caused by the resignation of an auditor shall be filled up by the Board of Directors of the Company itself within 30 days subject to ratification thereof at a general meeting convened within three months of the recommendation of the Board and that such an auditor shall hold the office till the conclusion of the next annual general meeting.
[Note: It may be noted in case of companies falling in category (a) above, the power to fill up the casual vacancy is available only when such vacancy is caused by the resignation of the auditor. The bill is silent about casual vacancies caused by other reasons. However, in case of companies falling in category (b), no such distinction is made.]
It is important to note that the Bill provides that in case of a company falling in category (a), the auditor will hold office till the conclusion of the next annual general meeting only and is silent either about his re-appointment or appointment of anyone else instead of him. Section 139(1) of the Bill which deal with the matters pertaining to the appointment and/or re-appointment of an auditor, do not specifically deal with the situation arising out of the casual vacancy of an auditor. Thus, there is no clarity about the tenure of the office an auditor who is appointed to fill up the casual vacancy.
If an auditor appointed to fill up a casual vacancy, after the expiry of such period, is not eligible for re-appointment for a further term of 5 or 10 years, as the case may be, he would be unwilling to take up an assignment for a short period and the companies may find it difficult to find an auditor to fill up the casual vacancy.