Format of Draft Resolutions in connection to appointment & ratification of remuneration payable to Cost Auditor
Summary: Under Section 148(3) of the Companies Act, 2013, read with Rule 14 of the Companies (Audit and Auditors) Rules, 2014, every company required to maintain cost records must appoint a qualified Cost Auditor and have the remuneration payable to such auditor ratified by shareholders. The process involves three key steps: recommendation by the Audit Committee (if applicable), appointment and provisional remuneration approval by the Board of Directors, and final ratification by shareholders through an Ordinary Resolution at the General Meeting. Without shareholder ratification, the remuneration approved by the Board remains invalid. The Board resolution formally appoints the Cost Auditor for the relevant financial year, specifies remuneration and related terms, and authorizes officers to file necessary e-forms and issue appointment letters. The shareholders’ resolution, on the other hand, ratifies the remuneration and empowers the Board to take necessary actions for implementation. An explanatory statement must accompany the notice to members, outlining the background, remuneration details, and legal basis of the resolution, while confirming that no director or key managerial personnel has any interest in the proposal. Together, these resolutions ensure compliance with statutory requirements governing cost audits and reinforce corporate transparency and accountability.
Legal Basis:
Section 148(3) of the Companies Act, 2013, read with Rule 14 of the Companies (Audit and Auditors) Rules, 2014 provides for ratification of remuneration payable to the Cost Auditor.
Manner of Approval:
The remuneration must be approved by the shareholders by passing an Ordinary Resolution at a General Meeting (typically the Annual General Meeting/AGM).
Role of Board:
The Board of Directors appoints the Cost Auditor and approves the initial remuneration. However, this Board-approved remuneration is provisional until ratified by the shareholders.
Role of Audit Committee (if applicable):
For companies required to constitute an Audit Committee (u/s 177), the Committee recommends both the appointment and the remuneration. The Board then considers, approves, and passes it on for shareholder ratification.
Mandatory Compliance:
Ratification by shareholders is a non-negotiable step to finalize the remuneration. Failure to obtain this ratification would render the initially approved remuneration void.
Necessary Drafts in connection to appointment & ratification of remuneration payable to Cost Auditor:
[A] Draft of Board Resolution:
TO APPOINT THE COST AUDITOR OF THE COMPANY:
“RESOLVED THAT pursuant to the provisions of section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, 2014 and all other applicable provisions (including any statutory amendment(s), modification(s) or variation(s) thereof for the time being in force), and pursuant to the recommendation of Audit Committee of the Company {only if audit committee is applicable}, consent of the Board be and is hereby accorded for appointment of M/s. —————–, Cost Accountants, {place} (ICMAI Firm Registration No. ———) as the Cost Auditors of the Company, to conduct the Audit of the Cost Records of the Company for the Financial Year ending March 31, 2026, at a remuneration of Rs.—— (Rupees ————- only) plus applicable taxes (in addition to reimbursement of all out of pocket expenses and any other ancillary services thereto), including any modifications as may be decided by the Board of Directors in consultation with the Cost Auditors, which is subject to the ratification by the members at the subsequent general meeting of the company.
RESOLVED FURTHER THAT the tenure of M/s. —————–, as the Cost Auditors of the Company, shall be as per the provisions of the Companies Act, 2013.
RESOLVED FURTHER THAT any of the Director or the Chief Financial Officer of the Company be and are hereby severally authorized to do all such acts, deeds, matters and things (including filing of necessary E-forms with Registrar of Companies and signing of Appointment Letter) as may be considered necessary, desirable and expedient for giving effect to this Resolution.
RESOLVED LASTLY THAT any Director or the Company Secretary of the Company be and are hereby severally authorized to certify a true copy of this resolution, for the purpose of issuing the same, to all the concerned.”
[B] Draft of Shareholder’s Resolution:
TO RATIFY REMUNERATION PAYABLE TO THE COST AUDITOR, M/s. NAGESWARA RAO & CO.:
“RESOLVED THAT pursuant to the provisions of Section 148 read with the Companies (Audit and Auditors) Rules, 2014 and all other applicable provisions (if any) of the Companies Act, 2013, (including any statutory amendment(s) modification(s) or re-enactment(s) thereof, for the time being in force), the remuneration payable to M/s.—————- , Cost Accountants, {place} (ICMAI Firm Registration No. ———), who were appointed as Cost Auditors by the Board of Directors of the Company to conduct the audit of the Cost Records maintained by the Company for the Financial Year ending March 31, 2026, amounting to Rs.—— (Rupees ————- only) plus applicable taxes (in addition to reimbursement of all out of pocket expenses and any other ancillary services thereto), be and is hereby ratified.
RESOLVED LASTLY THAT the Board of Directors of the Company be and are hereby authorized to do all such acts, deeds and things and take all such steps as may be necessary or expedient to give effect to this resolution.”
[C] Draft of Explanatory Statement:
The Board of Directors of the Company, in its meeting held on DD/MM/YYYY , on the recommendation of the Audit Committee had approved the appointment and remuneration of M/s.—————- , Cost Accountants, {place} (ICMAI Firm Registration No. ———) to conduct the audit of the cost records of the Company for the Financial Year ending March 31, 2026, at a remuneration of Rs.—— (Rupees ————- only) plus applicable taxes (in addition to reimbursement of all out of pocket expenses and any other ancillary services thereto) is fixed for this purpose.
In terms of the provisions of Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014, the Board of Directors shall appoint Cost Auditors and the remuneration payable to such Cost Auditors shall be ratified by the Shareholders of the Company subsequently.
Accordingly, consent of the Members is sought for passing the resolution as set out in Item No. — of the Notice for ratification of the remuneration payable to the Cost Auditors for the Financial Year ending March 31, 2026.
None of the Directors or Key Managerial Personnel of the Company or their relatives are, in any way, concerned or interested, financially or otherwise, in the resolution set out at Item No. — of the Notice.
Your directors recommend the resolution as set out in the Item No. — of the Notice to be passed as an Ordinary Resolution.
Author Bio
