Follow Us :

As many of you may know companies irrespective of their businesses are bound to appoint Statutory Auditors. This applicability is not dependent on specific threshold like profit percentage or turnover as is the case in Income Tax Act or for audits of LLP’s. A company needs to get its accounts audited even though it may not have any business during the year.

For appointment of auditors Ministry of Corporate Affairs (MCA) has notified e form ADT-1 which asks for details such as Name, Address, Membership number of Auditor along with number of years for which the auditor is being appointed.

There is some confusion regarding the applicability of filing E form ADT-1 for a newly incorporated company in respect of appointment of First Auditor. For example M/s Ramesh & Sons Pvt Ltd was incorporated on 24-04-2019and so financial year 2019-20 is the first year of operations of the Company. The new auditor has to be appointed by board of Directors within 30 days of incorporation of the Company and filing of form ADT-1 to be done within 15 days from the date of passing of resolution of appointment.

Relevant provisions of the Companies Act 2013 along with Companies (Audit and Auditors Rules) 2014 highlighting the above mentioned are given below:

The appointment of first auditors of the Company is governed by the provisions of Section 139(6) of the Companies Act 2013 which reads as under:

Notwithstanding anything contained in sub-section (1), the first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within thirty days from the date of registration of the company and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within ninety days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

Appointment of Auditor Companies Act,2013

Now Furthermore, the provisions of Companies (Audit and Auditors Rules) 2014, states that filing of e-form ADT 1 is required when the auditor is appointed under the provisions of Section 139(1) of the Companies Act (i.e. appointment of auditor in General Meeting) and not where appointment of auditor is done by the Board of Directors under section 139(6).

This is a loophole, advantage of which is being taken by a lot of newly incorporated companies. Citing the lack of clarity in the provisions companies tend to ignore the filing of First Auditor appointment via e form ADT-1 .The appointment is done in papers and MCA is not notified of the same.

In our example, the Company was incorporated on 24-04-2019. Subsequently, the first meeting of the Board of Directors was held on for example on 17-05-2019 at its registered office. The management of the company is confused whether it should file the auditor appointment form ADT-1 or not.

Our views

Since, in this case, the appointment of auditors has been done under section 139(6) and not under section 139(1), the company does not mandatorily require to file e-form ADT 1 within period of 15 days from the date of Board meeting i.e 01st June 2019 but it is still advisable and a good practice to file the same with MCA via form ADT-1.In this connection, it is also important to note that once the Company concludes its Annual General Meeting for FY 2019-20, it has to mandatorily file e-form ADT – 1 within a period of 15 days from the date of AGM for appointment of subsequent auditors(It may be first auditor being reappointed or a new auditor being freshly appointed).

What happens if the board fails to appoint the First auditor in the Board meeting?

The first auditor then shall then be appointed by shareholders in a general meeting within 90 days of intimation of such failure or board meeting(Counting of 90 days is not clearly defined in the provision). In such a scenario since the appointment is being done in a general meeting then it is best to file form ADT-1 notifying the appointment of First auditor.

Author Bio

I am a Fellow Member of ICAI, Practicing under the banner of M/s AAN & Associates LLP, a firm based out of Kolkata & Bangalore. I am, also registered under Insolvency and Bankruptcy Board of India as a Registered Valuer for valuation of Security or Financial Assets (Passed in Feb 2020) I a View Full Profile

My Published Posts

GIFT City: Transforming India’s Financial Landscape with Innovation Understanding SAS 1600: Promoting Migrant Welfare and Displacement Social Auditing Standards (SAS) 1500: Bridging the Digital Divide SAS 1400: Empowering Disadvantaged Communities with Land Access Understanding SAS 1300: A Guide to Promoting Financial Inclusion View More Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
April 2024
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
2930