Introduction
An Auditor of the company plays the most important and vital role in the operations of the company. He is obligated by the laws to examine the accounts of the company and provide a true and fair view of the company’s financial position to the various stakeholders such as investors, government authorities, banks and other interested parties.
As per Section 139 of the Companies Act, 2013, every company is required to appoint an auditor. An auditor appointed at the first annual general meeting of the company, shall hold office till the conclusion of the sixth annual general meeting and thereafter till the conclusion of every sixth meeting, subject to fulfilment of conditions related to rotation, if applicable.
But what if the auditor gives resignation before the expiry of his term of appointment or the vacancy is created due to the sad demise of the auditor? In this article, we will understand the provisions related to the appointment of auditor in casual vacancy as per Companies Act, 2013, the procedure involved and subsequent intimation and filing of e-forms with the Registrar of Companies.
What is a casual vacancy and how is a casual vacancy in the office of auditor created?
The term casual vacancy is not defined under the Companies Act, 2013. As per Black’s Law Dictionary ‘casual’ means not expected, foreseen or planned, ‘vacancy’ means the time during which an office, post or piece of property is not occupied.
Therefore in this context, the casual vacancy may arise out of resignation or due to death or disqualification etc. of an auditor. Appointment of auditor in casual vacancy is regulated by Section 139 (8) of the Companies Act, 2013.
The concept of a casual vacancy in case of an auditor can be categorised into 2 situations:
1. Resignation by the auditor before expiry of his term
2. Any other situation other than resignation such as death or disqualification
Procedure for Appointment of auditor in Casual Vacancy Due to Resignation
If an auditor resigns before the expiry of his term of appointment and casual vacancy is created, then the Board of Director shall fill such casual vacancy within 30 days and the appointment made by the board of directors shall be approved in the Extra Ordinary General Meeting or Annual General Meeting convened within 3 months from the date of the recommendation of the Board. The auditor so appointed shall hold office until the conclusion of the next Annual General Meeting.
Below is the step by step guide for appointment of new auditor in place of resigning auditor
Step 1: Obtain Resignation Letter and statement in Form ADT-3 duly filed by the resigning Auditor with the Registrar of Companies
Step 2: Obtain a Consent Letter and eligibility certificate from the new auditor confirming his eligibility for appointment.
Step 3: Upon receipt of consent for appointment and eligibility certificate from the new auditor, issue Notice to all the Directors atleast 7 days before the date of convening the Board Meeting to fill the auditor casual vacancy. The appointment made by the Board of Directors is subject to approval by members at the General Meeting held within 3 months. The Board Meeting must be convened within 30 days from the effective date of resignation.
Step 4: Once the Board approves the appointment, an intimation regarding appointment shall be sent via a letter alongwith copy of board resolution to the newly appointed auditor.
Note: The appointment so made by the board shall also be approved at the general meeting (EGM/AGM) convened within 3 months from the date of the recommendation of the Board.
Step 5: Issue Notice to hold a general meeting within 3 months from the date of the recommendation of the board to the members of the company.
Step 6: Hold the General Meeting to approve the appointment of the auditor.
Step 7: File Form ADT-1 within 15 days from the date of appointment in a general meeting with the Registrar of Companies along with necessary attachments and by payment of requisite fees.
Approval of Appointment at General Meeting
As per Section 139(8)(i) of the Companies Act, 2013, the appointment of auditor made by the Board to fill a casual vacancy, shall be approved by the Members at a General Meeting, held within 3 months from the date of recommendation by the board. The General Meeting can either be Extra-Ordinary General Meeting or the Annual General Meeting.
If the approval is sought at Annual General Meeting, then an Ordinary Resolution shall be passed and subsequently Form ADT-1 be filed within 15 days from the date of AGM. The Auditor shall be appointed to hold office from the conclusion of that AGM till the conclusion of the sixth AGM, held thereafter.
If the approval is sought by calling an Extra-Ordinary General Meeting, then such approval shall be by passing a special resolution by the members. Such Special Resolution shall be filed in Form MGT-14 with the Registrar within 30 days from the date of EGM. The auditor so appointed shall hold office till the conclusion of the next annual general meeting.
Steps to be taken by Resigning Auditor:
It is important to note that, as per Section 140(2) of the Companies Act, 2013, the resigning auditor shall file Form ADT-3 within 30 days from the date of resignation with the Registrar and subsequently submit the duly filed copy of Form ADT-1 to the company.
Penalty for non-compliance by Resigning Auditor:
If the auditor does not comply with the provisions of Section 140(2), he or it shall be liable to a penalty of Rs. 50,000 or an amount equal to the remuneration of auditor, whichever is less and in case of continuing failure, with a further penalty of Rs. 500 for each day after the first during which such failure continues, subject to maximum of Rs. 5 lakh Rupees.
From above one can understand that, if the resigning auditor fails to intimate regarding his resignation to the company and the Registrar, he may end up paying heavy penalties for defaults.
Procedure for Appointment of Auditor in casual vacancy due death
If the casual vacancy is caused due to death of an auditor, then such casual vacancy shall be filled by the Board of Directors within 30 days and the auditor so appointed shall hold office till the conclusion of the next annual general meeting.
Below is the step by step guide for appointment of an auditor in casual vacancy due to death of an auditor
Step 1: Send an intimation letter to the proposed auditor to obtain a Consent Letter and eligibility certificate confirming his eligibility and willingness for appointment.
Step 2: Upon receipt of consent for appointment and eligibility certificate from the new auditor, issue Notice to all the Directors atleast 7 days before the date of convening the Board Meeting to fill the auditor casual vacancy. The Board shall pass a Board Resolution for appointment of a new auditor and such Board Meeting must be convened within 30 days from the date when a casual vacancy arises.
Step 3: Send appointment letter alongwith with the copy of Board Resolution to the auditor.
Step 4: File Form ADT-1 within 15 days from the date of such appointment.
The auditor/ auditor firm so appointed shall hold office as auditor till the subsequent Annual General Meeting and at the immediate Annual General Meeting he/it may retire or will be re-appointed.
Filing of Form ADT-3 in case of death of an Auditor
It is important to note that if the casual vacancy is caused due to death of an auditor and the auditor was practicing solely/individually, then filing of Form ADT-3 is not required.
In case the firm is appointed as statutory auditor and the partner signing balance sheet is expired, then the same will not constitute a casual vacancy, as in this case the firm is appointed as statutory auditor and not the individual partner. Therefore, another partner of the firm will sign the financial statements and filing of Form ADT-3 is not required.
Is Board Meeting mandatory for appointment of Auditor in casual vacancy
The Companies Act 2013, does not make it mandatory to hold a board meeting to pass resolution for appointment or recommendation of appointment of auditor in casual vacancy. Merely passing of circular resolution can also be sufficient.
Does Disqualification of Auditor amount to Casual Vacancy?
Section 141 of the Companies Act, 2013 specifies the criterias regarding eligibility, qualification and disqualification of auditors. If any person appointed as an auditor of the company incurred any disqualification as mentioned in Section 141(3) of the Companies Act, 2013, he shall vacate the office as auditor and vacation shall be deemed to be a casual vacancy in the office of the auditor.
Casual vacancy in case of a company whose accounts are subject to audit by an Auditor appointed by the Comptroller and Auditor General of India
Any casual vacancy of the auditor in the office shall be filled by the Comptroller and Auditor General of India within thirty days.
In case the casual vacancy is not filled by CAG within 30 days, then the Board of Directors shall fill the vacancy within the next 30 days.
Tenure of auditor appointed to fill casual vacancy
The auditor appointed by the board or by the members on recommendation by the board in case of filling a casual vacancy caused due to resignation, shall hold office till the conclusion of the next Annual General Meeting.
No association between incoming auditor and outgoing auditor
In case of companies to whom rotation is applicable, it is important to note that there should be no association between the incoming auditor or audit firm and outgoing auditor or audit firm and should not belong to the same network of audit firms.
Same Network means firms operating or functioning hereto or in future, under the same brand name, trade name or common control.
Filing of Forms with Registrar and attachments
In case of casual vacancy is caused due to Resignation of Auditor
Filing of Form ADT-3 by the resigning auditor
File Form ADT-3 within 30 days from the date of resignation with the Registrar and submit the filed form to the Company.
Attachments to Form ADT-3:
- Resignation Letter
- Any other optional attachments of any
Filing of Form ADT-1 by the company
The Company shall file Form ADT-1 within 15 days from the date of General Meeting wherein the approval for appointment of auditor by a special resolution is passed by members.
Attachments to Form ADT-1:
- Copy of intimation sent by the company
- Copy of resolution passed by the board/members
- Copy of written consent given by the auditor
- Optional attachments if any
Filing of Form MGT-14 by the company
The company is also required to file the special resolution passed at the General Meeting in Form MGT-14 within 30 days of the date of passing such resolution.
Attachments to Form MGT-14
- Notice of General Meeting along with explanatory statements
- Certified copy of Special Resolution passed
- Consent Letter from the new Auditor
- Intimation sent by the company to the Auditor
- Optional attachments if any.
In case the casual vacancy is caused due to death of auditor
Filing of Form ADT-1
The Company shall file Form ADT-1 within 15 days from the date of Board Meeting.
Attachments to Form ADT-1:
- Copy of intimation sent by the company
- Copy of resolution passed by the board/members
- Copy of written consent given by the auditor
- Optional attachments if any
Draft formats of Board and General Meeting Resolutions for appointment of Auditor in casual vacancy
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