Appointment & Reappointment of Auditor | Special Resolution | Casual Vacancy

Reappointment of Auditor

1. A retiring auditor may be re-appointed at the annual general body meeting by passing a resolution.

2. Reappointment of a retiring auditor is not automatic. A resolution at the annual general body meeting is required.

However, a retiring auditor shall not be reappointed,

  1. When he does not qualify for reappointment.
  2. When he is not interested or expressed unwillingness to accept reappointment.
  3. When a resolution is passed in the AGM appointing some other auditor. Companies (Amendment) Bill, 2003 requires a special resolution.
  4. When opted not to reappoint him.
  5. When resolved to appoint some other auditor and such resolution could not be proceeded with, due to death, or disqualification of such person.

Appointment of Auditor against Casual Vacancy

The Companies Act has not defined casual vacancy. But one can say that casual vacancy for an auditor arises due to disqualification, resignation, death, etc.

1. The Board of Directors may appoint an auditor to fill the casual vacancy caused by any reason other than by resignation.

2. Where there are more than one auditor, the remaining auditor may act as the auditor during the vacancy period.

3. Where the casual vacancy is due to resignation, the vacancy can be filled up only at a annual general meeting.

Appointment of Auditor by Special Resolution

In the case of companies mentioned below, appointment and reappointment of auditors at the annual general meeting shall be made only after passing a special resolution.

1. A company in which not less than 25% of the subscribed share capital is held as on the date of annual general meeting, jointly or singly, by,

  1. a nationalized bank or a general insurance company or
  2. any institution, financial or otherwise, established under State or Provincial Act, in which, not less than 51% of the subscribed capital is held by the State Government or
  3. a central Government or a state government or a government company or a public financial institution.

Here, the following are to be noted:

1. Subscribed share capital includes preference share capital.

2. Special Resolution for the appointment of auditor is necessary even if a nationalized bank holds shares of the company in its name as security for loans advanced by it.

3. If any of the above mentioned companies fails to appoint the auditor by passing a special resolution in its annual general body meeting, the Central Government has the power to appoint the auditor of the company.

The term Public financial institution means

  1. any institution constituted under any Central Act or
  2. any institution in which not less than 51% of the paid up share capital is held or controlled by the Central government
  3. The official gazette of the Central government mentioning the names of the Public Financial Institutions.

Case study

A company issues notice for annual general body meeting. At the time of issuing the notice, the shareholdings of the above specified bodies are less than 25%. On the day of the annual general body meeting, the shareholding of the specified bodies in the company is not less than 25%. Is Special resolution for the appointment of auditor necessary in the above situation.?

Since as on the date of AGM, the shareholding of the specified bodies are not less than 25%, the company has to adjourn the AGM and issue another notice mentioning about the appointment of auditor by passing a special resolution. It should then proceed to appoint the auditor by passing a special resolution in the adjourned meeting.