REMUNERATION OF AUDITORS UNDER NEW COMPANY LAW

[Dr. Sanjiv Agarwal]

Statutory Provision (Section 142)

The statutory provision in relation to remuneration of Auditors is contained in section 142 as under:

(1)  The remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein, provided that the Board may fix remuneration of the first auditor appointed by it.

(2)  The remuneration under sub-section (1) shall, in addition to the fee payable to an auditor, include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company.

This section corresponds to Section 224 of the Companies Act, 1956 and seeks to provide for remuneration of auditors of the company. The remuneration is to be fixed in the general meeting. The clause further defines the term “remuneration”.

Legislative History

This section corresponds to section 224 of the Companies Act, 1956 in relation to ‘Appointment and remuneration of auditors’. The significant changes are as follows:

a)      the remuneration of the auditor of a company shall be fixed in its annual general meeting or in such manner as may be determined therein.

b)      the board may fix remuneration of the first auditor appointed by it.

c)      the remuneration will include expenses incurred by the auditor in connection with the audit of company.

d)      the clause clarifies that the remuneration to auditor shall also include any facility provided to him.

e)      the remuneration does not include any remuneration paid to the auditor for any other services. 

Scope of Section 142

1)    The remuneration of the Auditor of a Company shall be fixed in the Annual General Meeting  or in such manner as may be determined in that meeting. Thus, either the AGM itself shall decide the remuneration or it may determine in some other manner.

2)    In case of first auditor appointed by the Board under clause 139, the board may decide the remuneration of such auditor.

3)    Any sum paid by the company in respect of auditor’s expenses shall be deemed to be included in the remuneration which may be a directly incurred expense or a case of reimbursement of expenses. This implies that where a fixed sum is approved as remuneration of the auditor, remuneration will include such fixed sum (fees) and expenses shall also be included in the expression ‘remuneration’. Not only this, remuneration will also include any facility provided to them as auditors. But any sum paid to auditor for other service rendered by him on request of the company shall not form part of the remuneration i.e. non audit fee.