Appointment of ‑ Certificate by auditor given under the proviso to the sub‑section ‑ Applicability of sub-sections (1B) and (1C) - Companies Law - Circular : No. 7/75

Circular : No. 7/75 [35/3/75 ‑ CL ‑ III], dated 7 ‑ 5 ‑ 1975. Subject:- Appointment of ‑ Certificate by auditor given under the proviso to the sub ‑ section ‑ Applicability of sub-sections (1B) and (1C) According to the provisions of section 224(1B) on and from the financial year next following the commencement of the Companies (Amendment) Act, 1974, no company or its board of directors shall appoint or reappoint any person or firm as its auditor if such person or firm is holding appointment of more than the specified number of companies, and according to the provisions of sub‑section (1C) a person or firm holding the appointment as auditor of more than the specified number immediately before the commencement of the Amendment Act, shall, within 60 days from such commencement intimate his unwillingness to be reappointed as the auditor from the financial year next following such commencement to the companies of which he or it is not willing to be reappointed as auditor. Further, according to the provisions of the proviso to sub‑section (1), the appointment of auditor of a company must be based on a written certificate from the auditor to the effect that the appointment or reappointment, if made, will be in accordance with the limits specified in sub‑section (1B). A question has been raised whether when sub‑sections (1B) and (1C) speak of the financial year next following the commencement of the Companies (Amendment) Act, 1974 and the proviso to sub‑section (1) requires an auditor to give a certificate as aforesaid in respect of appointments which may take place at any time after the commencement of the Amendment Act, the certificate in terms of the said proviso will be feasible, taking the companies whose financial year started before the commencement of the Amendment Act but ends after such commencement and whose audit work is already in the charge of the auditor concerned, into account. The Department is of the view that this issue is of a transitional nature. The provisions of sub‑sections (1B) and (1C) of section 224 become effective with reference to the financial years of the companies commencing after the date of commencement of the Companies (Amendment) Act, 1974, viz., 1‑2‑1975. It may be that till the commencement of the financial year of such companies, if an auditor has such companies among others, the auditor would be keeping more than 20 audits but the excess number would be restricted only to those companies whose financial years having begun before the commencement of the Amendment Act and after the commencement of the said Act. In other cases, the auditor will be having only 20 audits. The above view does not result in any conflict with the proviso to sub-section (1) since the auditor is required to give his certificate keeping in view the limit as conceived of by sub‑section (1B). The auditor may, thus, issue a certificate that his appointment would be in accordance with sub‑section (1B) but while giving such a certificate the auditor will have to keep in mind that on the beginning of the next financial year of the companies whose current financial year ends after 1‑2‑1975, the number of company audits with him shall not exceed 20.