Clarification on provisions of Section 224A of the Companies Act, 1956 - Companies Law - 14/2001

General Circular No. 14/2001 No.6/1/2001-CL.V Government of India Ministry of Law, Justice and Company Affairs Department of Company Affairs 5th Floor, A Wing, Shastri Bhavan, Dr. R.P. Road, New Delhi-110 001 Dated: 16-7-2001 Subject:- Clarification on provisions of Section 224A of the Companies Act, 1956 ***** Department of Company Affairs had recently received a reference regarding clarification in respect of Section 224A of the Companies Act, 1956 which relates to appointment of auditor in certain cases with the approval of the company by special resolution. The clarification had been sought on sub-section (1) of that section which reads as under: 224A . (1) In the case of a company in which not less than twenty-five per cent of the subscribed share capital is held, whether singly or in any combination, by- (a) a public financial institution or a Government company or Central Government or any State Government, or (b) any financial or other institution established by any Provincial or State Act in which a State Government holds not less than fifty one per cent of the subscribed share capital, or (c) a nationalised bank or an insurance company carrying on general insurance business the appointment or re-appointment at each annual general meeting of an auditor or auditors shall be made by a special resolution. 2. The Querist was of the opinion that three clauses (a) to (c) mentioned in Sub-section (1) of that section (section 224A) should be treated as mutually exclusive. According to them, the aggregate holdings of the institutions grouped under either clause (a) or clause (b) or clause (c) of section 224A(1 ) are to be treated as mutually exclusive and are not to be aggregated with institutions covered by any other sub clause, for determining the applicability of section 224A. 3. This Department has examined this matter in consultation with D/o Legal Affairs and Solicitor General of India and found that three sub-clauses -- (a) to (c) to sub-section (1) of Section 224A are not mutually exclusive. The provisions of sub-section (1) of that section would, therefore, apply to all cases of shareholdings in any combination by any of the institutions mentioned in the three clauses. 4. All Chambers of Commerce are requested to bring this to the notice of their constituent companies. (Thakur Sharan) Under Secretary to the Government of India Tel: 3389622