Ratification of Company Statutory Auditor – In cases where appointment is for 5 years tenure

As per section 139(1) of Companies Act 2013, every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting.

As per first proviso to section 139(1) of Companies Act 2013, the company shall place the matter relating to such appointment for ratification by members at every annual general meeting.

ratification of company auditor

This means, the company shall appoint an auditor for five years with yearly ratification by the shareholders in the annual general meeting.

As per rule 3 of Companies (Audit and Auditors) Rules, 2014, auditor’s appointment shall be subject to ratification in every annual general meeting till the sixth AGM by way of passing ordinary resolution.

If the appointment is not ratified by the members of the company, the board of directors shall appoint another individual or firm as its auditor or auditors.

Procedure for ratification of company’s statutory auditor

  • Before the date of sending notice for AGM, board of directors are required to intimate the auditor or auditors for eligibility certificate as required under section 139(1) of Companies Act 2013.
  • Company auditor is required to send eligibility certificate to such appointment. It must be sent after getting intimation from company but before board meeting for calling AGM.
  • Board of director is required to send notice of AGM by proposing ratification of company auditor. This must be after the board meeting held for calling AGM.
  • After AGM, the company shall inform the company auditor concerned of his or its appointment within 15 days of the meeting.

Ratification means acceptance or confirmation of an agreement that was executed by the confirming party itself. As per explanation to section 139(1) of Companies Act 2013, appointment includes re-appointment. As ratification is not included in appointment, we believe that form ADT-1 is not required to be filed in case of ratification of auditor.

While filing form ADT-1, we also mention the tenure of appointment as five years.

As per proviso to section 139(1) of Companies Act 2013, consent and certificate from auditor is required to be obtained from company auditor in case of appointment. As per above discussion, we can say that even consent and certificate from auditor is not required to be obtained as ratification does not included in appointment. However, for best practice, we suggest collecting consent letter and certificate from auditor and as ADT-1 is filed for 5 years tenure, in our opinion, company is not required to file form ADT1 with ROC.

Also Read: Appointment of Company Auditor as per section 139(1) of Companies Act 2013

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