Appointment of Auditor by Special Resolution

Section 224A of the Act provides for appointment or re-appointment of auditors in certain cases only by special resolution. It should be remembered that normally an auditor can be appointed by an ordinary resolution. However, in terms of section 224A, a company in which not less than 25% of the subscribed capital is held by : a public financial institution or a government company or the Central Government, or any State Government, or  any financial or other institution established by any Provincial or State Act in which a State Government, holds not less than 51% of the subscribed share capital,  a nationalised bank or an insurance company carrying on general insurance business; or  any combination of the above categories, shall appoint or re-appoint an auditor in the annual general meeting only by passing a special resolution.

In case the aforesaid company omits or fails to pass a special resolution in the annual general meeting for appointing auditors, it shall be deemed that no auditor or auditors had been appointed and thereupon the Central Government’s power to appoint the auditor pursuant to section 224(3) will become operative. In determining whether the appointment calls for a special resolution or not, the measuring yard stick is the proportion of the subscribed capital held by the various categories mentioned above. If any of them singly or several of them jointly hold 25% of the subscribed capital of the company as on the day of the closing of the register of members before the annual general meeting, the company will be covered by provisions of section 224A and consequently, the appointment of auditor can only be made by passing a special resolution. Government has clarified that for the purposes of section 224A the composition of shareholding shall be of the day of annual general meeting. This will virtually be same in relation to the position available on the day of the closing of the register of members stated above. It should be noted that subscribed capital includes preference share capital also.

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