Can the Board of directors be authorised by the general meeting to appoint auditors in the event of auditors appointed at an annual general meeting fail to accept the appointment? For knowing the correct legal procedure that should be followed in such a case, the Research Committee of the Institute had posed the following query to its Counsel :
(1) A company appointed auditors for the current year by a resolution passed in the Annual General Meeting as under :
“Resolved that Shri X (Chartered Accountants) be and is hereby re-appointed as a joint auditor for the current year on an overall remuneration of Rs………..only” “Resolved further that Shri Y (Chartered Accountants) be and is hereby re-appointed as a joint auditor for the current year on an overall remuneration of Rs. …………..only.” Further resolved that in the event of both or either of the auditors declining the assignment, the Board may fill up the vacancy at their own discretion”.
(2) The Board of directors, subsequently, passed a resolution as under : “Resolved that in the event of any of the auditors declining to accept the assignment, Shri Z should be appointed as joint auditor”.
(3) The last para of the resolution of the general meeting and the resolution itself of the Board of Directors, were intended to meet a contingency of the appointments being declined by any or both of the auditors appointed by the general meeting since the remuneration fixed by the general
meeting was less than that proposed by the retiring auditors, and there was a possibility of the appointments being rejected by the auditors on that account.
(4) Y declined to accept the assignment and Z was called upon to intimate his willingness or otherwise to accept the assignment pursuant to the resolution of the Board of Directors. The Counsel’s opinion was sought on the following points :
- whether the vacancy caused by Y declining to accept the appointment constituted a casual vacancy under sub-section 6(a) of section 224 or one due to resignation of an auditor; and
- was the appointment of Z, made by the Board of Directors in place of Y, valid?
The Counsel was of the opinion that the Board of Directors could appoint an auditor only under the circumstances contemplated under sub-section 5 and under sub-section 6(a) of section 224. Further that, in the specific case referred to him for opinion, the refusal of Y to accept the appointment as joint
auditor did not create a vacancy either casual or by resignation since Y’s appointment had not become effective. Further, the appointment of an auditor having been made by the shareholders, sub-section (3) could not be invoked. Thus, Z could only be appointed by shareholders at general meeting.
