Customer Care No.

91-1145562222

Ministrys Removal of
Difficulty Order- Clarifies
the position w.r.t
appointment of auditors
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Introduction
1.0Under the Companies Act, 2013 ('Act, 2013'), the
provisions w.r.t. appointment of auditors had undergone a
paradigm shift in comparison with the erstwhile provisions
of the Companies Act, 1956. One of the major changes
which was introduced w.r.t. auditors was the bar on reappointment
of
auditors
in
certain
class
of
companiesspecified under Section 139(2) of the Act, 2013,
if he had already held: (a) one term of 5 years in case of an
individual; or (b) two consecutive terms of 5 years in case
of a firm. Once the bar on reappointment applies, there is a
mandatory cooling-off period of 5 years.
To comply with the above provision, transition period of 3
years was provided from the date of the commencement of
the Act, 2013, i.e., companies shall appoint another auditor
till April 01, 2017 which at the first blush would mean that
at the upcoming AGM for the FY ended 2016, new auditor
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However, the auditors are appointed at the AGM of the company and hold office till the
conclusion of the next AGM. Therefore, to comply with the 3 years provision, the new auditor
must have been appointed in the AGM for FY ended 2017. Hence, there was chaos among the
corporates and auditors regarding the contradictory provisions in relation to effective date for
appointment of new auditor. In order to clarify this position which was subject to interpretation,
the Ministry of Corporate Affairs (MCA) has issued a Companies (Removal of Difficulties) Third
Order, 2016, dated June 30, 2016 (hereinafter referred to as "Order").
Amendment via removal of difficulty order
2.0MCA has amended transition provisions w.r.t. applicability of provisions of Section 139(2) of
the Act, 2013 and provided as under:
Providedalso that every company, existing on or before commencement of this Act which is
required to comply with the provisions of this sub-section, shall comply with requirements of
this sub-sectionwithin a period which shall not be later than the date of the first
annual general meeting of the company held, within the period specified under subsection (1) of section 96 after three years of commencement of this Act.
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With this amendment, it is clarified that the existing auditor who has served for the tenure of 5 or 10 years may
continue in the office till the conclusion of the AGM held for the FY ended March 31, 2017 and the Company shall
appoint new auditor in the same AGM. Since the clarification clearly provides that AGM (pursuant to section 96 will be
the upper time-limit) held within 3 years of commencement of the Act, April 01, 2014, which means that AGM 2017 is
the time period within which the companies must appoint the new auditor. Accordingly, the said auditor shall be
appointed for a term of five years, subject to ratification in every AGM, in accordance with the provision of section
139(1) of the Act.
To clarify the above amendment, let us assume following scenarios:
Mr. X was appointed as an auditor of ABC Limited in the AGM held on September 30, 2009. Whether Mr.
X is eligible for appointment as auditor for the FY 2016-17 in accordance with the proposed
amendment?
2.1In this case, Mr. X has already held a term of 5 years upto April 01, 2014, i.e., the date of enforcement of section
139. Transition period of 3 years provided to the ABC Limited to comply with the provisions of Section 139(2) of the
Act, 2013 will expire in the AGM to be held for FY ended March 31, 2017. Hence, Mr. X can be appointed as an auditor
for FY 2016-17.
M/s XYZ Limited was appointed as an auditor of ABC Limited in the AGM held on September 30, 2007.
Whether M/s XYZ Limited can continue his appointment for the FY 2016-17 in accordance with the
proposed amendment?
2.2In this case, M/s XYZ Limited can hold the office for a period of maximum 10 years (including transition period)
which will expire in the AGM to be held for FY ended March 31, 2017. As the appointment of an auditor is from AGM
to AGM, hence, M/s XYZ Limited can be appointed as an auditor for FY 2016-17.

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Limited Review reporting
3.0Questions may also arise as to who will be providing the limited review report for the period
between April 01, 2017-the date of AGM of 2017. The requirement of providing of limited review
report does not arise from the Act but from the Listing Regulations. Considering the fact that the
new auditor will have to be appointed only at the AGM and the office of the existing auditor is
from AGM to AGM, thus, the existing auditor of the Company must issue the limited review
report to the Company.
Concluding Remark
4.0With the issue of the order a confusion with respect to compliance with section 139(2)
seems to have come to a halt, though the position was clear even prior to that also. Only thing
was that the provision was subject to interpretations. Now the order clarifies the position
specifically.

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