1.0 Under 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 re-appointment of auditors in certain class of companies specified 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 needs to be appointed.
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").