Filing of e form ADT-1 for appointment of First Auditor
CS Rantu Das
CS Rantu Das is the Founder and Managing Partner of M/s. Rantu Das & Associates, a firm established in 2010. As a Fellow Member of ICSI and a law graduate (LL.B., LL.M.), with an M.Com from Calcutta University, he has over 13 years of expertise in corporate laws, SEBI matters, FEMA, RBI regulations, and compliance audits. He regularly represents cases before NCLT and NCLAT under the Companies Act, 2013, and IBC, 2016.
Dear All,
As many of you may know, companies, irrespective of their businesses, are bound to appoint statutory auditors. This applicability is not dependent on a specific threshold like profit percentage or turnover, as is the case in the Income Tax Act or for audits of LLP’s. A company needs to get its accounts audited even though it may not have any business during the year.
For the appointment of auditors, the Ministry of Corporate Affairs (MCA) has notified e-form ADT-1, which requires details such as the name, address, and membership number of the auditor, as well as the years for which the auditor is appointed.
There is some confusion regarding the requirement to file an e-form ADT-1 for a newly incorporated company concerning the appointment of the first auditor. For example, M/s Ramesh & Sons Pvt Ltd was incorporated on 24-04-2019; therefore, the financial year 2019-20 is the company’s first year of operations. The new auditor must be appointed by the Board of Directors within 30 days of the company’s incorporation, and Form ADT-1 must be filed within 15 days from the date of the resolution approving the appointment.
Relevant provisions of the Companies Act, 2013, along with the Companies (Audit and Auditors) Rules, 2014, highlighting the above-mentioned points, are given below:
The appointment of first auditors of the company is governed by the provisions of Section 139(6) of the Companies Act 2013, which reads as follows:
Notwithstanding anything contained in sub-section (1), the first auditor of a company, other than a government company, shall be appointed by the Board of Directors within thirty days from the date of registration of the company, and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within ninety days at an extraordinary general meeting appoint such auditor, and such auditor shall hold office till the conclusion of the first annual general meeting.
Furthermore, the provisions of Companies (Audit and Auditors Rules) 2014 state that filing of e-form ADT 1 is required when the auditor is appointed under the provisions of Section 139(1) of the Companies Act (i.e., appointment of auditor in general meeting) and not where appointment of auditor is done by the Board of Directors under Section 139(6).
This is a loophole that many newly incorporated companies take advantage of. Due to a lack of clarity in the provisions, many companies neglect to file the first auditor appointment using e-form ADT-1. The appointment is done in papers, and MCA is not notified of the same.
In our example, the company was incorporated on 24-04-2019. Subsequently, the first meeting of the Board of Directors was held, for example, on May 17, 2019 at its registered office. The management of the company is confused whether it should file the auditor appointment form ADT-1 or not.
Our views
Since, in this case, the appointment of auditors falls under Section 139(6) rather than Section 139(1), the company is not required to file an e-form ADT-1 within 15 days from the date of the board meeting (i.e., June 1, 2019). However, filing the form with the MCA is still advisable and considered a good practice. In this connection, it is also important to note that once the company concludes its Annual General Meeting for FY 2019-20, it has to mandatorily file e-form ADT-1 within 15 days from the date of AGM for the appointment of subsequent auditors (it may be the first auditor being reappointed or a new auditor being freshly appointed).
What happens if the board fails to appoint the first auditor in the Board meeting?
The first auditor shall then be appointed by shareholders in a general meeting within 90 days of the intimation of such failure or the board meeting (the method of counting the 90 days is not clearly defined in the provision). In such a scenario, since the appointment is done in a general meeting, it is best to file Form ADT-1, notifying the appointment of the first auditor.
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