Section 225 lays down procedure to remove an auditor after expiry of the term, i.e., conclusion of the next annual general meeting. It requires that for appointing a person other than the retiring auditor or for proposing that the retiring auditor shall not be re-appointed, a special notice (14 days) is required for resolution to be moved at the annual general meeting [section 225(1)]. On receiving such a notice, the company must forthwith send a copy thereof to the retiring auditor [Section 225 (2)]. If the retiring auditor makes a representation in writing, not exceeding a reasonable length, to the company and requests the company to notify such representation to the members, the company shall (unless the representation is received too late), in any notice of the resolution given to the members, state the fact of the representation having been made and send a copy of the representation to every member to
whom notice of the meeting is sent, whether before or after the receipt of the representation the company. If a copy of the representation is not sent, as aforesaid, because it was received too late or because of the company’s default, the auditor may (without prejudice to his right to be heard orally) require that the representation be read out at the meeting. The auditor’s right to have copies of the representation sent out or read out at the meeting is hedged the provision that if the Central Government is satisfied, on an application company or any other aggrieved person, that the right is being abused to secure needless publicity for a defamatory matter, the Central Government may order that the representation may not be circularised or read out; also that the company’s costs on such an application should be paid in whole or in part the auditor even though he is not a party to the application [Section 225(3)].
The foregoing provisions are equally applicable to a resolution to remove the first auditors, or any of them appointed the directors under section 224(5), removal of any auditors before the expiry of their term under section 224(7) except that special notice is not required to be sent in such cases as required under sub-section (1) of section 225.
Students may note the following :
(1) Accepting a position as an auditor, previously held another Chartered Accountant, without first communicating with him in writing, is a breach of professional etiquette and is one of the acts of commission which are specified under section 22 of Chartered Accountants Act, 1949. Failure to do so would constitute a misconduct leading to an enquiry into his conduct the Council of the Institute and, if proved may result in the person declared unfit to continue to be a member of the institute. It must be remembered that professional courtesy alone is not the major reason for requiring a member to communicate with the existing auditor, who is a member of the Institute. The underlying objective that the member may have an opportunity to know the reasons for the change, in order to be able to safeguard his own interest, the legitimate interest of the public and the independence of the existing
auditors. It is not intended, in any way, to prevent or obstruct the change. When making the enquiry from the retiring auditor, the one proposed to be appointed, should primarily find out whether there is any professional reason why he should not accept the appointment. The Council of the Institute is of the opinion that it would be a healthy tradition, if the practice of communication to the member who has done the work previously is followed in every case where a Chartered Accountant is required to give certificate on a verification of books of account, as well as in the case where he is appointed as a Liquidator, Trustee or Receiver and his predecessor is a Chartered Accountant.
(2) A Chartered Accountant must also ascertain before accepting an appointment as auditor of a company, whether requirements of sections 224 and 225 of the Act, in respect of the appointment of auditors, have been duly complied with. Failure to do this will evoke disciplinary action similar to that mentioned in the foregoing paragraph.