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CA Intermediate · Corporate and Other Laws · Audit and Auditors

Meera, a chartered accountant, is a partner in M/s Meera & Associates. Her brother-in-law's spouse is not related to the company in question. However, Meera's own spouse holds shares of face value ₹1,00,000 in Kaveri Foods Ltd, whose market value is far lower than the prescribed limit for relatives' holding. Kaveri Foods Ltd proposes to appoint Meera's firm as auditor. What is the correct legal position?

The firm is not disqualified by this holding. Under the Companies Act, a relative's holding of securities disqualifies an auditor only if its face value exceeds the prescribed limit of ₹1,00,000, and the relative here holds shares within that limit.

  1. AThe firm is disqualified because any shareholding by a relative disqualifies the auditor
  2. BThe firm is not disqualified merely for this holding, provided the relative's securities do not exceed the prescribed face value limit of ₹1,00,000Correct
  3. CThe firm is disqualified because spouses of partners can never hold securities in an audited company
  4. DThe firm is disqualified unless Meera resigns from the partnership

Explanation

A person is disqualified if the person or a relative holds securities of the company or its subsidiary, holding or associate beyond the prescribed face value of ₹1,00,000. A relative's holding up to that face value limit does not disqualify. The key distractor wrongly treats any holding as disqualifying.

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