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CA Intermediate · Corporate and Other Laws · Audit and Auditors

Sunrise Textiles Ltd, an unlisted public company, appointed M/s Rao & Co., a chartered accountant firm, as its auditor at the first AGM for a term of five consecutive years. The board now wants to know when the appointment of the auditor must be placed for ratification by members. What is the correct legal position under the Companies Act, 2013 as amended?

Annual ratification of the auditor's appointment is not required. The Companies (Amendment) Act, 2017 removed that requirement, so an auditor appointed for a five-year term continues without ratification at each AGM, unless removed or replaced in accordance with the Act.

  1. ARatification at every AGM is mandatory
  2. BRatification is not required at every AGM, since the requirement was omitted by the 2017 amendmentCorrect
  3. CRatification is required only in the third year
  4. DRatification is required only if the Audit Committee so recommends

Explanation

The Companies (Amendment) Act, 2017 omitted the requirement of annual ratification of the auditor's appointment by members. Once appointed for five years, the auditor continues for the term without yearly ratification. Option A reflects the old pre-amendment position and is therefore wrong.

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