Looking for the answer to the question below related to Company Auditor ?

Life Insurance Corporation of India holds twenty five percent of subscribed capital of XYZ Ltd. The appointment of statutory auditor in XYZ Ltd. Would be by__

 Options:

a) ordinary resolution b) special resolution c) (a) or (b) d) none of the above

The Correct Answer Is:

• b) special resolution

The correct answer is b) special resolution.

To understand why the appointment of a statutory auditor in XYZ Ltd. would require a special resolution, we need to delve into the corporate governance and legal requirements in India, particularly concerning the appointment of auditors.

In India, the appointment of a statutory auditor for a company is governed by the Companies Act, 2013. The Companies Act, 2013, lays down specific provisions for the appointment and removal of auditors, and these provisions vary depending on the type of auditor and the circumstances surrounding the appointment.

In the case of a statutory auditor, who is responsible for conducting the mandatory audit of a company’s financial statements, certain stringent requirements must be met. These requirements include obtaining shareholder approval through a special resolution in certain situations.

Now, let’s explore in detail why the other options are not correct:

a) Ordinary resolution:

An ordinary resolution is a resolution that requires a simple majority vote (more than 50% of the votes cast) at a general meeting of the company. Ordinary resolutions are typically used for routine business matters that do not have a significant impact on the company.

However, the appointment of a statutory auditor is not considered a routine matter. It is a critical aspect of corporate governance and financial transparency, as auditors play a crucial role in ensuring the accuracy of financial statements and safeguarding the interests of shareholders.

Therefore, appointing a statutory auditor through an ordinary resolution would not be sufficient, as it may not adequately reflect the seriousness and importance of the decision.

c) (a) or (b):

This option suggests that the appointment of a statutory auditor in XYZ Ltd. could be done through either an ordinary resolution or a special resolution. As discussed above, using an ordinary resolution for this purpose is not in line with legal and regulatory requirements.

Therefore, this option is not correct. It’s crucial to understand that statutory auditors are entrusted with a significant responsibility, and their appointment must meet specific legal standards to ensure the independence and effectiveness of the audit process.

d) None of the above:

This option implies that none of the resolutions mentioned (ordinary or special) is required for the appointment of a statutory auditor in XYZ Ltd. However, this is incorrect based on the legal provisions outlined in the Companies Act, 2013.

The Companies Act, 2013, clearly specifies that certain appointments, including that of a statutory auditor, require shareholder approval through a special resolution in specific situations. Failing to follow these legal requirements can result in non-compliance and legal repercussions for the company.

In summary, the appointment of a statutory auditor in XYZ Ltd. would require a special resolution because of the importance and regulatory scrutiny associated with this role. A special resolution ensures that the decision to appoint the auditor is made with the highest level of shareholder approval, reflecting the seriousness of the matter.

The other options, including ordinary resolution, (a) or (b), and none of the above, do not align with the legal requirements and significance of appointing a statutory auditor in India. Companies must adhere to the relevant legal provisions and corporate governance standards to maintain transparency, accountability, and compliance with the law.

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