Which of the following statements is not correct regarding removal of first auditor before expiry of the term?

 Options:

a) He is removed at a general meeting b) The shareholders are authorized to do so c) The approval of the Central Government is required for such removal d) The provisions for such removal are contained in section 224(7)

The Correct Answer Is:

c) The approval of the Central Government is required for such removal

Let’s break down the correctness of each option and why they are correct or incorrect regarding the removal of the first auditor before the expiration of their term.

Correct Answer: c) The approval of the Central Government is required for such removal

The correct answer is c) because the approval of the Central Government is not typically required for the removal of the first auditor before the expiry of their term. Generally, the removal of an auditor is within the purview of the shareholders, who hold the authority to make decisions regarding the appointment or removal of auditors.

Section 224(7) of the Companies Act, which deals with the removal of auditors, doesn’t mandate the approval of the Central Government for such actions.

The statement that the approval of the Central Government is required for the removal of the first auditor before the expiry of their term is incorrect. In most cases, the Companies Act grants the authority to shareholders to manage such decisions internally without necessitating the involvement of the Central Government.

The Act delineates the responsibilities and rights of shareholders concerning the appointment and removal of auditors. However, the Act does not confer upon the Central Government the mandate to approve or disapprove such actions.

The process primarily involves shareholder resolutions passed during general meetings, ensuring that the governance and decision-making within the company remain within the purview of its stakeholders without direct government interference.

Explanation of Other Options:

a) He is removed at a general meeting:

This statement aligns with the standard procedure for removing an auditor before the end of their term. Generally, such a decision is ratified or overturned by a vote at a general meeting of the company.

The Companies Act typically requires a special resolution passed by shareholders in a general meeting for the removal of an auditor. This emphasizes the importance of shareholder involvement in such critical decisions pertaining to the company’s financial oversight.

b) The shareholders are authorized to do so:

This statement accurately reflects the authority vested in shareholders regarding the removal of an auditor. Shareholders, as the owners of the company, hold the ultimate authority to appoint and remove auditors.

The Companies Act recognizes and upholds this authority, empowering shareholders to exercise their rights through voting mechanisms and resolutions passed in general meetings.

d) The provisions for such removal are contained in section 224(7):

This statement is also correct. Section 224(7) of the Companies Act indeed outlines the provisions related to the removal of auditors.

It specifies the grounds and procedures for such removal, ensuring that the process is conducted in accordance with legal guidelines. However, this section does not mandate or stipulate the involvement of the Central Government in the removal process.

In essence, the removal of the first auditor before the completion of their term involves a well-defined process outlined in the Companies Act, primarily centered around shareholder decision-making during general meetings.

The Act provides the necessary framework and guidelines for such crucial actions within a company, underscoring the importance of shareholder authority and internal governance without requiring Central Government intervention in the removal of auditors.

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