SECTION 224A

APPOINTMENT OF AUDITOR BY SPECIAL RESOLUTION

Requirement of passing special resolution for appointment of auditor by company in which shareholding, exceeding 25 per cent of subscribed capital, held by public institutions, etc. - Whether material date is the date of annual general meeting at which special resolution is required to be passed.

Section 224A inter alia, requires a special resolution to be passed for the appointment reappointment of an auditor by a company in which not less than 25 per cent of the subscribed share capital is held by public financial institutions, etc. A doubt has been expressed as to the material date, i.e., whether the date of the notice of the meeting, or the date of passing the special resolution, shall be taken into consideration. The matter has since been examined in the Department, and it is to be clarified that the material date is the date of the annual general meeting at which the special resolution is required to be passed. Moreover, since generally, articles of association of companies provide for closure of the register of members before general meeting during a period not exceeding thirty days at any one time, it is unlikely that the position regarding shareholding in the company will be different between the date of issue of notice and the date of the general meeting.

In exceptional cases, however, where a change in the shareholding pattern in the company has taken place, between the date of issue of notice of the general meeting and the date of actual passing of this resolution regarding appointment of auditor, the company may either--

i) adjourn the meeting to another date, and later issue the required notice in accordance with law and thereafter pass the special resolution required to be passed under section 224A, or

ii) omit or pass over the item on the agenda regarding appointment of auditor.

In the event of the company adopting the procedure at (ii) above, the situation would be then covered by sub-section (2) of section 224A.

* CIRCULAR NO.2/76[1/1/76-CL-IV], DATED 5.6.1976

Name of bank entered in register of members as holder of shares Whether such holding of shares will have to be taken into account for the purpose.

According to section 224A, a special resolution is required for appointment and reappointment of an auditor in the annual general meeting of those companies in which not less than 25 per cent of the subscribed share capital is held whether singly or in combination by public financial institutions, nationalised banks, etc., mentioned in that section. A question has been raised whether it is only those shares in a company which are beneficially held by a nationalised bank that will be taken into account in calculating the 25 per cent of the subscribed share capital of that company or even those shares of the company which having come into the custody of the nationalised bank as security for loans advanced to the constituents are got transferred by the nationalised bank in its name for making the security effective, will also be taken into account.

It is clarified that irrespective of the circumstances in which a nationalised bank is holding shares, if the name of the bank is entered in the register of members of the company as holder of shares, such holding of shares will have to be taken into account for the purposes of section 224A.

* CIRCULAR NO.18/74, DATED 12.12.1974.