Zion Ltd., is one of the listed leading companies in the pharmaceutical sector. Meta Ltd. acquired 75% Equity shares of Zion Ltd. five years ago and is being retained by Meta Ltd. till date. The shareholding pattern of M

CS Professional · Governance, Risk Management, Compliances and Ethics · PYQS · June 2023
Zion Ltd., is one of the listed leading companies in the pharmaceutical sector. Meta Ltd. acquired 75% Equity shares of Zion Ltd. five years ago and is being retained by Meta Ltd. till date. The shareholding pattern of Meta Ltd. includes the following: The Government of Punjab and Government of Haryana each hold 18% of the paid-up share capital. The Government of Rajasthan's share is 15.5%. During the course of audit for the financial year 2019-20, the Auditors made the following observations: (i) The company was not maintaining proper records with respect to the fixed assets. The value of fixed assets of the company amounts to approx. ₹ 1.50 crore. (ii) The physical verification of the assets was not carried out at regular intervals. The last physical verification was conducted on 31st July 2018. On 29th June 2020, Mr. Sam, the Auditor of Zion Ltd., resigned from his post, citing medical reasons. However, he had forgotten to inform about his resignation to the concerned authorities. Casual vacancy so created was filled up with the appointment of RMT & Co. Chartered Accountants as statutory, auditors of Zion Ltd. As far as RMT & Co. Chartered Accountants are concerned, Mr. R, who is one of the partners of the firm had borrowed a sum of ₹ 3.00 lakh from Meta Ltd. He had also purchased goods worth ₹ 1.89 lakh from the company. Both the sum borrowed and the cost of the goods bought are not yet paid by Mr. R does not sign the financials of Zion Ltd. In the above circumstances: Whether the process of resignation by the Auditor was correct? Explain the provisions under the Companies Act 2013 with regard to resignation and communication by the Auditor. Who and by what time the resignation has to be informed?

Answer & Explanation:

As per the provisions of Section 140 of the Companies Act, 2013, 'The auditor who has resigned from the company shall file within a period of thirty days from the date of resignation, a statement in the prescribed form with the company and the Registrar, and in case of companies referred to in sub-section (5) of section 139, the auditor shall also file such statement with the Comptroller and Auditor-General of India, indicating the reasons and other facts as may be relevant with regard to his resignation'. Further, as per Rule 8 of Companies (Audit and Auditors) Rules, 2014 - 'when an auditor has resigned from the company, he shall file a statement in Form ADT-3'. According to the above, under the provisions of Companies Act, 2013 it is the responsibility of the auditor to inform about his resignation to the Company and to the Registrar of Companies within 30 days of his resignation by filing e-form ADT-3 indicating the reasons and other facts as may be relevant with regard to his resignation; and hence: the process of resignation of auditor appears to be incorrect as the auditor has forgotten to inform about his resignation to the concerned authorities; the provisions with regard to resignation and communication of Auditor as contained in Section 140 and provisions as to the person responsible to give information and the timelines prescribed are outlined above.

Topics: Auditors

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