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 appointment of Mr. R as the Auditor is a valid one?

Answer & Explanation:

Section 141 of the Companies Act, 2013 contains provisions relating to eligibility, qualifications and disqualifications of auditors. It is given to understand here that one of the partners of the Statutory Audit firm had borrowed a loan of ₹ 3 lakhs from the Company and also purchased goods worth ₹ 1.89 lakhs which are due to be paid to the Company. In the given context, Section 141 contains that - a person shall not be eligible to be appointed as the auditor of the Company if he, or his relative or partner is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of rupees five lakhs. As the indebtedness does not exceed the prescribed threshold of rupees five lakhs, it appears from the above provision that the appointment of M/s. RMT & Co. as statutory auditors is not affected by the reason of Mr. R being indebted to the company.

Topics: Auditors

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