Robust Limited, a manufacturing company, is in the process of appointing a statutory auditor for the financial year 2024-25. The company has…
CA Intermediate · Corporate and Other Laws · MTP · September 2025
Robust Limited, a manufacturing company, is in the process of appointing a statutory auditor for the financial year 2024-25. The company has approached Arvind Pramod & Co., a reputed chartered accountancy firm, for this purpose. Mr. Arvind and Mr. Pramod are partners of the firm. During the due diligence process, the following facts have come to light: (i) Mrs. Sanvi, who is Mr. Arvind's wife, has made an investment in equity shares of Robust Limited with a face value of 1 lakh. (ii) Mrs. Lata, who is the wife of Mr. Pramod, has provided a personal guarantee of 1,50,000 to Robust Limited in connection with a loan that the company had granted to Mr. Prem, who is a third party borrower. The Board of Directors of Robust Limited is seeking legal advice on the appointment of Arvind Pramod & Co. as their statutory auditor in light of both the circumstances separately. Support your answer with relevant provisions of the Companies Act, 2013 and applicable rules.
Suggested Answer and Working Notes:
(i) As per Section 141 (3) (d) (i) of the Companies Act, 2013, a person who, or his relative or partner is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company, such person cannot be appointed as auditor of the company. However, the relative of such person may hold security or interest in the company of face value not exceeding 1lakh rupees as prescribed under Rule 10 of the Company (Audit and Auditors) Rules, 2014. Here, in the given case, Mrs. Sanvi, wife of Mr. Arvind has invested in the equity shares of Robust Limited having face value of 1lakh which is within the prescribed limit. Therefore Arvind Pramod & Co. can be appointed as an auditor for Robust Limited. (ii) As per Section 141 (3) (d) (iii) of the Companies Act, 2013, a person who, or his relative or partner who has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of 1lakh cannot be appointed as auditor of the company. In the said case, Mrs. Lata, wife of Mr. Pramod, has given guarantee in relation to a loan taken by Prem from Robust Limited which is in excess of 1Lakh i.e. of an amount worth - 1,50,000. Therefore, Arvind Pramod & Co. cannot be appointed as an auditor for Robust Limited.
Topics: Audit and Auditors
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