Lodha: Here to stay

New Delhi, July 21: The Birlas may want to dump Lodha & Co as auditor in several group companies after their spat with Rajendra S. Lodha over Priyamvada’s will but it isn’t going to be easy.

The company laws are pretty much stacked in the auditor’s favour. A company needs to wade through a forest of clearances, including an approval from the central government, before it can toss out its auditor, especially if it wants to do this mid-stream.

Senior officials of the Institute of Chartered Accountants of India (ICAI) feel that the basic purpose of the Companies Act is to protect the rights of an auditor as he is supposed to be an independent financial watchdog. Hence, the law is loaded against the removal of the auditor before his term expires.

Even after the expiry, a majority of the shareholders will have to approve the change of the auditor. Further, the outgoing auditor can make a representation against his removal. In extreme circumstances, the company can stall such a representation, but not without the approval of the central government.

Vijay Kapoor, secretary of ICAI’s auditing and assurance standard board, said, “Section 224, sub-section 7 of the Companies Act, states that a prior approval from the central government (usually from the regional directors of the Company Law Board) is needed. Only, thereafter, the auditor can be removed by the company through a resolution passed at a general meeting.”

Kapoor said the company has to convince the central government that the ground for getting rid of the auditor is justified.

There are no set norms for removal, but grievances can range from issues such as doubt about the integrity of the auditor to uncomfortable working relations.

But it isn’t easy to secure approval while trotting such a grievance as the Companies Act tends to protect the rights of the auditors. As a result, companies cannot remove auditors at their whims and fancies, said Kapoor.

Under the Companies Act, an auditor is appointed or re-appointed, as the case may be, at every general meeting. This is unlike the UK, where the auditor continues, unless removed.

In the Companies Act, there is a provision for the re-appointment of the auditor, unless he is ruled out on grounds of qualification, or his unwillingness, or the shareholders want a change of auditors.

In such a case, a notice has to be given from the shareholders to the company, a copy of which is given to the retiring auditor. All this has to happen 14 days prior to a general meeting of shareholders.