Section 226(3)(a) of the Companies Act,1956 disqualifies a body corporate from being appointed as auditor of a company.Limited Liability Partnership is a body corporate. This is clear from section 3(1) of the Limited Liability Partnership Act,2008. So, LLP of CAs would be disqualified from being appointed auditor of a company under section 226(3)(a) of the Companies Act,1956 read with section 3(1) of the LLP Act,2008.
To remove the disqualification of LLPs , Central Government issued Notification SO NO.1152(E) dated 23-5-2011. This notification was issued under section 2(7) of the Companies Act,1956.According to section 2(7) of the Act, the term ‘body
corporate’ includes a company incorporated outside India but does not
include—“(a) a corporation sole (b) a co-operative society registered under any law relating to co-operative societies; and (c) any other body corporate (not being a company as
defined in this Act) which the Central Government may, by notification,
specify in this behalf.” Thus, the Notification was issued under powers conferred by section 2(7)(c) of the Act. The Notification provides that LLP incorporated under the LLP Act,2008
is not a body corporate for the limited purpose of section 226(3)(a) of the Companies Act,1956http://www.mca.gov.in/Ministry/notification/pdf/S.O.1152%28E%29_23may2011.pdf
Subsequently, the Central Government clarified
vide Circular No.30A dated 26.05.2011 that LLP will not
be considered as body corporate for limited purpose of section of
section 226(3)(a). www.mca.gov.in
Hence, LLP of CAs though a body corporate is not disqualified under section 226(3)(a) of the Companies Act,1956 from being appointed auditor of a company.
However, in order to form an LLP of CAs amendments to the Chartered Accountants Act,1949 were necessary. These were made by the Chartered Accountants(Amendment)Act,2011 with effect from 1st February,2012. These will be covered in a subsequent blogpost.
What's the use? If we were to go by the Satyam's example, the firm will anyway never be responsible. Of course, in my personal view, it should have been given exemplary punishment to ensure that firms think twice before becoming a party to such fraud schemes by businessmen.
ReplyDeleteIt is (i.e the LLPs) just another tool in the hands of CAs to manage their money and risk!
Sorry if I sound very negative......
You are not the only one to sound this negative. This public perception has taken shape post-Satyam. In fact Companies Bill,2012 introduces very stringent provisions to hold the auditors liable. See Clause 147 of the Bill. Firm includes LLP for provisions related to auditors. The Bill has been passed by Lok Sabha . Pending for passage in Rajya Sabha. Hopefully, let something good emerge from Satyam episode.
DeleteThis comment has been removed by the author.
ReplyDelete