APPOINTMENT OF AUDITOR IN A NIDHI COMPANY

As per the provisions of the section 406(1) of the Companies Act 2013

‘Nidhi Company’ means a ‘company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit’.

After being incorporated as a Nidhi Company, it shall comply with all the provisions and restrictions applicable.

It is Important to note that the duties and appointment and other provisions such as resignation, casual vacancy, etc. of auditor of a normal public limited Company is mutandis-mutandis applicable to that of a Nidhi Company.

However, the Nidhi Rules i.e., Rule 19 of the Nidhi Rules, 2014 places some conditions on the eligibility for an individual/audit firm to be appointed as an auditor.

In Companies Act, 2013, Section 139 to 148 read with  Companies Auditors and Audit Rules 2014 deals with the appointment, removal, resignation, scope of work and other provisions relating to auditor but in this Writeup, we shall strictly study about the provisions relating to the Auditor as mentioned in the Nidhi Rules :-

1. No Nidhi Company shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years.
2. No Nidhi shall appoint or re-appoint an audit firm as auditor for more than two years of five consecutive years.

Now, if the auditor i.e., whether an individual or audit firm shall be eligible for appointment or reappointment, whatever the case may be, only after the expiration of two years of completion of his or her term.

CASE 1:-

Q.1 Can an individual auditor/firm of auditor be appointed for one/two term which may comprise of only three consecutive years?

Ans. Yes, as per the interpretation of the law, the focus is on one/two term as approved by the shareholders and the consecutive number of years in such term is a matter of choice such that there is no minimum limit but the same cannot be more than five.

For example, one auditor’s firm is appointed for one term of four consecutive years then in the second term, it may be appointed for three consecutive years but on the expiration of the second term, it shall not be eligible for appointment before the cooling period.