Image source: https://www.smartsheet.com/financial-audit

This article is written by Vaibhav Chauhan, pursuing a Diploma in Companies Act, Corporate Governance, and SEBI Regulations from LawSikho.

Introduction

Do you know auditors in the company play a very pertinent role? And what are the forms that need to be filed at the time of their appointment? The provisions related to these are given in the Companies Act, 2013 (hereinafter referred to as the Act) 

The term “Auditor” in simple language implies a person providing some auditing services. But how is an auditor defined in the legal world? The auditor is an official who reviews, verifies the accounts of the company, and makes sure that the company complies with the taxation rules and regulations. The primary role is to safeguard the company’s business from any fraud and bring the discrepancies into the limelight amidst other things. In simple words, we can also say an Auditor also does intellectual scrutiny of the financial records of the company.

Thus for this intellectual scrutiny, we have to appoint an auditor of the company. This piece firstly provides the snapshot of the importance of Form ADT-1 and the mandatory documents which have to be filed along with it. Secondly, the connection of the Form ADT-1 with the provisions related to the Audit and Auditors as provided under Chapter X of the Act, mainly Section 139 read with Section 140 of the Act. Thirdly, this piece provides the legal fees at the time of filing the Form ADT-1 and penal provisions relating to the same. At last, this piece highlights some pertinent points on which we have to keep in our mind while working upon Form ADT-1.

What is Form ADT-1?

Let’s begin with the answer to why we have to file the above-mentioned form.

The ADT-1 is an important document in respect of intimating the Registrar of Companies (hereinafter referred to as the ROC) at the time of appointment of the auditors, and it is considered to be one of the vital document which has to be filed by all company in order to inform the ROC about the appointment of an auditor which took place in Annual General Meeting under the fourth proviso to Section 139 (1) of the Act.

Further Section 139 read with Section 140 of the Act which states about removal, the resignation of auditors, and giving special notice for the same and also, Rule 4(2) of the Companies Rules 2014 are provisions which govern the concept of documents required for filing of appointment of auditors.

The Act prescribes that every company’s books of account are audited and ROC should have all obligatory information related to such an auditor’s appointment and auditor’s resignation etc. Further, Section 139 and 140 of the Act clearly state the appointment of an auditor at the Annual General Meeting. A specific requirement for this purpose would be the prior consent of the auditor which shall be secured by the company along with the certificate asserting that the auditor is eligible and satisfies all conditions for such appointment.

Moreover, the company should inform the auditor, once appointed, and shall also file the notice within 15 days of meeting with the Registrar pertaining to such appointment (Rule 4(2) of the Companies Audit and Auditors Rules, 2014).

Form ADT 1 is considered to be obligatory for all companies whether listed, unlisted, public, private, or others, and the onus of filling the same should be upon the company and not upon the auditor. ADT-1 has to be filed when the auditor is appointed by the company for a casual vacancy. The Act under Section 139 subsection (8), states about the manner of appointment of an auditor when a casual vacancy is present with the company, and such appointment should take place as follows:

  • In practical parlance, a casual vacancy in the company occurs when an auditor resigns and then the Board of Directors shall make an appointment of the new auditor within the period of 30 (Thirty) days and that appointment should be approved at the general meeting of the company, within the next 3 months. Also, ADT-1 is not necessarily required to be filed when an appointment takes place in case of casual vacancy but still, practice is followed to file the same.
  • Section 139(6) of the Act, provides that the first auditor should be appointed by the Board of Directors within 30 days from the date of incorporation and such auditor shall hold office up to the conclusion of the first annual general meeting but when the board fails to appoint such auditor then the board shall appoint the auditor in extraordinary general meeting in 90 days.
  • Moreover, as per Rule 4 (2) of Company Audit and Auditors Rules, 2014 it states only about Section 139 (1) of the Act, i.e. appointment of auditors, and not about Section 139 sub-section (6) on the basis of which it can be interpreted that form ADT-1 is not required mandatorily to be a field for the appointment of the first auditor.

However, filing of ADT-1 is optional in case of the first auditor’s appointment through the Board of the company or through the company’s Members.

MCA amended Companies (Audit and Auditors) Rules, 2014 in 2018, in which Form ADT 1 and Form ADT-2 substituted with new forms. Thereby, the new Form ADT-1 is now accessible on the MCA website.

Now, after knowing about the Form ADT-1 and its relation, necessity pertaining to the above-mentioned provisions of the Act, we should also know all are the documents that are required to file along with the form.

Mandatory documents required along with Form ADT-1

Following attachments are mandatory along with above mentioned is provided below:

  1. Board resolution of the company.
  2. Written consent from the auditor upon his appointment.
  3. Certificate from the auditor that he is not disqualified to be appointed as per Section 141 of the Act which talks about eligibility, qualifications, and disqualifications of auditors.
  4. Intimation letter sent by the company to the auditor.

Legal fees

  • After knowing about the documents and the form it is pertinent to take note of the legal fees that have to be paid at the time of filling of the same because in practical scenarios usually, we are not well versed with this part of the corporate filling. So, the legal fees payable is as follows: 
  1. In case the company is having share capital less than Rs. 1, 00, 000/- (Rupees One Lakhs) then fees applicable would be Rs. 200/- (Rupees Two Hundred).
  2. his legal fee which is payable on the filing of ADT-1 depends upon the share capital structure of the company and the company having share capital greater than Rs. 1,00,000 (Rupees One Lakh) to Rs. 4,99,999 (Rupees Four Lakh Ninety-Nine Thousand Nine Hundred Ninety-Nine) than fees would be Rs. 300/- (Rupees Three Hundred).
  3. A further company having share capital Greater than Rs. 5,00,000/- (Rupees Five Lakhs) but up to Rs. 24, 99,999/- (Rupees Twenty Four Lakhs Ninety Nine Thousand Nine Hundred Ninety-Nine) then it would be Rs. 400/-.
  4. When share capital is between Rs. 25 Lakh (Rupees Twenty Five Lakhs) and up to Rs. 99,99,999 (Rupees Ninety Nine Lakhs Ninety Nine Thousand Nine Hundred Ninety-Nine) than legal fees payable would be Rs. 500/- (Rupees Five Hundred).
  5. At last, the company having share capital Rs. 1 00,00,00,0/- (Rupees One Crore) and above that fee paid would be Rs. 600 (Rupees Six Hundred).

What is the penalty imposed upon the late filing of the Form ADT-1?

For every law which is in force, the legislative intent behind the penal provision is to curb the delay in complying with the provisions of the law, so that prolonged delay can be done away with along with the reduced chances of default at the companies end.

Therefore, if the above form is not filed within the prescribed time period then a penalty would be imposed depending upon the period of delay. If the delay is up to 30 days then additional fees payable would be 2 times the normal fees and if the delay is of more than 30 days and up to 60 days then the fees would be 4 times the normal fees.

Moreover, when the delay is exceeding 60 days but less than 90 days then additional fees payable would be 6 times and when the delay is between 90 to 180 days then the fee payable would be 10 times and after that, it would be 12 times payable as the additional fees.

Things to remember

Below mentioned are the points which one has to keep in mind related to the Form ADT-1, in the practical scenarios.

  1. Every company including listed, unlisted, private, and the public have to mandatorily file the Form ADT-1.
  2. Practically, it is held to be good to file the Form ADT-1 along with the mandatory documents as mentioned above at the time of appointment of the first auditor.

(Note: The detailed reasons are mentioned in the first part of this article along with the provisions as well as the reasoning behind the same and thus for the sake of brevity the same has not been repeated here.)

  1. It is pertinent to mention that usually most of the companies think the auditor has to take care of the filling of the Form ADT-1, but rather it is the company who has to file the above-mentioned form with the ROC.
  2. In case of the casual vacancy as highlighted in Section 139 of the Act, Form ADT 1 has to be filed.

Conclusion

At last, the intelligent analysis of financial records of the company by the auditor saves the company from getting into the list of defaulters and providing a safeguard from the fraud persisting in the company. Thus, knowing the nits and grits of filling the relevant documents as mentioned above along with from ADT-1 is pertinent. One can download the form from the MCA website and must comply with all the requirements mentioned in the Company Act, 2013. Timely filing of the form along with other documents is also important. So, every newly incorporated company must file an ADT-1 form within 15 days from the date of the first board meeting and in other cases, within 15 days from the date of the Annual General Meeting. For example, if the AGM was held on 30 August 2020; Form ADT-1 should be filed by 15 September 2020.


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