Companies Act Section 146

Companies Act Section 146 Mandatory Attendance of Auditors at General Meetings and Their Right to Be Heard

Section 146 of the Companies Act lays down an important statutory requirement concerning the participation of auditors in the corporate governance process. This section emphasizes the vital role auditors play not just in financial reporting, but also in ensuring shareholders receive clear, accurate, and professional insight into the financial health and governance of the company during general meetings.

The law requires that auditors be notified about all general meetings and that, unless specifically exempted, they attend such meetings. Furthermore, auditors have the explicit right to be heard during any part of the general meeting that relates to their duties, responsibilities, or professional observations as the statutory auditor of the company. This ensures that shareholders can directly question and interact with the auditor where necessary.

Requirement to Send Notices and Communications to the Auditor

The first obligation under Section 146 places a duty on the company to send notices of all general meetings directly to the company’s statutory auditor.

This requirement is designed to ensure that the auditor is kept fully informed of all meetings where financial matters or governance issues that concern the auditor’s work may be discussed.

In addition to the formal notice, the company must also forward any other communications related to the meeting to the auditor. This could include:

Agenda of the meeting.

Explanatory statements relating to agenda items.

Any proposed resolutions relating to financial statements, auditor’s report, appointment or removal of auditors, dividend declaration, or other financial matters.

Copies of relevant documents tabled at the meeting, particularly financial statements and directors’ reports.

The rationale for this requirement is simple: an informed auditor is better positioned to contribute meaningfully to the meeting and to respond to shareholder queries if required.

Auditor’s Duty to Attend General Meetings

The second critical requirement under this section is that, unless specifically exempted by the company, the auditor must attend the general meeting.

This requirement applies to:

Annual General Meetings (AGMs), where financial statements and the auditor’s report are typically presented and approved.

Extraordinary General Meetings (EGMs), if the agenda includes items related to the auditor’s responsibilities, such as reappointment, removal, change in auditor, or any discussions on financial irregularities.

This attendance requirement ensures that the auditor is present to explain the audit findings directly to shareholders and to address any questions or clarifications shareholders may have regarding:

The company’s financial position.

The auditor’s remarks, qualifications, or adverse comments in the audit report.

Any irregularities or suspected fraud detected during the audit process.

Compliance with accounting standards and statutory requirements.

Attendance Through an Authorised Representative

Recognizing that the auditor (especially in the case of audit firms or senior partners) may not always be personally available, the law permits the auditor to be represented by an authorised representative.

This representative must, however, meet one important condition:
The representative must also be qualified to act as an auditor under the Companies Act.

This ensures that only a competent and professionally qualified individual such as a Chartered Accountant can represent the statutory auditor at such meetings, guaranteeing that shareholders receive accurate and reliable responses to their queries.

Auditor’s Right to Be Heard

A particularly important provision under Section 146 is the auditor’s right to be heard at the general meeting, specifically in relation to any part of the business of the meeting that relates to the auditor’s role or responsibilities.

This means the auditor has the right to:

Explain or defend the contents of the audit report.

Clarify the rationale behind any qualifications, observations, or adverse remarks made in the audit report.

Answer questions from shareholders concerning financial reporting processes, accounting treatment, or audit procedures.

Express a professional opinion on any matters being discussed that directly impact the financial statements, audit process, or compliance issues.

Explain the basis for any recommendation or professional stance taken by the auditor.

This right is crucial because it ensures the auditor’s voice is directly accessible to shareholders. Shareholders do not have to rely solely on the Board’s interpretation of the audit report; they can hear directly from the independent statutory auditor. This enhances transparency and allows shareholders to make informed decisions based on both management’s version and the auditor’s independent opinion.

Objective and Importance of Section 146

The purpose of Section 146 is to strengthen corporate governance by ensuring that shareholders have direct access to the independent statutory auditor, particularly when decisions regarding financial statements, audit reports, or financial governance are being made.

This provision ensures that:

Auditors cannot shirk their responsibility to directly explain their work to shareholders.

Shareholders can directly question and seek clarifications from auditors.

Audit reports and qualifications cannot be manipulated or misrepresented by management.

Auditors play an active role in the company’s governance process, reinforcing their status as an independent watchdog serving the interests of shareholders.