Auditors Appointment in Deemed Government Companies by CAG is covered under section 139

F. No. l/33/13·CL·V
Government of India
Ministry of Corporate Affairs

5th Floor, "A" Wing, Shastri Bhavan
Dr. R. P. Road New Delhi
Dated:  31 ^st July, 2014

To

All Regional Directors
All Registrars of Companies
Subject: Clarification with regard to applicability of provisions of section 139(5) and 139(7) of the CompaniesAct, 2013

Sir,

Doubts have been raised about applicability  of sections  139(5) and  139(7) of the Companies Act, 2013 (New Act), which deal with appointment  of auditors by Comptroller and Auditor Generalof  India (C&AG), to 'deemed Government Companies' referred to in section 619B of the Companies Act 1956 (Old Act) i.e. companies where ownership or control lies with two  or  more  Government companies or corporations etc in the manner detailed in section 619B ibid. Stakeholders have pointed out that the New Act does not  contain  specific provisions about  'deemed  Government  companies' on  the lines  of  section  619B of the Old Act. Clarification has been sought whether, under the new Act, such deemed Government companies would be subject to  audit by the  C&AG  in the same  manner  as Government  Companies.

2. The above issue has been examined and it is clarified that the new Act does not alter the position with regard to audit of such deemed Government companies through C&AG and thus such companies are covered  under  sub­ section (5) and (7) of section 139 of the New Act

3. Further, it has also been observed that the words "any other company owned or controlled,directly or indirectly ............ by the Central Government and partly by one or more State Governments" appearing in sub-sections (5) and (7) of section 139 of the New Act are to be read with the definition of 'control' insection 2(27) of the New Act. Thus documents like articles of association and shareholders agreements  etc envisaging  control  under  section  2(27)  are to  be taken into account while deciding whether an individual company, other than those referred in paragraph 1-2 above, is covered under  section  139(5)/139(7) of the New Act.

4. Clarification has also been sought about the manner  in  which  the information about incorporation of a company subject to audit by an auditor to be appointed by the C&AG is tobe communicated to the C&AG for the purpose of appointment of first auditors under section 139(7) of the New  Act.  It  is hereby clarified that such responsibility rests with both, the Government concerned and the relevant company. To avoid any confusion it is further clarified that it will primarily be the responsibility ofthe company concerned to intimate to the C&AG about its incorporation along with name, location of registered office, capital structure of such a company immediately on its incorporation. It is also incumbent on  such  a  company  to  share  such intimation  to the relevant  Government so that such Government may also send a suitable request to the C&AG.

This issues with the approval of the competent authority.

Yours faithfully

(KMS Narayanan)

Assistant Director (Policy)