Equitas changes auditor term after exchange with proxy firm

SES report points out violation of company law

Equitas Holdings, parent of the Small Finance Bank that listed on the bourses last year, has extended the term of the statutory auditor it proposed for appointment at its Annual General Meeting (AGM) from four years to five years, citing “an inadvertent error”.

Chennai-based Equitas had initially proposed to keep the tenure coterminous with that of the auditor of its subsidiary, Equitas Small Finance Bank, which follows a four-year tenure in line with banking regulations. The change in the proposed tenure, announced to the exchanges through a corrigendum to the AGM notice, came after an exchange with corporate governance advisory firm Stakeholders’ Empowerment Services (SES). In its notice for the AGM to be held in Chennai on June 30, Equitas Holdings had sought shareholders' nod for appointment of S R Batliboi & Associates as its statutory auditors for four years. To which, SES noted that Section 139(1) of the Companies Act, 2013, required companies to appoint auditors for a term of five years.

“Appointment of statutory auditors in instalments to make up a term of five years defeats the spirit of the law and is non-compliance with the said provision. SES (feels) the new auditors should be appointed for a period of not less than five years, subject to ratification every year,” it said, asking shareholders to vote against the proposal.

In their response to the proxy advisory firm by e-mail on June 15, Equitas Holdings’ executives said they were a core investment company and promoter of the SFB, a “non-operating company and carrying on its business through the subsidiaries. Keeping this in view and the requirement under the Companies Act to publish consolidated financial reports, it has been proposed to coincide the term of appointment of statutory auditors of the company with (that of) the subsidiary company, as per regulations of the Reserve Bank of India (RBI), which allows appointment of statutory auditors for a maximum tenure of only four years.”

The Equitas executives added that this was primarily to ensure the consolidated financials were scrutinised by the auditors of the bank, since the latter assets were the bulk (98 per cent) of the consolidated assets. “The intention was to harmonise the statutory requirements of the Companies Act and the Banking Regulations, and not to go against the true spirit of law,” went the e-mail to SES.

In responses, SES issued an addendum last Friday, reiterating its position that as it was incorporated under the Companies Act, Equitas Holdings was bound by that law, and not of its subsidiary, the bank. “Further, the consolidated financial statements can be audited by the auditors of the subsidiary company, i.e the bank,” it said.

And, on Monday, Equitas issued a corrigendum to the exchanges, saying there had been an inadvertent error. It said the relevant para should be read as ‘Recommendation for appointment of S R Batliboi & Associates as auditors of the company for a period of five years from the conclusion of the 10th AGM till the conclusion of 15th AGM, subject to approval of shareholders...”