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Proxy advisory firm Stakeholders Empowerment Services (SES) has objected to the ratification of appointment of Deloitte Haskins & Sells (DHS) as statutory auditor of ITC.
At the latest annual general meeting of the Kolkata-based major, DHS was appointed for five years. SES says this breaches the law, as another entity from the same network (AF Ferguson & Co) had been auditor for ITC for 21 years before DHS.
Under the Companies Act that took effect last year, auditors who have completed a tenure of over 10 years cannot be reappointed for more than three years.
ITC said it made the appointment based on an eligibility certificate from DHS and Deloitte referred to the approval of shareholders in the previous AGM.
The resolution to ratify the appointment comes up for a vote at the next AGM this Friday. SES has recommended that the shareholders vote against the ratification.
In response to an e-mail query from Business Standard, an ITC spokesperson said DHS, “auditors of the company since 2009-10”, were appointed at the 103rd AGM to hold such office for five years...following due processes laid down in the statute.”
Adding, the firm had provided ITC a “certificate of eligibility for such appointment which was taken on record prior to the audit committee and the board of firectors recommending their appointment to the shareholders”.
DHS said it did not comment on client matters, adding: “Our appointment for a period of five years was approved by the shareholders at the AGM on July 30, 2014.”
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SES observes: “Prior to (DHS') appointment, Ferguson & Co had been the statutory auditors for 21 years and (both of them) are members (network) of the Deloitte Touche Tohmatsu Group.”
Rule 6(3)(ii) of the Companies (Audit and Auditors) Rules, 2014, deals with the concept of “same network”. It says: “The incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms.” Explanation I under this rule states: “For the purposes of these rules, the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.”
SES added: “As the appointment itself was made in violation of Companies Act section 139(2), the proposed resolution cannot be carried, as it will be amounting to ratifying what is not permitted in law.”
