Removal And Resignation Of Auditor (Section 140)
Updated: Oct 4, 2022
What are the Rules for Removal of Auditor?
The auditor appointed can be removed from his office before the end of his term. The formalities should be strictly followed to remove auditors before the end of their term.
In compliance with Rule 7 of the Companies (Audit and Auditors) Rules, 2014, following formality should be adhered:
1) Pass a resolution:
A Board Resolution (BR) at the Board Meeting (BM) of the company should be passed.
2) Obtain the Approval of CG:
An application has to be filed in eForm ADT-2 (Form 24A) for obtaining the approval of the Central Government (CG). The application to CG has to be made within 30 days of the board resolution.
3) Passing a special resolution:
A Special Resolution (SR) for removal of before the end of their term of office has to be passed by the company.
The company shall hold the annual/extraordinary General Meeting (GM) to pass SR within 60 days of receipt of approval of CG. Such special resolution is considered as special business. The approval of the shareholders by way of special resolution is also required.
4) Give an opportunity for justification:
The auditor removed shall be given a reasonable opportunity for justification before taking any action for removal of auditor before the end of his term,.
What Happens when the Auditor Resigns?
If the Auditor has resigned from his position in the company, mentioning the reasons and other statements relevant to his resignation. The resigned auditor of the company should file such a statement with the company and the Registrar within 30 days from the date of resignation in Form No. ADT-3 (Attached in Form GNL-2 for submission of documents with the Registrar). However, the auditor should file such a statement with the Comptroller and Auditor-General (CAG) of India along with the company and the the Registrar in case of Government Companies or Company controlled by Central Government or State Government.
In case the auditor does not follow aforesaid provisions during his resignation, he is punishable with fine between ₹50,000 and ₹5,00,000.
Appointing Auditor other than the Retiring Auditor
Special Notice required for Resolution:
In case the retiring auditor has not completed a consecutive tenure of 5 years or 10 years, as the case maybe a special notice has to be given for a resolution at an Annual General Meeting (AGM):
i) appointing a person except a retiring auditor as auditor, or
ii) expressly providing that a retiring auditor can’t be re-appointed.
Providing Retiring Auditor with a copy of Special Notice:
On receiving receipt of notice of such a resolution, the company is supposed to send a copy to the retiring auditor.
Where notice of such a resolution is provided and the retiring auditor makes a written representation to the company and requests that it should be notified to the members of the company, the company should—
a) in any notice of the resolution provided to the members of the company, state the fact of that the representation has been made; and
b) send a copy of such representation to the members of the company to whom notice of the meeting is being sent.
In case a copy of representation by retiring auditor has not been send to the members of the company:
i) It should be read in the meeting.
ii) The Representation should be filled with the Registrar.
There is no need to send or read out the Retiring Auditor’s Representation in case the Tribunal is satisfied on an application either by the company or by any other aggrieved person that the auditor is abusing his rights.
Section 140 of the Companies Act 2013
[Removal, resignation of auditor and giving of special notice]