Section 140- Removal, resignation of auditor and giving of special notice.
Updated: May 9
1. 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,.
2. 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.
3. In case the auditor does not follow aforesaid provisions during his resignation, he is punishable with fine between ₹50,000 and ₹5,00,000.
4. Appointing Auditor other than the Retiring Auditor
1) 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.
2) 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, then:
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.
Bare Act: Section 140 of Companies Act 2013: Removal, resignation of auditor and giving of special notice
(1) The auditor appointed under section 139 may be removed from his office before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of the Central Government in that behalf in the prescribed manner:
Provided that before taking any action under this sub-section, the auditor concerned shall be given a reasonable opportunity of being heard.
(2) The auditor who has resigned from the company shall file within a period of thirty days from the date of resignation, a statement in the prescribed form with the company and the Registrar, and in case of companies referred to in sub-section (5) of section 139, the auditor shall also file such statement with the Comptroller and Auditor-General of India, indicating the reasons and other facts as may be relevant with regard to his resignation.
(3) If the auditor does not comply with the provisions of sub-section (2), he or it shall be liable to a penalty of fifty thousand rupees or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with a further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.
(4) (i) Special notice shall be required for a resolution at an annual general meeting appointing as auditor a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be re-appointed, except where the retiring auditor has completed a consecutive tenure of five years or, as the case may be, ten years, as provided under sub-section (2) of section 139.
(ii) On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the retiring auditor.
(iii) Where notice is given of such a resolution and the retiring auditor makes with respect thereto representation in writing to the company (not exceeding a reasonable length) and requests its notification to members of the company, the company shall, unless the representation is received by it too late for it to do so, —
(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent, whether before or after the receipt of the representation by the company,
and if a copy of the representation is not sent as aforesaid because it was received too late or because of the company’s default, the auditor may (without prejudice to his right to be heard orally) require that the representation shall be read out at the meeting:
Provided that if a copy of representation is not sent as aforesaid, a copy thereof shall be filed with the Registrar:
Provided further that if the Tribunal is satisfied on an application either of the company or of any other aggrieved person that the rights conferred by this sub-section are being abused by the auditor, then, the copy of the representation may not be sent and the representation need not be read out at the meeting.
(5) Without prejudice to any action under the provisions of this Act or any other law for the time being in force, the Tribunal either suo motu or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors:
Provided that if the application is made by the Central Government and the Tribunal is satisfied that any change of the auditor is required, it shall within fifteen days of receipt of such application, make an order that he shall not function as an auditor and the Central Government may appoint another auditor in his place:
Provided further that an auditor, whether individual or firm, against whom final order has been passed by the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for a period of five years from the date of passing of the order and the auditor shall also be liable for action under section 447.
Explanation I: It is hereby clarified that in the case of a firm, the liability shall be of the firm and that of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its director or officers.
Explanation II: For the purposes of this Chapter the word “auditor” includes a firm of auditors.