Under Section 140 of the Companies Act, 2013, the removal or resignation of an auditor and the requirement of special notice are strictly regulated to ensure fairness, transparency, and accountability.
An auditor cannot be removed before the expiry of their term except through a special resolution and with the prior approval of the Central Government.
Similarly, an auditor who resigns must follow a formal procedure to notify the company and regulatory authorities.
REMOVAL OF AUDITOR BEFORE EXPIRY OF TERM
- An auditor appointed under Section 139 may be removed from office before the expiry of their term only by passing a special resolution in a general meeting.
- Prior to such removal, the approval of the Central Government must be obtained in the prescribed manner.
- The concerned auditor must be given a reasonable opportunity of being heard before any action is taken.
This process ensures that an auditor cannot be arbitrarily dismissed and that due process is followed.
RESIGNATION OF AUDITOR
If an auditor resigns before the end of their term:
- The auditor must file a statement of resignation within 30 days from the date of resignation.
- This statement must be filed:
- With the company,
- With the Registrar of Companies (ROC), and
- In the case of a Government company, also with the Comptroller and Auditor-General (C&AG) of India.
3. The statement must specify the reasons for resignation and other relevant facts.
SPECIAL NOTICE REQUIREMENT
A special notice is required when:
- A company proposes to appoint a person other than the retiring auditor, or;
- A resolution is proposed that the retiring auditor shall not be re-appointed at the Annual General Meeting (AGM).
This requirement does not apply if the retiring auditor has already completed their maximum tenure (5 or 10 years, as applicable, under Section 139(2)).
Change of Auditor Due to Fraud or Misconduct
The Tribunal may, either on its own or on an application made by:
- The Central Government, or
- Any concerned person, direct a company to change its auditor if it is satisfied that the auditor has:
-
- Acted fraudulently,
- Abetted or colluded in any fraud by, or in relation to, the company, its directors, or officers.
Key Points:
- If the application is made by the Central Government, the Tribunal must pass an order within 15 days of receiving the application.
- Upon such order, the Central Government may appoint another auditor in the place of the removed auditor.
- An auditor against whom such an order is passed cannot be reappointed as an auditor of any company for five years from the date of the order.
- The auditor will also be liable for prosecution under Section 447 (Fraud) of the Act.