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Procedure for Removal of Auditor Before Expiry of His Term

Relevant Provisions

• Section 140 of the Companies Act, 2013
• Rule 7 of the Companies (Audit and Auditors) Rules, 2014

• Opportunity of being heard to Auditors
• Board Resolution
• Central Govt/ Regional Director Approval
• Special Resolution

Opportunity of being heard to Auditors

• According to the proviso to section 140(1), before the company takes any action for removal of the auditors, at first the company shall give a reasonable opportunity of being heard to the concerned auditors.

• Hence, the company should serve a notice on the auditors of its intention to remove the auditors from their office in the company.

• It's like a show cause notice where auditors will be asked to explain themselves why they shouldn't be removed from the office.

Board Resolution

• If after all the meetings and hearings with the auditors, the company is still not satisfied and would want to remove the auditors, then this item of agenda will have to be considered in the meeting of the board of directors.

• The board being satisfied with the reasons of removal can pass a resolution for removal of the auditors and authorise any official(s) for filing an application with the Central Government.

Central Govt/ Regional Director Approval

• According to Rule 7, an application to the Central Government has to be made in Form ADT-2 for removal of auditor. Necessary fees will have to be paid while filing the form.

• The application to the Central Govt has to be filed within 30 days of the passing of the board resolution.

• The Central Government has delegated to the Regional Directors the power and functions vested in it under sub-section (1) of Section 140. Refer: Ministry of Corporate Affairs (MCA) Notification S.O. 1352(E) dated the 21st May, 2014.

Special Resolution

• After obtaining the approval of the Central Govt., the special resolution has to be passed at a general meeting of the shareholders.

• The company is required to hold the general meeting of the members for passing the special resolution within 60 days of the receipt of approval of the Central Govt.

• Form MGT-14 has to be filed with the ROC for registration of the special resolution.

NCLT Application

According to section 140(5), the Tribunal may direct the company to change its auditors:
• either suo moto; or
• on an application made to it by the Central Govt; or
• by any person concerned.

Before passing an order in this behalf, the Tribunal has to satisfy itself 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.

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