Ambiguous nature of From RD1 form when filed for approval regarding auditor removal before it’s term of service with Central Government (Regional Director).
During the process of unlocking provisions of Companies Act, 2013, I have realized that Section 140 (1) ADT2 has been a topic of debate by most of the professional the reason being so much difference in what Act(companies act2013) says and what we see in mca form filing help kit. To understand it we need to understand when we need to file ADT2 and it’s related section and rules. So an attempt has been made from my side to discuss critical aspects and various issues w.r.t. such issue. I hope the write up below would be of some help to understand the provisions regarding filing ADT2.
ADT2 is filed when auditor is removed before expiry of his term of service. Removal of auditor before it’s terms of service is covered in Section 140 of Companies Act 2013 read with rule 7 of Companies (Audit and Auditors) Rules, 2014.
Section 140 of Companies Act 2013
(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 (Regional Director) 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
Section 139 talk about appointment of auditor in Annual General Meeting. Hence we can conclude that to remove a auditor who have been appointed in AGM can be removed by Board resolution followed by Central Government approval then special resolution by Shareholders of the company.
Point here to be noted.
1) the word special resolution has been underlined by my to indiciate the fact that that only SR can help to do the necessary process and not the OR(ordinary resolution).
2) the power of Central Government for such kind of approval has been transferred to regional director by notification No S.O. 4090(E) Dated 19/12/2016
3) As section 140 talks about removal of those who have been appointed Agm hence it can be concluded that removal of those auditor who have been appointed as first auditor by Board in board meeting can be removed without Central Government approval (now Power with Regional Director)
Rule 7. Removal of the auditor before expiry of his term.-
(1) The application to the Central Government for removal of auditor shall be made inForm ADT-2 and shall be accompanied with fees as provided for this purpose under the Companies (Registration Offices and Fees) Rules, 2014.
(Form No. ADT-2 Substituted w.e.f. 16th February, 2018)
Now let us understand, why this topic is confusing the reason being when u actually go file ADT2 as an attachment to RD1 form and check Rd1 form filing help kit you discover they are asking to attach resolution of EGM in which Shareholders approved such conduct whereas when we see companies act it clearly says take approval of Central Government then opt for Shareholders approval.
This create delimma as which way to go.
The logical solution is to follow Act as the attachment asked in RD 1form regarding Shareholders approval is an optional attachment and the only mandatory attachment asked is grounds on which application is made, so we can excuse those parts which is ambiguous to the and proceed in desirable direction which is prescribed by companies act 2013.
Moreover ADT2 form also ask for details of grounds for seeking removal of auditor as mandatory attachment.
So to summarize the whole step we can say first there need a board meeting in which resolution needed to be passed then within 30day of such resolution file ADT2 in RD 1 with necessary attachments in mca portal to abtain there approval. Once the approval obtain make steps to call EGM to get special resolution within 60day of such approval and file Mgt 14.
Disclaimer: This write up is intended to start academic discussion on few significant interpretations under Companies Act, 2013. It is not intended to be a professional advice and should not be relied upon for real time professional facts. Readers are advised to refer relevant provision of law before applying or accepting any of the point mentioned above. Author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the contents of this write up.
I am hopeful that this write up would be of some help w.r.t. your professional working and endeavors under Companies Act, 2013