It is generally said by every expert that an auditor will be removed under new company Law only after obtaining previous approval of central Govt. Sec 140(1) confirms this. However, in  my opinion an auditor can be removed under new company Law without obtaining previous approval of central Govt also .

A)   The auditor can be removed under sec 140(1) with previous approval of CG

B)   The auditor can also be removed under sec 139(9) without approval of CG

A)     Removal by Special Resolution and previous approval of the Central Government: [Sec 140(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,
  • Previous approval of the Central Government must be taken before removal.
  • Before taking any action, the auditor concerned shall be given a reasonable opportunity of being heard.

Example: PWC is an auditor of Reliance Ltd. Company wants to remove PWC in December, 2018.  Company has to obtain previous approval of CG &also has to follow other procedures prescribed u/s 140(1).

B)   Reappointment of retiring auditor at AGM [Sec 139(9)]: A retiring auditor may be re-appointed at an annual general meeting, if

  • he is not disqualified for re-appointment;
  • he has not given the company a notice in writing of his unwillingness to be re-appointed; and
  • a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed.

Example:  XYZ  is appointed as an auditor of ABC Ltd in AGM of Sep 2016 for 5 years. Company in AGM of Sep 2018 appointed DEF as auditor by passing a special resolution.

Can XYZ continue as auditor of company?

Answer: As per sec 139(9), A retiring auditor may be re-appointed at an annual general meeting, if a special resolution has not been passed at that meeting appointing some other auditor.  In the above case, as special resolution has been passed appointing DEF as auditor, hence, XYZ cannot continue.

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  1. Hardik Dattani says:

    Stuck up in a similar scenario.
    Previous auditor wont give NOC. (Fees Dispute)
    Company wants to remove them and appoint a new auditor.
    is pending. So can the AGM recolve that new auditors are appointed in
    place of exisiting auditor. Where no CG aproval is taken nor NOC from
    previous auditor. Just they are informed regrding non requirement of

    Also if new auditor is sending “communication letter to
    previous auditor and previous auditor dosent reply. Can the new auditor
    accpet the engagement in good faith?

    Sir please reply
    CA Hardik Dattani

  2. Sandeep says:

    Hi Nitesh,

    In fact, this doesn’t means removal of an Auditor. It means non renewal of the term of a retiring auditor.

    The new law says appointment for 5 years term. Such 5 years term is not absolute but it is subject to annual ratification by members at every AGM.

    The ratification may be automatic in compliance with 139(10) but in case, if ratification doesn’t happen it doesn’t means that the Auditor is removed, it means there appointment was not confirmed by the members which is required under Section 139(1).

    This is to some extent similar to automatic reappointment of Directors under the 1956 Act. You may refer section Section 256(4)(b).

  3. vswami says:

    If perceptively viewed, it will be realised that, as a matter of ethics, discretion, and good order, in the Examples given the specific mention by real names of firms and corporate should hasve been avioded.

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September 2021