Removal of a statutory auditor before completion of their term is strictly regulated under Section 140(1) of the Companies Act, 2013 to protect auditor independence and ensure sound corporate governance. A company cannot remove its auditor arbitrarily and must follow a prescribed legal process. The procedure requires passing a Special Resolution by shareholders and obtaining prior approval from the Central Government, delegated to the Regional Director (RD). Before initiating the process, the proposal may be placed before the Audit Committee (where applicable), and the auditor must be given a reasonable opportunity to be heard. The Board first approves the proposal and convenes a general meeting where the special resolution is passed. The resolution must be filed with the Registrar in Form MGT-14 within 30 days, followed by an application to the RD in Form ADT-2 seeking approval. After examining submissions from both the company and the auditor, the RD may approve or reject the request. Upon approval, the order must be filed with ROC in Form INC-28, completing the process.
APPLICABLE SECTIONS & RULES
- Section 140(1) – Companies Act, 2013
- Rule 7 – Companies (Audit and Auditors) Rules, 2014
- Rule 24 – Companies (Management and Administration) Rules, 2014
APPLICABLE FORMS
1. Form MGT-14 – Filing of Special Resolution with ROC
2. Form ADT-2 – Application to Regional Director for Removal of Auditor.
3. Form INC-28 – Filing of RD’s order with ROC
STEP-BY-STEP PROCEDURE
Step 1: Approval of Audit Committee (If Applicable)
Where the company has constituted an Audit Committee under Section 177, the proposal for removal of the auditor must first be placed before the Audit Committee for its recommendation.
Step 2: Intimation to the Auditor
The concerned auditor must be informed about:
- The proposal for removal
- Date of the Board Meeting
- His statutory right to be heard
Providing a reasonable opportunity of being heard is mandatory under law.
Step 3: First Board Meeting
The Board shall:
- Consider the proposal for removal
- Pass a resolution approving filing of application to the Regional Director
- Authorize filing of Form ADT-2 and MGT 14.
- Decide to convene a General Meeting
Step 4: Convening General Meeting
- Pass Special Resolution for removal of Auditor.
- Auditor must be given opportunity of being heard at the meeting
Step 5: Filing of Special Resolution
Form MGT-14 must be filed within 30 days of passing the Special Resolution along with:
- Certified copy of resolution
- Explanatory statement
Step 6: Filing of Application with Regional Director
Form ADT-2 must be filed within 30 days of passing the General Meeting Resolution.
Attachments generally include:
- Certified copy of Board Resolution
- Certified copy of General Meeting Resolution
- Grounds for removal
- Relevant supporting documents
- Prescribed fees
Step 7: Hearing by Regional Director
The Regional Director will:
- Provide opportunity of hearing to the auditor
- Examine submissions made by the Company and auditor
- Pass an order approving or rejecting the application
Approval of RD is mandatory before proceeding to shareholders’ approval.
Step 8: Filing of RD Order
Upon receipt of approval:
- File Form INC-28
- Within 30 days of receipt of the order
- Attach certified copy of RD order
Key Compliance Points
- Prior approval of Regional Director is compulsory.
- Special Resolution without RD approval is invalid.
- Opportunity of being heard must be provided.
- Timelines (30 days / 60 days) must be strictly followed.
- Proper documentation is essential.
FREQUENTLY ASKED QUESTIONS (FAQS)
Q1: Is an Extraordinary General Meeting (EGM) required to be held before filing Form ADT-2 for the removal of an auditor?
Yes, as per the provisions under Section 140(1) of the Companies Act, 2013, a Special Resolution must be passed by the shareholders in a General Meeting (which could be an EGM) to approve the removal of the statutory auditor. Once the EGM is held, the resolution must be filed in Form MGT-14 with the Registrar of Companies within 30 days of passing the resolution. Therefore, the EGM is a mandatory prerequisite before filing Form ADT-2.
Q2: Does the Regional Director (RD) call the Auditor and the Company for hearings during the process of removal?
Yes, the Regional Director (RD) will provide an opportunity for both the auditor and the company to present their submissions during the hearing process. The RD will carefully examine the case and then either approve or reject the application for removal. This hearing ensures that the statutory auditor is given a fair opportunity to be heard before any decision is made. It is an essential part of maintaining fairness in the removal process.
Q3: Can an auditor be removed without the approval of the Regional Director (RD)?
No, the approval of the Regional Director (RD) is a mandatory step in the process of removing a statutory auditor before the expiration of their term. Under Section 140(1) of the Companies Act, 2013, the company must first file Form ADT-2 with the RD, seeking approval for the removal of the auditor. Without the RD’s approval, the Special Resolution passed by the shareholders becomes invalid.
Q4: What is the timeline for filing Form MGT-14 and Form ADT-2?
A5:
- Form MGT-14 must be filed with the Registrar of Companies within 30 days of passing the Special Resolution in the General Meeting.
- Form ADT-2 must be filed with the Regional Director within 30 days of passing the Special Resolution, ensuring all necessary documents are attached.
Q6: Is the auditor entitled to attend the EGM for the removal process?
Yes, under the Companies Act, 2013, the auditor must be given a reasonable opportunity to be heard during the General Meeting. The company must notify the auditor about the proposal for removal and the date of the General Meeting, as part of the legal requirement to allow the auditor to make their representations before the shareholders.
Q7: Can the Regional Director reject the application for removal of an auditor?
Yes, the Regional Director has the authority to reject the application for the removal of the auditor if the submissions do not satisfy the legal requirements or if the reasons for removal are deemed inadequate. It is essential for the company to provide sufficient grounds and comply with all procedural steps to avoid rejection.
CONCLUSION
Hence, considering the provisions of Section 140(1) and ADT-2 one can opine that for approval of Central Government (RD) Company required to file e-form ADT-2 and ADT-2 will be file only after mentioned the date of EGM, SRN of MGT-14 and with copy of Minutes of general meeting.
Thus, here one can opine that for removal statutory auditor u /s 140, Company first requires holding general meeting and taking approval from the shareholders by passing of special resolution. After approval of shareholder company will file ADT-2 and apply for the approval of the central government. Any other opinion is also welcome for further clarity of the provision of the Companies Act.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
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