Resignation of Statutory Auditor

Auditors are appointed by the members at the general meeting of the Company, similarly power to remove auditor before its term is also entrusted with the members. Further in case of resignation of auditor the casual vacancy arise will be also be filled ultimately through members of the Company at the members meeting.

Section 139 of Companies Act, 2013 (“Act”) explains the situation of casual vacancy whereas Section 140 of the Act deals with removal, resignation of auditor and giving of special notice.

Casual Vacancy in office of auditor

Casual vacancy in the office of auditor means any vacancy which arises due to unexpected situations. Section 139(8) of the Act specifies the process to follow in case of casual vacancy.

Process in case of casual vacancy by Resignation

If vacancy arises due to resignation of auditor appointment:

• Any director or person authorised by the Board will dispatch a notice to call for Board Meeting.
• Notice shall be given as per section 173 of Companies Act, 2013 read with secretarial standard 1 on Board Meetings.
• Conduct Board Meeting within 30 days of vacancy arises to appoint an auditor in place of existing auditor.
• Pass the board resolution after assent of the board members and call for a general meeting for approval of members to approve the appointment of auditor and to authorise someone to provide certified copy of resolution and other document as may be required to give effect to this resolution.
• Dispatch notices for calling an Extra Ordinary General Meeting (EGM)/Annual General Meeting (AGM) to all the members in accordance with provisions section 101 of Companies Act,2013 read with secretarial standard 2 on General Meetings
• Accord approval of Members through Special Resolution at Extra Ordinary General Meeting (EGM)/Annual General Meeting (AGM).
• After passing special resolution, file the intimation of change to the registrar of companies within 15 days from the date of passing special resolution in the E form ADT-1 and file E Form MGT 14 for passing special resolution within 30 days.

Points to remember

The General Meeting to be called within three months of the recommendation of the Board and auditor shall hold the office till the conclusion of the next annual general meeting.

The auditor who has resigned from the company shall file E Form ADT-3 within a period of thirty days from the date of resignation.

Process in case of casual vacancy by any other reason (By death, Incapacity etc)

If vacancy arises due to reason other than resignation of auditor:

• Any director or person authorised by the Board will dispatch a notice to call for Board Meeting.
• Notice shall be given as per section 173 of Companies Act, 2013 read with secretarial standard 1 on Board Meetings.
• Conduct Board Meeting within 30 days of vacancy arises to appoint an auditor in place of existing auditor.
• Pass the board resolution after assent of the board members and to authorise someone to provide certified copy of resolution and other document as may be required to give effect to this resolution.
• After passing board resolution, file the intimation of change to the registrar of companies within 15 days from the date of passing resolution in the E form ADT-1

Points to remember

The auditor appointed by the Board shall hold the office till the conclusion of the next annual general meeting

The auditor who has resigned from the company shall file E Form ADT-3 within a period of thirty days from the date of resignation

Removal of the Auditor Before Expiry of his Term

Whenever Company is of opinion that the conduct of the auditor is not satisfactory or he is not coordinating of completion of audit or any for any reason where Company thinks fit to appoint new auditor in place of existing auditor then such removal can be made after complying provision of section 140 of the Act read with rule 7 of The Companies (Audit and Auditors) Rules

Such removal requires approval of Central Government, which is entrusted to the Regional Director vide notification no. F. No. 1/6/2014-CL.-V.

Before taking any action under this section, the auditor concerned shall be given a reasonable opportunity of being heard.

Process of removal

• Any director or person authorised by the Board will dispatch a notice to call for Board Meeting.
• Notice shall be given as per section 173 of Companies Act, 2013 read with secretarial standard 1 on Board Meetings.
• Conduct Board Meeting to remove the auditor and to propose name of new auditor.
• Pass the board resolution and within 30 days of passing board resolution, file E Form ADT-2 applying to the Central Government for removal of auditor.
• After receipt of approval from the Central Government call board meeting to take note of approval from the Central Government and to convene general meeting for approval of members within sixty days of receipt of approval.
• Dispatch notices for calling an Extra Ordinary General Meeting (EGM)/Annual General Meeting (AGM) to all the members in accordance with provisions section 101 of Companies Act,2013 read with secretarial standard 2 on General Meetings.
• Accord approval of Members through Special Resolution at Extra Ordinary General Meeting (EGM)/Annual General Meeting (AGM).
• After passing special resolution, file the intimation of change to the registrar of companies within 15 days from the date of passing special resolution in the E form ADT-1 and file E Form MGT 14 for passing special resolution within 30 days.

Special Notice for appointing auditor other than Retiring Auditor

As per section 140(4) of the Act, Special notice shall be required for a resolution at an annual general meeting:

• For appointing as auditor a person other than a retiring auditor,
• For providing expressly that a retiring auditor shall not be re-appointed

Except where the retiring auditor has completed a consecutive tenure of five years/ ten years.

Such special notice can be given by members of the Company, and on receipt of such notice Company will forward the notice to the retiring auditor.

Any representation is made by Auditor will be circulated to the members.

If a copy of the representation is not sent as aforesaid because it was received too late or because of the company’s default, the representation shall be read out at the meeting.

Role of Tribunal

If the Tribunal is satisfied on an application either of the company or of any other aggrieved person that auditor has misconducted, then, the copy of the representation may not be sent and the representation need not be read out at the meeting.

The Tribunal either suo moto or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor acted in a fraudulent manner it may, by order, direct the company to change its auditors.

An auditor against whom final order has been passed by the Tribunal shall not be eligible to be appointed as an auditor of any company for a period of 5 years from the date of passing of the order and the auditor shall also be liable for action under section 447 of the Act

Companies are required to adhere to the above said provision while resignation/removal pf auditor of the Company. Further these processes will amend accordingly for listed companies and companies registered under any other regulatory bodies like IRDA, RBI.

It is also pertinent to note that these provision are only for non-government companies , for government companies any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments,  appointment of auditor is done by Comptroller and Auditor-General of India after following another set of provisions.