Section 140 of the Companies Act, 2013 (CA 2013) has come into force from the first day of April, 2014. This section corresponds to section 225 of the Companies Act, 1956 i.e. resolutions for appointing or removing auditors.
The commencement of provisions of section 140 has been notified by the Ministry of Corporate Affairs (MCA) vide Notification No. S.O. 902(E) dated 27th March, 2014. However, you should note that the provisions related to Tribunal i.e. second proviso to sub-section (4) and sub-section (5) of section 140 has not yet been notified by the Central Government.
We have already discussed the procedure for appointment of Auditors in companies as per section 139 of CA 2013. Today, we shall discuss about the removal procedure and resignation of auditor of companies.
Procedure for Removal of Auditor before expiry of term [Section 140(1)]
As per sub-section (1) of section 140 of the CA 2013, the auditor appointed under section 139 may be removed from his office before expiry of his term. Since the long relationship has built with auditors for 5 years or, as the case may be, 10 years, the strict formalities should be followed to remove auditors before expiry of term.
In compliance with the provisions of section 140(1) read with Rule 7 of the Companies (Audit and Auditors) Rules, 2014, following procedure should be followed to remove the auditor of company from office before expiry of his term:
1) Pass BR at BM:
Pass a Board Resolution (BR) at Board Meeting (BM) of company.
2) Obtain CG Approval:
File an application in eForm ADT-2 (Form 24A) for obtaining the prior approval of the Central Government (CG) in that behalf. Note that the application to CG shall be made within 30 days of the resolution passed by the Board.
In other words, the Form No. ADT-2 (Attached in GNL-1 for applications made to the Registrar) shall be filed by the company seeking approval from the Regional Director (RD)/ Registrar of Companies for removal of auditor from the office before the expiry of the term of office.
Such application shall be accompanied with the prescribed fees for this purpose under the Companies (Registration Offices and Fees) Rules, 2014.
3) Pass SR in GM:
After obtaining the previous approval of the Central Government, a Special Resolution (SR) must be passed by the company for removal of auditors before expiry of term of office.
To pass such special resolution, the company shall hold the annual/extraordinary General Meeting (GM) within 60 days of receipt of approval from the Central Government. Note that such special resolution will be considered as special business as per the provisions of section 102(2)(b) of CA 2013.
Thus, the permission of the shareholders by way of special resolution is also required along with the approval of CG under the new CA 2013 for the removal of auditor before expiry of term.
4) Give Opportunity of being heard:
Before taking any action for removal of auditor before the expiry of his term, the auditor concerned shall be given a reasonable opportunity of being heard.