Removal of Auditors of the Company: Detailed Procedure

Removal of Auditors of the Company: Detailed Procedure

Removal of Auditors in Company under Section 140 of Companies Act

Auditors are responsible for expressing their opinion  whether the financial statements of an entity present are true and fair to view its financial standing and performance. When it comes to companies, the Companies Act, 2013 lays down explicitly as to who can become auditors and how they should be appointed. However, there might arise certain situations whereby the Company may decide to remove the auditors. 

Before understanding more about how to remove auditors of a Company, we need to understand the tenure of auditors of the Company.

Tenure of Auditors of a Company

Every Company should appoint an individual or firm as an auditor in the first Annual General Meeting (AGM) who shall hold office till the conclusion of the sixth AGM and thereafter till the conclusion of every sixth AGM. Therefore, it can be said that an auditor shall hold its office for a period of 5 years. With regards to reappointment, a listed company can appoint or reappoint an individual as auditor for term of 5 consecutive years whereas an audit firm as auditor for more than two terms of 5 consecutive years. 

How to Remove Auditors?

The Companies Act, 2013 allows the removal of the auditors before completion of their tenure. As per Section 140 of the Companies Act, 2013, an auditor may be removed before the expiry of his term only by passing a special resolution in the general meeting and after obtaining the previous approval of the Central Government. However, before removal, the auditor shall be given a reasonable opportunity of being heard.

For the removal of auditors of a company, a General meeting to be conducted with a prior notice to all the directors, shareholders and the concerned auditor. In the general meeting, the auditor should be given a reasonable opportunity of being heard. The company shall then decide upon the continuation or removal of auditor.

Also, Check "EPR Registration"

When Can Tribunal Direct Removal of Auditors?

The tribunal has the power to remove the auditors of the Company. It can act suo-moto or on an application made by the Central Government and upon satisfaction that the auditor of the company acted in a fraudulent manner or colluded or abetted in any fraud in relation to the company, its officers or directors, it can direct the Company to change its auditors. 

In case the tribunal receives an application from the Central Government and is satisfied that a change in auditors is required, then the tribunal shall within 15 days of receipt of the application make an order that he shall not function as an Auditor of the Company. The Central Government can appoint another auditor in his place. 
The auditor against which the Tribunal has passed such order should not be eligible for being appointed as auditor of any company for 5 years from the date of passing of such order. Such an auditor shall also be liable for action under section 447.

In a Nutshell

By incorporating the provisions for the removal of auditors under the company law, the government rested power in the hands of the companies to remove auditors in case they act with malafied intent. However, the requirement to pass a special resolution and obtain approval of the Central Government ensures that this power is used judiciously by the companies. After the removal of auditors of companies, such companies should ensure that they duly adhere to the MCA compliances. In case you have any queries, feel free to contact the ASC Group.

Read Also: Removal of Directors



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