Critical issue of removal of auditor
Many professionals have been raising question on interpretation/ procedure for removal of auditor:-
The Companies Act, 2013 permits removal of auditor before completion of his term. The procedure for removal of auditors is given in sub-section (1) of Section 140 of the Act.
If a Company is not satisfied with the services of the statutory auditor the company can start process for removal of auditor as stated the process u/s 140(1).
But there is a question always arise which confused the professionals i.e.
Company requires holding General Meeting before approval of Central Government or after government approval?
Let’s first discuss the questions:
Whether Company required holding General Meeting before approval of Central Government or after government approval? Some people have confusion in such situation for holding of EGM because of inconsistency between provision of the Act and the requirements of the e-form ADT-2?
Statutory Provisions Contained Under the Act:
Provisions of the Companies Act, 2013 to the extent relevant for our discussion, are stated as under (with necessary comments and modifications, wherever felt necessary)
As stated in Section 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, after obtaining the previous approval of the Central Government in that behalf in the prescribed manner: [Form ADT-2] [Power delegated to Regional Directors]
As per Rule 7(1) of Companies (Audit and Auditors) Rules, 2013, the application to the Central Government for removal of auditor shall be made in Form ADT-2 and shall be accompanied with fees as provided for this purpose under the Companies (Registration Offices and Fees) Rules, 2014. Also, as per Rule 7(2), the application shall be made to the Central Government (powers delegated to Regional Director ) within thirty days of the resolution passed by the Board.
As per point No.3 of ADT-2 following information required to mention while filing the form:
Service request number of Form MGT-14
Date of filing the form
Date of passing the special resolution
Date of the annual/extraordinary general meeting
As stated in Section 140 (1) states that Company requires approval of shareholders only after obtaining the approval from the Central Government.
It may be noted that the power to make an application to the Central Government under sub-section (1) of Section 140 is vested in the Board of Directors of the Company in terms of provisions of section 179 of the Act which deals with powers of the Board
As per e-form ADT 2 and help-kit provided by the Ministry of Corporate affairs on its website, the Company is required to pass special resolution prior to making an application to the Regional Director for removal of Auditor. Also, the e-form ADT 2 is inconsistent with provisions of Section 140(1) read with Rule 7 of Companies (Audit and Auditors) Rules, 2013.
However, looking at the e-form ADT-2, the Company would be required to hold General Meeting and pass special resolution for removal of auditor subject to approval of the Central Government i.e. before making an application to Central Government in e-form ADT-2.
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 filed 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.