Procedure to Remove the Auditor by the Company in India

The laws and process to remove an auditor of the company before their term of office ends is provided under Section 140 of the Companies Act 2013 and Rule 7 of Companies (Audit and Auditors) Rules, 2014.

Removal of Auditor Before the Expiry of their Term

Section 140(1) of the Companies Act, 2013 provides the laws and procedure for the removal of an auditor before the expiry of their term.

• The auditor may be removed from their office before the expiry of their term only by a special resolution and after obtaining the previous approval of the Central Government (power delegated to Regional Director).
• However, before taking any action, the auditor concerned shall be given a reasonable opportunity of being heard.
• Rule 7 of Companies (Audit and Auditors) Rules, 2014 deals with the Procedure for removal of the auditor before the expiry of their term.

Mandatory Requirements

• The approval of the Regional Director (RD) is required for the removal of the auditor.
• The auditor concerned must be given an opportunity to be heard.
• Shareholders’ approval must be obtained within 60 days of receiving RD’s approval.

Procedure for Removal of the Auditor

Approval for Removal of the Auditor from the Audit Committee

Section 177 of the Companies Act, 2013 states that if a company has formed an Audit Committee, they must obtain the committee’s approval before removing an Auditor.

Conduct the Board Meeting

• Set a day, date and time for a Board Meeting to remove the Auditor.
• Share the Notice for such a Board Meeting with all of the company’s Directors. The notice must be sent to the addresses registered with the company at least seven days prior to the date of the Board Meeting. A shorter notice may be given in case of an urgent matter.
• The notice must be sent along with the Agenda of the Board Meeting, notes to the agenda and draft resolution.
• Inform the respective auditor of the date of the Board meeting when the decision to remove them will be made so that they can be heard.
• Hold a Board meeting and make the below-mentioned Board resolutions:
     - Review the auditor’s removal before their tenure expires.
     - Allow the Company Secretary (CS) or any Director of the company to file an application with the Regional Director (RD).
     - Authorizing practicing Chartered Accountant, Company Secretary, Certified Management Accountant or Advocate to appear before the Regional Director and finish a Vakalatnama or Memorandum of Appearance.
• The listed company must send a notice to the Stock Exchange about the presentation of the auditor's recall request as soon as possible, but no later than within 30 minutes after the Board meeting and publish it on the company's website within 2 days.
• After the Board Meeting concludes, minutes of the meeting must be drafted and shared via speed post, in person, registered post, courier, or email with all the Directors within 15 days of the conclusion of the meeting.

Application to be filed to the Office of the Regional Director

Once the resolution is passed in the Board Meeting, the company must file an application to the RD in relation to the removal of the Auditor within 30 days from the date when the resolution was passed. This must be done through Form ADT-2 and other relevant details pertaining to the reasons behind the removal of the Auditor must be provided as well.

Hearing & Order by Regional Director

• The hearing date shall be announced by the RD when they receive the request.
• The RD may approve the removal of the Auditor after the hearing is complete.

Informing the Stock Exchange about the Order

A company listed on the stock exchange must submit an order of the RD to the stock exchange as soon as possible, but no later than:

• Within 12 hours after the event has taken place.
• 24 hours from the occurrence of the event or information, if the event or information does not come from an entity listed within, from the day of the hearing and publish it on the company's website within 2 working days.

File Certified Copy of Order with ROC

A certified copy of the order must be submitted within 30 days of issuing the certified copy of the order to the Registrar of Companies (ROC).

Conduct the Board Meeting

• The meeting notice should be shared with all of the company’s directors. It must be sent to their addresses registered with the Company at least seven days prior to date of the Board meeting. A shorter notice period may be given in case of some urgent matters.
• Attach the agenda, agenda notes and draft resolutions to the Notice.
• Hold a Board meeting of the Company and make the following resolutions:
     - Consider the RD’s order.
     - Set a date, day, time, and place for the General Meeting of the Company.
     - Review and approve the notice drafted in relation to the General Meeting along with the reasons for the same as per the requirements listed under Section 102 of the Companies Act, 2013.
     - Authorize the manager or the company secretary to sign and make the invitation to the General Meeting and carry out the actions and operations necessary to implement the decision of the Board.
• Minutes of the Meeting must be drafted and shared within 15 days from the date of the Board Meeting. It may be communicated via speed post, registered post, in person, courier, or email to all of the company’s directors.

Convene General Meeting

• A notice pertaining to the General Meeting must be shared at least 21 days prior to the date of the meeting. This communication can be done:
     - In writing,
     - In person,
     - By fax,
     - By courier,
     - Through mail (regular or express),
     - Through email,
     - Or any other electronic method.

If a qualified majority and 95% of the paid-up share capital of the company holding voting rights approve of it, a shorter notice period may be given for the meeting.

• All directors, members, auditors, secretariat, bond trustees, and others qualified to receive the notice of a General Meeting of the company must receive the notice for such a general meeting.
• The notice must indicate the day, date, time, and full address of the meeting, as well as an explanation of the matter to be discussed at the meeting.
• A General Meeting must be held within 60 days after receipt of the RD’s approval, where a special resolution must be passed in relation to removing the auditor before the end of their term.
• If the company is listed on the stock exchange, the exchange must be notified of the General Meeting within 24 hours after the conclusion of the General Meeting and published on the company’s website within two working days.
• If listed on the stock exchange, the company must inform the stock exchange about the results of the election within two working days after the meeting concludes.
• Prepare minutes of the General Meeting & get it signed.

Filing of Form MGT-14 with ROC

Once the special resolution of the General Meeting is passed, Form MGT-14 must be submitted to the ROC along with the following annexures:

• Certified copies of the Special Resolution that is passed accompanied by the explanatory statement.
• Certified copies of the RD’s order.
• A copy of the meeting notice sent to the members with all attachments.
• Letters of consent from members with shorter notice if the General Meeting is convened with a shorter notice.
• Copy of the General Meeting’s attendance sheet.
• Other relevant attachments.

Removal after the Expiry of a Term

According to Section 139, a company can choose another company as its auditor if the retired auditor has continued to work for five or ten years. In these situations, it is necessary to issue a Notice so that the Annual General Meeting can process the decision, which must clearly state that the outgoing auditor is not entitled to re-election, and to appoint a replacement auditor.

The company must also deliver a copy of the notice to the outgoing auditor. Retiring accountants can make a presentation. If the outgoing auditor gives a written statement and asks the association to inform the members of the association, the company must clearly state in the notification to the members that the outgoing auditor has made a proposal.

All persons authorized to receive a meeting notice will receive a copy of the presentation made. The auditor's report may be read at the meeting if the Company cannot provide the required documents. A copy of the presentation must be sent to the ROC if not sent as described above.

Conclusion

When an auditor is to be removed, it is imperative to comply with all relevant regulations and follow the prescribed procedure to avoid any potential inconsistencies or issues. Further, all relevant approvals must be aptly procured and the notice of the General Meeting must be timely shared with everyone eligible to receive notices of general meetings.