Removal Auditor Term Companies Act 2013

Removal of Auditor Before Term Under Companies Act, 2013

Removal Auditor Term Companies Act 2013: In accordance with the Companies Act, 2013 and associated provisions and rules, it is compulsory for every company to designate an auditor from incorporation to their running out of business. An auditor is a qualified individual who audits the financial part and works for the company. Hence, every company necessitates appointing an auditor. Notably, there are several times when management is not contented with the assistance of the auditor, and this is when the replacement/elimination of the auditor from the company comes into the picture.

There are appointed for a maximum of five (5) years for one term and hold a fixed term in a company. However, sometimes due to some reason, the management council of the Board can decide to remove the auditor before the end of their term.

What Does the Word ‘Term’ for Auditor in a Company?

The word ‘term’ here signifies the number of years the auditor is designated by affiliates of the company in the Annual General Meeting.

A company can designate for a maximum of five years in one term. This can further be classified as follows:

  • All unlisted public companies as well as a listed company holding paid-up share capital of ten crores rupees or more and all private limited companies holding paid-up share capital of fifty crores or more rupees and all companies holding paid-up share capital of below threshold limit mentioned in (a) and (b) above but having public borrowings from banks, public deposits, or financial institutions of fifty crores rupees or more, will not appoint: –
  • a person as an auditor for more than one term of five consecutive years
  • a firm for audit as an auditor for more than two terms of five consecutive years:
  • Again, note that once terms are completed, the same firm and individual shall not be selected for three (3) years in the same company.
  • Companies other than the above particularised are free to select the same auditor for the “N” number of terms once their maximum number of terms is expired, which is five (5) years.

What is the Maximum Number of Terms an Auditor can be Appointed in a Company?

As explained above, an auditor can be equipped as follows:-

  1. All unlisted public companies as well as a listed company holding paid-up share capital of ten crores rupees or more and all private limited companies holding paid-up share capital of fifty crores or more rupees and all companies holding paid-up share capital of beneath the above-mentioned threshold limit but having public borrowings from banks, public deposits, or financial institutions of fifty crores rupees or more, will not appoint: –
  2. a person as an auditor for more than one term of five consecutive years
  3. a firm for audit as an auditor for more than two terms of five consecutive years:
  4. Again note that once terms are completed same firm and individual shall not be selected for a period of three (3) years in the very same company.
  5. Companies other than the above particularised are free to select the same auditor for the “N” number of terms once their maximum number of terms is expired, which is five (5) years.

What are the Rules or Provisions Directing the Removal of an Auditor Before their Term?

According to Section 140(1) of the Companies Act, 2013, the auditor designated under section 139 may be withdrawn from their office before the expiry of their term only by a special resolution of the company, after receiving the previous approval of the Central Government in that behalf in the prescribed manner.

According to Rule 7(1) of Companies (Auditors and Audit) Rules, 2014, the application for removal of the auditor shall be made in Form ADT-2 to the Central Government and shall be accompanied by fees as implemented for this purpose under the Companies (Registration Offices and Fees) Rules, 2014. Also, in accordance with Rule 7(2), the application shall be addressed to the Central Government (powers authorized to Regional Director) within 30 days of the resolution relinquished by the Board.

What is the Procedure to Remove the Auditor?

If a company is not contented with the services of the sanctioned auditor, the company can commence the method for removal of the auditor. The following method is needed: –

  • Determining the Board Meeting besides the agenda to be addressed in the meeting.
  • Auditor has to be provided with a reasonable possibility of being heard.
  • To the Regional Director, the drafting of a petition should be made (through the MCA notification dated 21st May 2014, deleted by the Central government)
  • Operating of the Board meeting and judging the petition
  • ADT-2 as an attachment for filing of a petition to the Regional Director should be done to e-form RD-1 within thirty (30) days from the passing of the resolution of the Board.
  • After receiving approval from the Regional Director, getting the Board meeting for exercising note of the same and passing as well as fixing the Annual General Meeting or Extraordinary General Meeting of members for removal of auditor before their term within sixty days.
  • Holding of Extra-ordinary Annual General Meeting/ General Meeting of members and passing of a special resolution for equivalent.
  • Once the Special resolution is filled, fill MGt-14 within thirty days from the Special resolution.

What are the Forms Concerned in the Elimination of an Auditor?

Not multiple forms are needed in the removal of auditors before their term; particularly the following forms are asked:-

  1. ADT-2
  2. RD-1
  3. MGT-14

What Documents are Needed for Filing RD-1?

Since already explained that ADT-2 should be attached with e-form RD-1. Following documents are needed to be associated with e-form RD-1:-

  1. The ground of attempting removal of auditor
  2. Have a check in the during the last three years, whether the accounts have been qualified
  3. Date of SRN of notice and appointment of auditor of such appointment
  4. Check whether the audit fee has been paid or not.
  5. Any other information/attachment is deemed access by the Board of company.

Disclaimer: – The above article is adapted to keep in mind all the basic and important questions while excluding an auditor before their term under the Companies Act, 2013. The author has tried to cover all the basic and essential questions. Under no circumstance, the article shall not be liable for any special, or incidental damage, direct, indirect, resulting from, arising out of, or connected with the application of the information.

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