The Pre-Expiry Removal Route
Section 140(1) permits the removal of an auditor before the expiry of the term only after obtaining the prior approval of the Central Government, which is now exercised by the NCLT. The company must apply to the NCLT in the prescribed form, and the application must be supported by the board’s resolution and the reasons for the proposed removal. The auditor must be given an opportunity of being heard.
The Board and Shareholder Steps
The board must first pass a resolution proposing the removal, specifying the grounds. The proposal must be placed before the shareholders in a general meeting. The shareholder resolution should be passed by ordinary resolution, and the notice must contain the statement of grounds. The NCLT application is made after the shareholder approval, and the tribunal’s order is the operative approval for the removal.
The Grounds
The grounds for removal must be substantive—for example, professional misconduct, failure to comply with the auditing standards, or a conflict of interest. A disagreement over accounting treatment is not, by itself, a ground for removal. The application should set out the specific instances and the evidence, and the auditor’s response should be placed before the tribunal.
The NCLT Hearing
The NCLT will hear the company and the auditor. The tribunal may direct the company to produce the audit files, the board minutes, and the audit committee’s recommendation. The tribunal’s order may approve the removal, reject it, or impose conditions. A company that proceeds with the removal before the tribunal’s order is in contempt.
The ADT-2 Filing
After the NCLT order, the company must file Form ADT-2 with the ROC within thirty days. The form should be accompanied by the tribunal’s order, the shareholder resolution, and the board resolution. A failure to file ADT-2 leaves the removal incomplete on the regulatory record.
The Audit Committee’s Recommendation
The audit committee should consider the proposed removal and record its recommendation. A board that proposes removal without the audit committee’s input, where the committee is required, has bypassed a governance filter. The committee’s minutes should reflect the specific concerns and the auditor’s response.
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