# Removal and Resignation of Auditors — Section 140

## Resignation of Auditor — Section 140(2)

When an auditor resigns, he must file a statement in Form ADT-3 within 30 days of resignation with:

The Company
The Registrar of Companies (ROC)
(Additionally to CAG in case of Government companies)

The statement must contain the reasons and other facts relevant to the resignation.

### Penalty for Failure to File ADT-3 — Section 140(3)

If the auditor fails to file ADT-3:

Minimum penalty: ₹50,000
Maximum penalty: ₹5,00,000 OR an amount equal to the remuneration of the auditor, whichever is less.

## Removal of Auditor by Shareholders — Section 140(1)

The auditor may be removed before expiry of his term by following this procedure:

1. Board Resolution to remove the auditor.

2. Application to Central Government in Form ADT-2 within 30 days of Board Resolution.

3. On approval by CG, Special Resolution (SR) must be passed in a General Meeting within 60 days of CG approval.

4. The auditor concerned shall be given a reasonable opportunity of being heard.

## Removal under Section 140(4) — Not appointing Retiring Auditor

Where it is proposed at an AGM to appoint a person other than the retiring auditor, Special Notice under Section 115 is required.

### Procedure on Special Notice

1. On receipt of special notice, the company shall forthwith send a copy to the retiring auditor.

2. The retiring auditor may make written representation to the company and request that it be notified to members.

3. The company shall:

Mention the fact of representation in any notice of resolution sent to members, AND
Send a copy of the representation to every member.

4. If the representation could not be sent (received too late or company defaults), the auditor may require it to be read out at the meeting.

### Application to NCLT to Suppress Representation

If the Tribunal (NCLT) is satisfied (on application by company or aggrieved person) that the right of representation is being abused to secure needless publicity for defamatory matter, it may order:

The representation need NOT be sent to members, AND
It need NOT be read out at the meeting.

The auditor's right to be heard at the meeting is not prejudiced even if the representation is suppressed.

## Removal by Tribunal (NCLT) — Section 140(5)

NCLT may, suo motu or on application by CG / any aggrieved person, direct the company to change its auditor if satisfied that the auditor has:

Acted in a fraudulent manner, OR
Abetted or colluded in any fraud by or in relation to the company / its directors / officers.

### Procedure & Consequences

If satisfied, NCLT may within 15 days of the application, by order direct that the auditor shall not function as auditor.
CG may appoint another auditor in his place.
The auditor against whom such an order is made shall not be eligible to be appointed as auditor of any company for 5 years.
Such auditor is also liable for action under Section 447 (punishment for fraud).

Worked example

### Example 1

Example 1 — Resignation Filing: CA P resigned as auditor of ABC Ltd. on 1 April 2026 but filed ADT-3 only on 10 May 2026 (after 39 days). His annual remuneration was ₹2,00,000. What is the penalty?

Answer: Penalty = lower of (₹5,00,000 OR remuneration ₹2,00,000) = ₹2,00,000. Subject to minimum of ₹50,000. Hence penalty payable = ₹2,00,000.

### Example 2

Example 2 — Removal Procedure: ABC Ltd. wishes to remove its auditor CA Q on 1 May 2026, two years before completion of his term. State the steps.

Answer: (i) Board passes resolution for removal. (ii) Within 30 days, file ADT-2 with Central Government. (iii) After CG approval, hold General Meeting within 60 days and pass Special Resolution. (iv) Provide CA Q a reasonable opportunity of being heard before removal.

### Example 3

Example 3 — Suppressing Representation: Retiring auditor CA R submits a 10-page written representation full of defamatory remarks about the directors. What can the company do?

Answer: The company may apply to NCLT under Section 140(4) proviso. If NCLT is satisfied that the right is being abused for needless defamatory publicity, it may order that the representation need not be sent to members or read at the meeting. However, CA R's right to be heard at the meeting remains intact.

⚠️ Common exam mistakes

Confusing ADT-2 (application to CG for removal) with ADT-3 (statement of resignation).
Forgetting that resignation must be intimated to BOTH company AND ROC (and to CAG for Government companies).
Stating the resignation filing time limit as 15 days — it is 30 days.
Missing the 60-day inner limit between CG approval and passing of Special Resolution for removal.
Assuming the auditor's representation cannot be suppressed at all — NCLT can suppress it if abused.
Forgetting the 5-year disqualification under Section 140(5) when removal is ordered by NCLT for fraud.

Bare-Act text Section 140 · Companies Act, 2013 · click to expand

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: Provided that before taking any action under this sub-section, the auditor concerned shall be given a reasonable opportunity of being heard. Section 140(2): The auditor who has resigned from the company shall file within a period of thirty days from the date of resignation, a statement in the prescribed form with the company and the Registrar...

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Removal and Resignation of Auditors (Section 140)

Worked example

⚠️ Common exam mistakes