AI Overview...
Removal of Auditor under Companies Act: Procedure Guide
Auditors play a critical role in ensuring transparency and accountability in corporate financial reporting. However, situations may arise where a company needs to remove its statutory auditor before the term expires. Understanding the removal of auditor under Companies Act is essential for compliance and avoiding legal pitfalls. This guide breaks down the legal framework, procedures, and key judicial insights based on established precedents.
Whether you're a company director, shareholder, or auditor, knowing these rules helps navigate disputes effectively. Note: This is general information; consult a legal professional for specific advice.
Legal Framework for Auditor Removal
The Companies Act governs auditor appointments and removals strictly to protect stakeholder interests. Under the Companies Act, 1956, Section 224(7) was pivotal, prohibiting removal of a statutory auditor before term expiry without Central Government approval. DELHI TRANSPORT CORPORATION VS D. T. C. MAZDOOR CONGRESS ANB - 1990 Supreme(SC) 493 Union of India, represented by the Secretary VS Company Law Board, Mumbai Bench - 2013 Supreme(Bom) 1548
The Companies Act, 2013 modernizes this under Section 140:
- Section 140(1): Allows removal before term expiry with special resolution and Regional Director's approval (for non-government companies).
- For government companies, the Comptroller and Auditor General (CAG) appoints auditors, with specific powers under Section 139(7) and 140. Pipara and Co LLP VS Gujarat State Police Housing Corporation Limited - 2021 Supreme(Guj) 558 PIPARA AND CO LLP vs TOURISM CORPORATION OF GUJARAT LIMITED - 2021 Supreme(Online)(Guj) 1219
From a plain reading of Section 224(7) of the Act it is clear that it prohibits a company in its general meeting from removing a statutory auditor before the expiry of his term if the previous approval of the Central Government in that behalf has not been obtained. Union of India, represented by the Secretary VS Company Law Board, Mumbai Bench - 2013 Supreme(Bom) 1548
This ensures removals aren't whimsical but justified, often due to loss of confidence, fraud allegations, or misconduct.
Key Differences: 1956 vs. 2013 Act
- 1956 Act: Central Government approval mandatory; Company Law Board (CLB) had wide powers under Sections 397, 398, 402 to intervene. S. P. Gupta VS Packwell Manufacturers (Delhi) - 2013 Supreme(Del) 1056
- 2013 Act: Regional Director (delegated by Central Govt) approves via Form ADT-2; NCLT handles disputes under Sections 241-242 for oppression/mismanagement. Dattatray Maruti Khune VS Union of India through Ministry of Corporate Affairs - 2026 Supreme(Online)(NCLT) 241
Step-by-Step Procedure for Removal
Companies must follow a structured process to avoid invalidation:
- Board Resolution: Convene a board meeting to propose removal and reasons (e.g., loss of confidence). M. S. Kabli VS Union of India - 2011 Supreme(Del) 844
- Special Notice to Shareholders: Under Section 115 (2013 Act), give 14 days' notice for special resolution. Mr. Harish Kumar T.K. VS National Financial Reporting Authority - 2023 Supreme(Online)(NCAT) 840
- File Application for Approval:
- Non-govt companies: Form ADT-2 to Regional Director within 30 days of resolution. Rule 7, Companies (Audit & Auditors) Rules, 2014. MONISH UPPAL & ASSOCIATES VS REGIONAL DIRECTOR, NORTH REGION - 2017 Supreme(Del) 3558
- Govt companies: CAG's involvement; no direct Section 140 applicability without hearing. Pipara and Co LLP VS Gujarat State Police Housing Corporation Limited - 2021 Supreme(Guj) 558
- Hearing Opportunity: Auditor must get a chance to respond; natural justice applies. Pipara and Co LLP VS Gujarat State Police Housing Corporation Limited - 2021 Supreme(Guj) 558
- Regional Director's Order: Within 15-30 days (timelines vary); can approve or reject. Fresh applications allowed if defective. MONISH UPPAL & ASSOCIATES VS REGIONAL DIRECTOR, NORTH REGION - 2017 Supreme(Del) 3558
- Intimate Auditor & ROC: File ADT-3 for resignation/cessation; update MCA portal.
Failure invites penalties: Fine up to ₹5 lakhs for company/officers. BASANT RAM AND SONS VS UNION OF INDIA - 2000 Supreme(Del) 710
Pro Tip: Document reasons meticulously—e.g., fraud, non-compliance—to justify before authorities.
Role of Authorities and Tribunals
Central Government/Regional Director
Regional Directors have limited jurisdiction: Assess if removal is bona fide, not just on company's say-so. Mere loss of confidence without grounds may be rejected. M. S. Kabli VS Union of India - 2011 Supreme(Del) 844
The jurisdiction of the Regional Director is limited to considering the application for permission to remove an auditor prior to the expiry of his term. MONISH UPPAL & ASSOCIATES VS REGIONAL DIRECTOR, NORTH REGION - 2017 Supreme(Del) 3558
NCLT/CLB Powers
- CLB (pre-2013) under Section 402 could remove auditors suo motu in oppression petitions (Sections 397/398), overriding Section 224(7). Union of India, represented by the Secretary VS Company Law Board, Mumbai Bench - 2013 Supreme(Bom) 1548 S. P. Gupta VS Packwell Manufacturers (Delhi) - 2013 Supreme(Del) 1056
- NCLT continues this under Sections 241-242; must link to mismanagement. M/s Bhagyodayam Company represented by the Tribunal-appointed Administrator VS Paul Joseph - 2023 Supreme(Online)(NCLT) 1738
In petitions alleging fraud/misappropriation, NCLT directs absorption or probes but defers auditor disputes to ICAI if disciplinary. S. Kunjithamala VS HVAC Systems P. Ltd. - 2010 Supreme(Kar) 1123
CAG for Government Companies
CAG appoints/replaces auditors; must follow due process, including show-cause notices. Section 140 doesn't directly apply. Pipara and Co LLP VS Gujarat State Police Housing Corporation Limited - 2021 Supreme(Guj) 558
Judicial Precedents on Removal
Courts emphasize procedural fairness:
- Loss of Confidence Valid Ground: If management loses faith due to inconvenient audits, removal sustainable post-approval. But must comply with statutes. BASANT RAM AND SONS VS UNION OF INDIA - 2000 Supreme(Del) 710
- SEBI's Role in Listed Companies: SEBI can debar auditors under SEBI Act Section 11 for investor protection, independent of Companies Act. No conflict with ICAI. Price Waterhouse & Co. VS Securities and Exchange Board of India - 2010 Supreme(Bom) 1162
- No Arbitrary Removal: In govt entities, Article 12 applies if State (e.g., International Airport Authority). Natural justice mandatory. Central Inland Water Transport Corporation LTD. VS Brojo Nath Ganguly: Tarun Kanti Sengupta - 1986 Supreme(SC) 115 Ramana Dayaram Shetty VS International Airport Authority Of India - 1979 Supreme(SC) 300
SEBI has power to debar C.A. to act as an Auditor of listed company. Price Waterhouse & Co. VS Securities and Exchange Board of India - 2010 Supreme(Bom) 1162
- ICAI Disciplinary: Misconduct (e.g., accepting appointment sans Section 225 notice) leads to censure/removal from rolls, modifiable by courts. D. K. Bansal C. A. M. No. 070392 VS Board Of Discipline I. C. A. I. - 2019 Supreme(All) 701
In winding-up or oppression cases, invalid removals trigger court intervention. Tehmul Murjorji Bugli And Another VS Steel City Compto Aids Private Limited And Anothers - 1995 Supreme(Pat) 552
Special Scenarios
Government Companies & Statutory Bodies
- Bodies like ONGC, LIC not always State under Article 12; regulations lack statutory force for declarations. But airports/ICAR may qualify. Sukhdev Singh: Oil And Natural Gas Commission: L. 1. C. LTD. : Industrial Finance Corporation Employees Association VS Bhagatram Sardar Singh Raghuvanshi: Association Of Class Ii Officers O. N. G. C: Shyam Lal Sharma: Industrial Finance Corporation Of India - 1975 Supreme(SC) 79 P. K. Ramachandra Iyer: Y. P. Gupta: T. S. Raman: Om Prakash Khaudhuri VS Union Of India - 1983 Supreme(SC) 415
- Auditor removal needs CAG nod; writs lie under Article 226. Air India Statutory Corporation VS United Labour Union - 1997 2 Supreme 165
Listed Companies & Fraud
SEBI probes inflated accounts; can bar auditors. Balance sheets impact investors directly. Price Waterhouse & Co. VS Securities and Exchange Board of India - 2010 Supreme(Bom) 1162
Contract Labour/Absorption Irrelevant Here
Some results touch labour (e.g., IAAI), but core is auditor-specific. Air India Statutory Corporation VS United Labour Union - 1997 2 Supreme 165
Key Takeaways
- Always Seek Prior Approval: No shortcuts under Sections 224(7)/140.
- Document Everything: Reasons, notices, hearings prevent challenges.
- Tribunal Oversight: NCLT/CLB can intervene in disputes.
- Auditor Rights: Hearing mandatory; ICAI/SEBI for misconduct.
| Scenario | Approving Authority | Key Section |
|----------|---------------------|-------------|
| Private Cos | Regional Director | 140(1) |
| Govt Cos | CAG | 139(7) |
| Oppression | NCLT | 241-242 |
| Listed | SEBI (debar) | SEBI Act 11 |
Conclusion
Removal of auditor under Companies Act balances company autonomy with accountability. Procedural lapses can lead to penalties, disputes, or invalidated actions. Recent NCLT orders reinforce timelines and fairness. Dattatray Maruti Khune VS Union of India through Ministry of Corporate Affairs - 2026 Supreme(Online)(NCLT) 241
Stay compliant by adhering to MCA rules and precedents. For tailored guidance, engage experts—laws evolve, and cases vary.
Disclaimer: This post provides general insights from public judgments and is not legal advice. Specific situations require professional consultation. Laws referenced as of latest available data.
Search Results for "Removal of Auditor under Companies Act: Procedure Guide"
1979 0 Supreme(SC) 300 • India - Supreme Court
P.N.BHAGWATI, R.S.PATHAK, V.D.TULZAPURKAR
INTERNATIONAL AIRPORT AUTHORITY OF INDIA - Norms, Standards and Procedure for Administrative Action. ... for removal of the two snack bars put up by the 4th respondent. ... It may be either established by statute or incorporated under a law such as the Companies Act 1956 or the Societies Registration ... and Auditor General and the accounts as certified by the Comptroller and Auditor General or any other person appointed by him in
1986 0 Supreme(SC) 115 • India - Supreme Court
D.P.MADAN, A.P.SEN
if there is an instrumentality or agency of the State which has assumed the garb of a Government Company as defined under this ... HELD TO BE “STATE” - IT IS NOT THAT ONLY WHERE ARTICLE 14 APPLIES THE RULES OF NATURAL JUSTICE COME INTO PLAY - GOVERNMENT COMPANY ... For the purpose of Article 12 one must necessarily see through the corporate veil to ascertain whether behind that veil is the face ... company as defined in S. 617 of ....
1975 0 Supreme(SC) 79 • India - Supreme Court
A.ALAGIRISWAMI, A.C.GUPTA, A.N.RAY, K.K.MATHEW, Y.V.CHANDRACHUD
status and they are not entitled to declaration of being in employment when their dismissal or removal is in contravention of statutory ... 14 and 16 - Order for removal from service - Whether an order for removal from service contrary to regulations, would enable employees ... Article 12 of Constitution and regulations framed by them have no force of law - Employees of these statutory bodies have no statutory ... ....
1981 0 Supreme(SC) 511 • India - Supreme Court
A.C.GUPTA, V.D.TULZAPURKAR, S.MURTAZA FAZAL ALI, R.S.PATHAK, P.N.BHAGWATI, D.A.DESAI, E.S.VENKATARAMIAH
the matter of appointment (includ- ing dismissal and removal) and posting and promotion of District Judges. ... removal of the Judge. ... warranting his removal.
1990 0 Supreme(SC) 493 • India - Supreme Court
SABYASACHI MUKHARJEE, B.C.RAY, K.RAMASWAMY, L.M.SHARMA, P.B.SAWANT
inflict by way of disciplinary measure, penalty of dismissal or removal from service and to meet such a situation, it is not as if ... Service Law - Delhi Road Transport (Amendment) Act, 1971. - Delhi Road Transport Act, 1950 - S. 3 - Constitutional ... of notice but without holding any inquiry, are constitutionally valid and, if not, what would be the consequences of termination ... Brojo Nath Ganguly the appellan....
2017 0 Supreme(Del) 3558 • India - Delhi
VIBHU BAKHRU
Companies Act, 2013 - Removal of Auditor - Section 140(1), Rule 7 of the Companies (Audit & Auditors) Rules, 2014 Fact of ... The court also allowed the respondent to file a fresh application for the removal of the petitioner as the auditor. ... of the petitioner as the auditor. ... Section 140(1) of the #HL_....
2013 0 Supreme(Bom) 1548 • India - Bombay
S.J.KATHAWALLA
Companies Act, 1956 - Sections 224 (7) and 402 - Removal of Auditor. - Company Law Board (CLB) has jurisdiction under Section 402 ... of Act to remove statutory auditor. - From a plain reading of the Section 224 (7) it is clear that it prohibits a company in its ... Sections 397 and 398 of the Companies Act, 1956 confer jurisd....
2000 0 Supreme(Del) 710 • India - Delhi
MANMOHAN SARIN
Companies Act - Removal of Statutory Auditor - Section 224 (7) - Summary: The court addressed the removal of the statutory auditor ... under Section 224 (7) of the Companies Act, 1956. ... Fact of the Case: The case involved the removal of the statutory auditor of a company, M/s. ... Secti....
2011 0 Supreme(Del) 844 • India - Delhi
S.MURALIDHAR
Companies Act, 1956-Section 224 – Petition seeking approval for removal of statutory auditor – Regional ... Director not finding any ground for accepting the petition but granting approval for removal on the ground that company had lost ... Affairs, Government of India according approval under Section 224 (7) of the Companies Act, 1956 ('Act') for removal #HL_ST....
2021 0 Supreme(Guj) 558 • India - Gujarat
J.B.PARDIWALA, VAIBHAVI D.NANAVATI
Constitution of India1950 - Article 226 - Companies Act 2013 - Section 140 - Illegal action of terminating ... assignment - claim to be working across verticals - Whether Section of Companies Act applies to C&AG - C&AG has appointed Chartered ... Finding of the Court: Auditor of Government company shall be appointed or re-appointed by Comptroller and Auditor-Gen....
2026 Supreme(Online)(NCLT) 241 • India - National Company Law Tribunal
A Company Petition was filed in August, 2019 by the Union of India under Section 140(5) of the Companies Act, 2013, seeking cessation of Applicant herein as Statutory Auditor of Respondent No. 2 Company in terms of Section 140(5) of the Companies Act, 2013, and consequential order in terms of second ... First proviso to Section 140(5) of the Companies Act, 2013 requires this Tribunal to pass an order within 15 days, after arriving at satisfaction in relation to the r....
2023 Supreme(Online)(NCLT) 1738 • India - National Company Law Tribunal
the Companies Act. ... ; c) Loan to directors in violation of AOA and Section 185(3) of the Companies Act, 2013; d) Non maintenance of books of account; e) Removal of books and records from the registered office of the R1 Company; p class="sub_para" data-page ... While so, the Petitioners in the said TCP filed a Company Petition against Respondents 2 to 6 under Section 241 and 242 of the Companies Act, 2013 alleging act of oppression and mismanagemen....
2023 Supreme(Online)(NCAT) 840 • India - National Company Law Appellate Tribunal
Hon'ble Justice Rakesh Kumar Jain (Member(Judicial)) , Hon'ble Mr. Naresh Salecha (Member (Technical)) ,
Removal, resignation of auditor and giving ofspecial notice. ... 225 of Companies Act, 1956 before accepting the appointment as an auditor of a company. ... Section 143 (2) of the Companies Act 2013 requires the auditor to ensure compliance with these SAs. ... 469 of the Companies Act, 2013. ... , 1949 and also as stipulated in Companies Act, 2013.
2023 Supreme(Online)(NCLAT) 1359 • India - National Company Law Appellate Tribunal
Hon'ble Justice Rakesh Kumar (Member(Judicial)) , Hon'ble Dr. Alok Srivastava (Member (Technical)) ,
We direct the Respondent Company to ensure that provisions of Companies Act, 2013 are strictly followed in this relation and to allow inspection of records in accordance with section 171 of Companies Act, 2013. Director as Chairman on the Board. ... The present appeal has been preferred under Section 421 of the Companies Act, 2013 against an interim order dated 25.01.2023 whereby the interim relief prayed by the appellant/applicant in Company Petition No.188/2021 filed under Section 24....
2024 Supreme(Online)(NCLT) 1275 • India - National Company Law Tribunal
Section 242(4) of the Companies Act is similar to the ingredients of Section 403 of the Companies Act, 1956. It is to be pointed out that allegations of oppression and mismanagement concerning mixed question of law and fact could not be decided at the Interim Stage.” ... Section 242(4) of the Companies Act is similar to the ingredients of Section 403 of the Companies Act, 1956. It is to be pointed out that allegations of oppression and mismanagement ....
Filter by Legal Phrase
