Removal of Statutory Auditor Before Term Expiry: Complete Procedural Guide Under Section 140(1) of the Companies Act, 2013
Overview
Corporate governance in India places significant emphasis on auditor independence, and the legal framework governing the premature removal of a statutory auditor reflects this priority. Under Section 140(1) of the Companies Act, 2013, no company is permitted to remove its statutory auditor arbitrarily or at its own discretion before the expiry of the appointed term. The process is deliberately structured, involves multiple regulatory checkpoints, and mandates prior approval from the Central Government — a power exercised through the Regional Director (RD).
This article presents a comprehensive breakdown of the legal procedure, applicable provisions, required forms, and answers to frequently raised compliance questions concerning auditor removal.
Why Is the Process So Strictly Regulated?
The statutory auditor occupies a position of significant public trust. Their role is not merely to serve the company's interests but to provide an independent assessment of the company's financial health to shareholders, regulators, and the public at large. Allowing companies to remove auditors without regulatory oversight would create serious risks of financial misconduct going unchecked.
To prevent this, the Companies Act, 2013, supported by the Companies (Audit and Auditors) Rules, 2014 and the Companies (Management and Administration) Rules, 2014, establishes a multi-step, multi-stakeholder process that ensures:
- The auditor is treated fairly and given a chance to respond
- Shareholders are genuinely involved in the decision
- The Central Government exercises oversight through the Regional Director
- All procedural timelines and documentation requirements are met
Applicable Legal Provisions
Sections and Rules
| Legal Provision | Description |
|---|---|
Section 140(1) – Companies Act, 2013 |
Governs removal of statutory auditor before expiry of term |
Rule 7 – Companies (Audit and Auditors) Rules, 2014 |
Prescribes the procedure and requirements for auditor removal |
Rule 24 – Companies (Management and Administration) Rules, 2014 |
Deals with procedural requirements for management actions including special resolutions |
Applicable Forms
- Form MGT-14 — Filing of Special Resolution with the Registrar of Companies (ROC)
- Form ADT-2 — Application to the Regional Director seeking approval for removal of auditor
- Form INC-28 — Filing of the Regional Director's order with the ROC
Step-by-Step Procedure for Removal of a Statutory Auditor
Step 1: Audit Committee Recommendation (Where Applicable)
Where a company has constituted an Audit Committee in accordance with Section 177 of the Companies Act, 2013, the proposal for the premature removal of the statutory auditor must be placed before the Audit Committee as the first step.
The Audit Committee is expected to examine the grounds for removal and provide its recommendation to the Board before any further action is initiated. This step is mandatory for companies that have a constituted Audit Committee and cannot be bypassed.
Step 2: Prior Intimation to the Auditor
Before the Board proceeds with any formal resolution, the auditor in question must be formally intimated. This communication should include:
- Details of the proposed removal and the grounds being considered
- The date and schedule of the Board Meeting at which the proposal will be discussed
- An explicit mention of the auditor's right to be heard, including the opportunity to present their submissions