Removal of an Auditor – One Person Company Registration
Every type of company including One Person Company mandatorily has an auditor to audit their books of account. It is not mandatory to appoint an auditor; the process of auditing has been done by the chartered Accountant or may appoint an auditor. But under the provision, the rotation of auditor not mandatory for One Person Company. Any way, we are going to discuss Removal of an auditor for any type of company and which may applicable for One Person Company if it appoints an auditor as for their auditing purposes.
Removal of an Auditor
Any auditor appointed under any of the sub-sections of section 139 can be removed before expiry of tenure only through a special resolution of the company in its general meeting. Additionally, prior approval from the Central Government also is necessary for such removal of auditors.
Application to the Central Government
Where the company intends to remove the auditor before expiry of his term, an application to the Central Government for such removal shall be made in Form ADT-2 and shall be accompanied by a fees prescribed under Companies (Registration Offices and Fees) Rules, 2014. The application has to be made to the Central Government within thirty days of the resolution passed by the Board of Directors. Thereafter, the company is required to hold the general meeting for passing the special resolution within 60 days of receipt of approval of the Central Government. The application should specify the details of grounds for seeking removal, qualifications in the auditor’s report during last 3 years, pending civil or criminal proceedings between the company and the concerned officers, number of financial years for which audit is pending, stage of accounts of the company for each of the financial year in respect of which the audit is pending, stage of accounts of the company for each of the financial year in respect of which the audit is pending, dispute, if any, with regard to books of accounts in the possession of auditors but not delivered back to the company etc. and is required to be accompanied by a copy of special resolution passed in the annual general meeting or extra-ordinary general meeting. The provisions would enable a more qualitative assessment by the MCA in granting permission for removal of auditors. The application to the Central Government would be made within thirty days of the resolution passed by the Board. The company is required to hold general meeting within sixty days of receipt of approval of the Central Government for passing the special resolution. Before taking any action for removal of auditor, the auditor concerned has to be given a reasonable opportunity of being heard. To facilitate this, the company would have to inform the auditor of the proposed resolution for removal of the auditor and provide the auditor an opportunity of being heard at the meeting (or make a written representation to the members).
Reappointment for a period exceeding 10 years
It may be noted that an audit firm can serve as an auditor for not more than two terms of five consecutive years. In case a company does not reappoint the audit firm as an auditor after it has completed his one term of 5 years or 10 years, as the case may be, it would not tantamount to removal, and, thus, no previous approval of the Central Government will be required. However, if during 5 year term, the appointment is not ratified by the members of the company, there are divergent views emerging on whether the process for removal of the auditor before the expiry of his term has to be followed. Till the time an authoritative clarification is available, it would be advisable to follow the process of removal of auditor in such a case.
Resignation by Auditor
An auditor may resign before his term of office expires by depositing a notice in writing to that effect at the company’s registered office. His resignation becomes effective on the date he lodges such notice or on such later date as may be specified in the notice. The 2013 Act introduces additional requirement with respect to resignation by auditor whereby an auditor, who resigns (in case of a company other than Government Company) from his office, is required to file a statement in Form ADT-3 with the company as well as the Registrar containing the reasons for resignation within a period of 30 days from the date of resignation. In case of government Company, such statement has to be filed with the Comptroller and Auditor-General of India. The statement shall indicate the reasons and the other facts as may be relevant with regard to his resignation. If the auditor does not file the statement within thirty days of resignation, he would be liable to fine of not less than fifty thousand rupees which may extend to five lakh rupees.
Appointment of auditors other than retiring auditors
For appointing a person other than the retiring auditor (before expiry of his term) or to provide that the retiring auditor shall not be reappointed, a special notice has to be given proposing that such a resolution would be moved at the next annual general meeting. On receipt of the special notice, the company should send a copy thereof to the retiring auditor. However, before taking any such action, the auditor concerned shall be given a reasonable opportunity of being heard.
A special notice would be requires (as under Companies Act, 1956) for not re-appointing the retiring auditor or for appointing someone else in his place at the annual general meeting. In terms of section 115 and Rule 23 of Companies (Management and Administration) Rules, 2014 read together, special notice should be given to the company by such number of members holding not less than one percent of the total voting power or holding shares on which such aggregate sum not exceeding five lakh rupees has been paid up, and not earlier than three months but at least 14 clear days before the date of the meeting at which the resolution is to be moved, exclusive of the day on which the notice is given and the day of the meeting. The meeting contemplated in the section is the original meeting. Therefore, special notice cannot be taken note of and acted upon by the company id it is received after the adjournment of meeting. No special notice is required for appointing an auditor other than the retiring auditor, where the latter is due to be rotated, i.e., the auditor has completed a tenure of five consecutive years (in case of an individual) or ten years (in case of an audit firm), as the case may be. However, a special notice would be required in cases where a firm has completed its first term of five years and it is not being appointed for the next term of five years or where the auditor is proposed to be removed before the expiry of five year term.
Rights of retiring auditor
The rights given to the retiring auditor, which follow the principles of natural justice and ensure that shareholders get all the relevant information before deciding upon the resolution that the retiring auditor shall not be re-appointed or that a person other than the retiring auditor be appointed as auditor as follows:
- Right to receive notice of the resolution
- Right to make a written representation to the company and request its notification to members of the company.
- Right to get his representation circulated among the members.
- Right to get his representation read out at the meeting, if it has not been sent to the members because of delay or default on the part of the company.
- Right to be heard at the meeting.
Representation by retiring director
On receipt of the special notice of the resolution for removal of the auditor, the company should forthwith send a copy thereof to the retiring director. Where notice is given of such a resolution and the retiring auditor makes with respect thereto representations in writing to the company and requests their notification to members of the company, the company shall, unless the representations are received too late for it to do so.
- In any notice of the resolution given to the members of the company, state the fact of the representation having been made, or
- Send a copy of the representation to every member of the company to whom notice of the meeting is sent, whether before or after the receipt of the representations by the company.
Further, if a copy of the representation is not sent because they were received too late or because of the company’s default the auditor may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting. The above requirements are carried forward from the Companies Act, 1956. However, in addition, under the Companies Act, 2013 requires that if a copy of the representations is not sent as aforesaid, the company should file the copy of the representation with the Registrar of Companies. No time limit has been prescribed for such filing.
Intervention by the Tribunal
The company or any other aggrieved person could make an application to the Tribunal where the Auditor was abusing his rights conferred to him by this section to secure needless publicity for defamatory matters. The Tribunal on such an application may direct that the representation need not be circulated or read out at the meeting.
or any other aggrieved person could make an application to the Tribunal where the Auditor was abusing his rights conferred to him by this section to secure needless publicity for defamatory matters. The Tribunal on such an application may direct that the representation need not be circulated or read out at the meeting.
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