Section 140 of CA 2013 : Section 140: Removal, Resignation Of Auditor And Giving Of Special Notice

Explanation using Example

Imagine a company, XYZ Corp, has an auditor, Mr. A, appointed under Section 139 of the Companies Act, 2013. The management of XYZ Corp suspects that Mr. A has been negligent in auditing and has potentially overlooked financial discrepancies. The board of directors wishes to remove Mr. A before his term expires. According to Section 140(1), they must pass a special resolution and obtain prior approval from the Central Government. They also have to provide Mr. A with a chance to be heard before any action is taken.

Mr. A, realizing that his relationship with XYZ Corp has become untenable, decides to resign. As per Section 140(2), he must file a statement with the company and the Registrar within 30 days of his resignation, explaining his reasons and other relevant facts. If Mr. A fails to comply with this requirement, under Section 140(3), he would face a penalty.

At the next annual general meeting, XYZ Corp intends to appoint a new auditor. Section 140(4) requires that if XYZ Corp decides not to reappoint Mr. A or appoint someone new, they must give a special notice to the shareholders and the retiring auditor, Mr. A. If Mr. A wishes to make a written representation regarding this decision, the company must share it with the shareholders unless it's received too late or the company defaults on sending it, in which case Mr. A can demand it be read at the meeting.

Finally, if it turns out that Mr. A was involved in fraudulent activities during his tenure, under Section 140(5), the Tribunal has the power to order XYZ Corp to change its auditors and may prohibit Mr. A from serving as an auditor for any company for five years, in addition to other penalties under the Act.