SECTION 140. REMOVAL, RESIGNATION OF AUDITOR AND GIVING OF SPECIAL NOTICE
[Effective from 1st April, 2014, except second proviso to sub-section (4) and (5) which is effective from 1st June, 2016]
(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.
[Provided further that in case of a Specified IFSC private company, where, within a period of sixty days from the date of submission of the application to the Central Government under this sub-section, no decision is communicated by the Central Government to the company, it would be deemed that the Central Government has approved the application and the company shall appoint new auditor at a general meeting convened within three months from the date of expiry of sixty days period.]
 [Provided further that in case of a Specified IFSC public company, where, within a period of sixty days from the date of submission of the application to the Central Government under this sub-section, no decision is communicated by the Central Government to the company, it would be deemed that the Central Government has approved the application and the company shall appoint new auditor at a general meeting convened within three months from the date of expiry of sixty days period.]
(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, and in case of companies referred to in sub-section (5) of section 139, the auditor shall also file such statement with the Comptroller and Auditor-General of India, indicating the reasons and other facts as may be relevant with regard to his resignation.
[(3) If the auditor does not comply with the provisions of sub-section (2), he or it shall be liable to a penalty of fifty thousand rupees or an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.]
(4) (i) Special notice shall be required for a resolution at an annual general meeting appointing as auditor a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be re-appointed, except where the retiring auditor has completed a consecutive tenure of five years or, as the case may be, ten years, as provided under sub-section (2) of section 139.
(ii) On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the retiring auditor.
(iii) Where notice is given of such a resolution and the retiring auditor makes with respect thereto representation in writing to the company (not exceeding a reasonable length) and requests its notification to members of the company, the company shall, unless the representation is received by it too late for it to do so,—
(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(b) 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 representation by the company,
and if a copy of the representation is not sent as aforesaid because it was 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 representation shall be read out at the meeting:
Provided that if a copy of representation is not sent as aforesaid, a copy thereof shall be filed with the Registrar:
Provided further that if the Tribunal is satisfied on an application either of the company or of any other aggrieved person that the rights conferred by this sub-section are being abused by the auditor, then, the copy of the representation may not be sent and the representation need not be read out at the meeting.
(5) Without prejudice to any action under the provisions of this Act or any other law for the time being in force, the Tribunal either suo motu or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors:
Provided that if the application is made by the Central Government and the Tribunal is satisfied that any change of the auditor is required, it shall within fifteen days of receipt of such application, make an order that he shall not function as an auditor and the Central Government may appoint another auditor in his place:
Provided further that an auditor, whether individual or firm, against whom final order has been passed by the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for a period of five years from the date of passing of the order and the auditor shall also be liable for action under section 447.
Explanation I.—It is hereby clarified that the case of a firm, the liability shall be of the firm and that of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its director or officers.
Explanation II.—For the purposes of this Chapter the word “auditor” includes a firm of auditors.
Companies (Audit and Auditors) Rules, 2014
[Effective from 1st April, 2014]
Rule 7. Removal of the auditor before expiry of his term.—(1) The application to the Central Government for removal of auditor shall be made in Form ADT-2 and shall be accompanied with fees as provided for this purpose under the Companies (Registration Offices and Fees) Rules, 2014.
(2) The application shall be made to the Central Government within thirty days of the resolution passed by the Board.
(3) The company shall hold the general meeting within sixty days of receipt of approval of the Central Government for passing the special resolution.
Rule 8. Resignation of auditor.—For the purposes of sub-section (2) of section 140, when an auditor has resigned from the company, he shall file a statement in [Form ADT-3].
 Powers of Central Government delegated to Regional Director vide Notification No. No. S.O. 4090(E) dated 19th December, 2016.
 Form ADT-3 has been introduced as an e-Form w.e.f. 22nd September, 2014.
 Inserted vide Notification no. G.S.R. 9(E).dated 04th January, 2017.
 Inserted vide Notification no. G.S.R. 08(E).dated 04th January, 2017.
 Substituted for the words “fifty thousand rupees” by the Companies (Amendment) Act 2017 vide Notification No. File No. 1/1/2018-CL.I dated 9th February, 2018.
 Omitted by the Companies (Audit and Auditors) Amendment Rules, 2018 vide Notification No. F. No. 1/33/2013- CL-V-Part dated 7th May, 2018.Prior to omission it read as under:
“Rule 9. Liability to devolve on concerned partners only: In case of criminal liability of any audit firm, the liability other than fine, shall devolve only on the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud.”
 Substituted by The Companies (Amendment) Ordinance , 2019 dated 12th January, 2019 effective from 2nd November, 2018.Prior to substitution it read as under:-
“(3) If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which shall not be less than [fifty thousand rupees or the remuneration of the auditor, whichever is less,]  but which may extend to five lakh rupees.”