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.
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 sub-section (2 ), he or it shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.
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.
Legal Commentary & Landmark Judgments: Section 140
Section 140 governs the removal of an auditor before term expiry, statutory resignation reporting in Form ADT-3, and NCLT powers to remove and disqualify fraudulent auditors for five years.
An auditor against whom a final order is passed by the Tribunal is disqualified from acting as an auditor of any company for five years and faces criminal prosecution under Section 447.
The Supreme Court's ruling in *Deloitte Haskins & Sells* fundamentally solidified Section 140(5) as a potent anti-fraud weapon against major accounting firms. Auditors can no longer escape statutory disqualification and professional disgrace by submitting tactical resignations under Section 140(2). Form ADT-3 filings are closely monitored by the MCA and National Financial Reporting Authority (NFRA) for disclosures of accounting fraud.