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Corporate Accounting and Auditing · Statutory Audit under the Companies Act, 2013

Removal, Resignation and Remuneration of Auditors

Updated 10 October 2026 · Fact-checked

An auditor can be removed before the term ends only by a special resolution after prior Central Government approval (Section 140(1)). A resigning auditor files a statement with the company and the Registrar within 30 days. Remuneration is fixed by the company in general meeting or as it decides (Section 142).

Understand Removal, Resignation and Remuneration of Auditors

A company appoints its auditor to protect members, not management. If management could dismiss an auditor at will, the auditor could not report freely. So the Companies Act, 2013 makes exit hard for the company and transparent for the auditor.

Removal before term. The auditor appointed under Section 139 can be removed before the term expires only by a special resolution of the company, and only after the previous approval of the Central Government, obtained in the prescribed manner. Before the company acts, the auditor must get a reasonable opportunity of being heard. Two safeguards, then: members' vote plus government approval.

Resignation. The auditor may resign. To stop quiet exits that hide problems, the auditor must file a statement in the prescribed form with the company and the Registrar within thirty days from the date of resignation, giving the reasons and other relevant facts. For companies whose auditor is appointed by the CAG (Section 139(5)), the statement also goes to the CAG. Failure brings a penalty.

Remuneration. Members fix the auditor's remuneration in general meeting, or in the manner they decide there. The only exception is the first auditor, whose remuneration the Board may fix. Remuneration includes the fee plus the auditor's expenses for the audit and any facility given to the auditor. It excludes payment for other services rendered at the company's request.

A related point is replacement at the AGM, which needs special notice. It is a different route from removal mid-term, and exam questions often test whether you can tell them apart.

Key rules to remember

Removal before term (S.140(1))
Special resolution + previous Central Government approval + reasonable opportunity of being heard
All three are needed. Approval must come before the company takes action.
Resignation filing (S.140(2))
Statement in prescribed form, filed within 30 days of resignation, with the company and the Registrar
Also with the CAG where S.139(5) applies (government companies and companies controlled by Governments). The statement gives reasons and relevant facts.
Penalty for non-filing (S.140(3))
Lower of ₹50,000 or the auditor's remuneration; plus ₹500 per day after the first day of continuing failure; maximum ₹2,00,000
Applies to the auditor, whether an individual or a firm.
Special notice (S.140(4))
Needed for an AGM resolution appointing a person other than the retiring auditor, or saying the retiring auditor shall not be reappointed
Not needed where the retiring auditor has completed a consecutive tenure of five or ten years under S.139(2). The company must forthwith send a copy to the retiring auditor, who may make a written representation.
Tribunal order to change auditor (S.140(5))
Fraud or collusion by auditor → Tribunal may direct change; if the Central Government applies, order within 15 days
The auditor is barred from appointment as auditor of any company for five years from the order and is liable under Section 447.
Remuneration (S.142)
Fixed in general meeting or as members determine; Board fixes for the first auditor
Includes fee, audit expenses and facilities; excludes pay for other services at the company's request.

How to solve Removal, Resignation and Remuneration of Auditors questions

For any question on exit or pay of an auditor, first identify which event is happening, then apply the matching rule and its conditions.

  1. 1Identify the event: removal during the term, non-reappointment at the AGM, resignation, tribunal-directed change, or fixing of remuneration.
  2. 2For removal during the term, check that three things are present: special resolution, previous Central Government approval, and a hearing for the auditor.
  3. 3For replacement at an AGM, check whether special notice applies. If it does, the company must send a copy to the retiring auditor and circulate any representation made.
  4. 4For resignation, note the date, count 30 days, and check the filing was made with the company and the Registrar (and the CAG where applicable).
  5. 5If filing is late, compute the penalty: lower of ₹50,000 and the remuneration, plus ₹500 for each day after the first, capped at ₹2,00,000.
  6. 6For remuneration, identify who fixes it: general meeting normally, Board only for the first auditor. Decide which items count as remuneration.
  7. 7State your conclusion in one line, quoting the section, then give a short reason.

Quickest way: Three-question check

When to use it: Use in MCQs and short case questions where you have under two minutes.

  1. Who is acting: company, auditor, Tribunal or Central Government?
  2. Which route: removal, resignation or pay? Match to S.140(1), S.140(2) or S.142.
  3. Check the condition: special resolution plus prior approval; 30 days; general meeting (Board only for the first auditor).
  4. Eliminate options that say ordinary resolution, approval after removal, or Board fixing pay of a regular auditor.

Common mistakes in Removal, Resignation and Remuneration of Auditors

  • Saying an ordinary resolution is enough to remove an auditor mid-term.

    Students remember appointment is by ordinary resolution and carry it over.

    Fix: Removal before expiry of the term needs a special resolution and previous Central Government approval.

  • Taking Central Government approval after the resolution.

    Students treat approval as a formality that follows the vote.

    Fix: The section says previous approval. Approval comes first, and the auditor must be heard before action is taken.

  • Confusing special notice at the AGM with removal under S.140(1).

    Both involve the company not keeping the auditor.

    Fix: Special notice is for appointing someone else, or barring the retiring auditor, at an AGM. Mid-term removal needs the S.140(1) route.

  • Writing that the resignation statement goes only to the Registrar, or that the time limit is 60 days.

    Mixing up with other filing deadlines.

    Fix: The statement goes to the company and the Registrar, within 30 days of the date of resignation, giving reasons.

  • Letting the Board fix every auditor's remuneration.

    Remuneration seems an administrative matter.

    Fix: The general meeting fixes it, or decides the manner. Only the first auditor's pay can be fixed by the Board.

  • Including fees for other services in the auditor's remuneration.

    Students add everything paid to the auditor.

    Fix: Remuneration is fee plus audit expenses and facilities. Pay for other services at the company's request is excluded.

Worked examples

Example 1

The members of Sundaram Textiles Ltd. want to remove their statutory auditor, CA Meera Rao, in the third year of her five-year term. The Board proposes an ordinary resolution at an EGM. Advise the company.

Show the solution
  1. The auditor is being removed before the expiry of her term, so Section 140(1) applies.
  2. An ordinary resolution is not enough. A special resolution of the company is required.
  3. The company must also obtain the previous approval of the Central Government in the prescribed manner.
  4. Before the company takes action, CA Meera Rao must be given a reasonable opportunity of being heard.

Answer: The proposal is defective. The company must pass a special resolution after obtaining previous Central Government approval, and give the auditor a hearing first.

Example 2

An auditor of Kaveri Foods Ltd. resigned on 10 June. He filed his statement with the Registrar on 20 July, and did not file it with the company. His remuneration for the year was ₹1,20,000. The failure to file with the company continues. Examine the position and compute the penalty if the failure continued for 40 days after the due date, counting the first day of failure as the day after the due date.

Show the solution
  1. Section 140(2) requires a statement in the prescribed form within 30 days from the date of resignation, filed with the company and the Registrar, stating reasons and relevant facts.
  2. The 30 days end on 10 July. The Registrar filing on 20 July was late, and nothing was filed with the company, so Section 140(2) is not complied with.
  3. Section 140(3): the basic penalty is the lower of ₹50,000 and the auditor's remuneration of ₹1,20,000. The lower is ₹50,000.
  4. For continuing failure, ₹500 is added for each day after the first. For 40 days of failure, that is 39 days × ₹500 = ₹19,500.
  5. Total = ₹50,000 + ₹19,500 = ₹69,500. This is below the maximum of ₹2,00,000.

Answer: The auditor has not complied with Section 140(2). Penalty is ₹69,500 on the stated facts, as the maximum of ₹2,00,000 is not reached.

Exam tips

  • Write the section number with the rule: S.140(1) for removal, S.140(2) for resignation filing, S.140(3) for penalty, S.142 for remuneration.
  • In MCQs, watch the words 'previous approval' and 'special resolution'. Options that change either one are traps.
  • For case questions, state the rule, apply it to the facts, then conclude. This format earns step marks in the 14-mark questions.
  • Learn the penalty numbers exactly: ₹50,000 or remuneration if less, ₹500 per day after the first, cap ₹2,00,000.
  • Link this topic with appointment and casual vacancy rules, as examiners often mix them in one question.

Practice questions from Statutory Audit under the Companies Act, 2013

Removal, Resignation and Remuneration of Auditors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Removal, Resignation and Remuneration of Auditors: frequently asked questions

Can a company remove its auditor before the term ends?

Yes, but only by a special resolution after the previous approval of the Central Government. The auditor must also be given a reasonable opportunity of being heard before action is taken.

What must an auditor do after resigning?

File a statement in the prescribed form with the company and the Registrar within 30 days of resignation, giving reasons and relevant facts. Where the auditor was appointed by the CAG under Section 139(5), the statement also goes to the CAG.

Who fixes the remuneration of the statutory auditor?

The company fixes it in general meeting, or in a manner members decide there. The Board may fix the remuneration only of the first auditor it appoints.

Does auditor remuneration include out-of-pocket expenses?

Yes. Under Section 142(2), it includes the fee, the expenses incurred in connection with the audit, and any facility extended to the auditor. It excludes pay for other services rendered at the company's request.