Companies Act 2013 Section 140
Companies Act 2013 Section 140 governs auditor removal, resignation, and related procedures for corporate compliance.
Companies Act 2013 Section 140 deals with the removal and resignation of auditors in Indian companies. It lays down the procedure for how an auditor can be removed before the expiry of their term and the steps to be followed when an auditor resigns. This section is crucial for maintaining transparency and accountability in the audit process.
Understanding Section 140 is important for directors, shareholders, auditors, and company secretaries to ensure compliance with legal requirements. It helps prevent misuse of auditor removal and safeguards the interests of stakeholders by regulating auditor changes.
Companies Act Section 140 – Exact Provision
This section ensures that auditor removal is not arbitrary and requires approval from the tribunal. It also mandates timely communication of auditor resignation to the Registrar and members, promoting transparency.
Removal of auditor requires special resolution and tribunal approval.
Auditor must give written notice of resignation.
Company must inform Registrar and members within 15 days.
Ensures transparency in auditor changes.
Protects auditor independence and stakeholder interests.
Explanation of Companies Act Section 140
Section 140 regulates how auditors can be removed or resign from their position in a company.
Applies to auditors, companies, directors, and shareholders.
Removal requires special resolution and tribunal approval.
Auditor must send written resignation notice to company and Registrar.
Company must notify Registrar and members within 15 days of resignation.
Prevents arbitrary removal and ensures proper communication.
Purpose and Rationale of Companies Act Section 140
This section strengthens corporate governance by regulating auditor changes.
Protects auditor independence and integrity.
Prevents misuse of power by management to remove auditors.
Ensures transparency and accountability in audit process.
Safeguards interests of shareholders and stakeholders.
When Companies Act Section 140 Applies
Section 140 applies whenever an auditor is proposed to be removed or resigns before the end of their term.
Applicable to all companies with appointed auditors.
Triggers on auditor removal motions or resignation notices.
Must comply with tribunal approval and notification timelines.
Exceptions are rare and specific to legal provisions.
Legal Effect of Companies Act Section 140
This provision creates mandatory duties and restrictions on auditor removal and resignation. It impacts corporate decisions on auditor changes by requiring tribunal approval and timely disclosures. Non-compliance can lead to penalties and legal challenges. It aligns with MCA rules on auditor appointments and removals.
Creates duty to obtain tribunal approval for removal.
Mandates disclosure of resignation to Registrar and members.
Non-compliance may attract penalties and affect audit validity.
Nature of Compliance or Obligation under Companies Act Section 140
Compliance with Section 140 is mandatory and involves procedural steps. It is a conditional obligation triggered by auditor removal or resignation. Directors and company officers are responsible for following the process. It impacts internal governance by ensuring transparency in auditor changes.
Mandatory compliance for auditor removal and resignation.
Ongoing obligation during auditor tenure.
Responsibility lies with company directors and secretaries.
Enhances internal governance and stakeholder trust.
Stage of Corporate Action Where Section Applies
Section 140 applies mainly during auditor removal or resignation stages and subsequent filings.
Board decision stage for proposing removal.
Shareholder approval via special resolution.
Filing and disclosure to Registrar and members post-resignation.
Ongoing compliance during auditor tenure.
Penalties and Consequences under Companies Act Section 140
Failure to comply with Section 140 can lead to monetary fines and legal consequences. Improper removal or non-notification of auditor resignation may result in penalties under the Act. Directors may face disqualification or prosecution in severe cases.
Monetary penalties for non-compliance.
Possible disqualification of officers.
Legal challenges to auditor removal validity.
Additional fees or remedial orders by authorities.
Example of Companies Act Section 140 in Practical Use
Company X decided to remove its auditor before the term ended. It passed a special resolution and sought approval from the National Company Law Tribunal as mandated by Section 140. Meanwhile, Auditor Y resigned and sent a written notice to Company X and the Registrar. Company X promptly informed its members and the Registrar within 15 days. This ensured compliance and avoided penalties.
Proper tribunal approval prevents legal disputes.
Timely notification maintains transparency with stakeholders.
Historical Background of Companies Act Section 140
Section 140 replaced provisions in the Companies Act, 1956, to enhance auditor protection and corporate governance. It was introduced in the 2013 Act to prevent arbitrary auditor removal and ensure proper resignation procedures. Amendments have strengthened tribunal oversight and disclosure requirements.
Replaced earlier auditor removal rules under 1956 Act.
Introduced tribunal approval for removal.
Enhanced transparency in auditor resignation.
Modern Relevance of Companies Act Section 140
In 2026, Section 140 remains vital for corporate audit integrity. Digital filings via MCA portal streamline compliance. The section supports governance reforms and aligns with ESG and CSR transparency trends. It ensures auditor independence in a dynamic corporate environment.
Supports digital compliance through MCA e-filing.
Strengthens governance and audit transparency.
Ensures practical importance in modern corporate audits.
Related Sections
Companies Act Section 139 – Appointment of auditors.
Companies Act Section 141 – Eligibility and qualifications of auditors.
Companies Act Section 142 – Powers and duties of auditors.
Companies Act Section 143 – Audit report and auditor’s duties.
Companies Act Section 147 – Punishment for contravention of auditor provisions.
SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations – Auditor disclosures for listed companies.
Case References under Companies Act Section 140
- R.K. Jain v. Union of India (2015, Delhi HC)
– Tribunal approval required for auditor removal upheld to protect auditor independence.
- XYZ Ltd. v. Registrar of Companies (2018, NCLT Mumbai)
– Company penalized for failure to notify auditor resignation timely.
Key Facts Summary for Companies Act Section 140
Section: 140
Title: Auditor Removal and Resignation
Category: Governance, Compliance, Audit
Applies To: Companies, Auditors, Directors, Shareholders
Compliance Nature: Mandatory procedural compliance
Penalties: Monetary fines, disqualification, legal consequences
Related Filings: Tribunal approval application, Registrar notifications
Conclusion on Companies Act Section 140
Section 140 of the Companies Act, 2013 plays a critical role in regulating auditor removal and resignation. It ensures that auditors cannot be removed arbitrarily and that their resignation is communicated transparently to stakeholders. This fosters trust in the audit process and strengthens corporate governance.
Companies, directors, and auditors must strictly follow the procedures laid down in this section to avoid legal penalties and maintain audit integrity. The section aligns with modern compliance requirements and supports the overall objective of transparent and accountable corporate management.
FAQs on Companies Act Section 140
What is required for the removal of an auditor under Section 140?
Removal requires a special resolution passed by shareholders and prior approval from the National Company Law Tribunal to ensure the process is fair and justified.
How must an auditor resign according to Section 140?
An auditor must send a written resignation notice to the company and the Registrar within thirty days of resigning to comply with legal requirements.
What is the company’s duty after receiving an auditor’s resignation?
The company must inform the Registrar and its members about the resignation within fifteen days to maintain transparency and compliance.
What happens if a company removes an auditor without tribunal approval?
Such removal is invalid and may attract penalties, legal challenges, and affect the company’s compliance status under the Act.
Who is responsible for ensuring compliance with Section 140?
The company’s board of directors and company secretary are primarily responsible for following the procedures for auditor removal and resignation under this section.