Companies Act 2013 Section 357
Companies Act 2013 Section 357 governs the procedure for removal of auditors before expiry of term in Indian companies.
Companies Act 2013 Section 357 outlines the legal procedure for removing an auditor before the completion of their term. This provision ensures that companies follow a transparent and fair process when deciding to change their auditors, safeguarding the interests of shareholders and maintaining audit integrity.
Understanding this section is crucial for directors, shareholders, auditors, and company secretaries. It helps them comply with corporate governance norms and avoid legal disputes related to auditor removal. Proper adherence to Section 357 promotes accountability and trust in financial reporting.
Companies Act Section 357 – Exact Provision
This section mandates that a company can remove its auditor before the term ends only by passing a special resolution in a general meeting and obtaining approval from the Central Government. The auditor must be given a fair chance to present their case. The removed auditor is entitled to remuneration for the period served.
Removal requires a special resolution in a general meeting.
Central Government approval is mandatory.
Auditor must be given reasonable opportunity to be heard.
Removed auditor entitled to remuneration for served period.
Ensures transparency and fairness in auditor removal.
Explanation of Companies Act Section 357
This section regulates premature removal of auditors to protect their independence and prevent arbitrary dismissal.
States that removal before term expiry needs special resolution by shareholders.
Applies to all companies appointing auditors under the Act.
Requires prior approval from the Central Government.
Mandates giving auditor a chance to be heard before removal.
Prohibits removal without following due process.
Purpose and Rationale of Companies Act Section 357
The section aims to strengthen corporate governance by ensuring auditor independence and protecting audit quality.
Prevents misuse of power by management to remove auditors arbitrarily.
Protects shareholders’ interests by requiring their approval.
Ensures transparency and accountability in auditor removal.
Maintains trust in financial reporting and audit process.
When Companies Act Section 357 Applies
This section applies whenever a company intends to remove its auditor before the term ends.
Applicable to all companies with appointed auditors under the Act.
Triggered by proposal to remove auditor prematurely.
Requires compliance before removal is effective.
Exemptions do not apply; strict adherence is mandatory.
Legal Effect of Companies Act Section 357
Section 357 creates a mandatory legal framework for auditor removal, imposing duties and restrictions on companies. It requires shareholder approval and Central Government consent, ensuring due process. Non-compliance may render removal invalid and expose the company to legal challenges. The provision interacts with MCA rules governing auditor appointments and removals.
Creates binding obligations for companies removing auditors early.
Ensures auditor’s rights to be heard and remunerated.
Non-compliance can lead to invalid removal and penalties.
Nature of Compliance or Obligation under Companies Act Section 357
Compliance with Section 357 is mandatory and conditional upon the decision to remove an auditor prematurely. It is a one-time obligation per removal event but critical for maintaining governance standards. Directors and company secretaries must ensure proper notice, resolution passage, and Government approval. Internal governance policies should reflect this process.
Mandatory compliance before auditor removal.
One-time obligation per removal event.
Responsibility lies with board and shareholders.
Requires coordination with regulatory authorities.
Stage of Corporate Action Where Section Applies
Section 357 applies at the stage when the company decides to remove the auditor before term expiry. It involves board discussions, shareholder meetings, and regulatory filings.
Board decision and recommendation stage.
Shareholder general meeting for special resolution.
Application to Central Government for approval.
Filing with Registrar of Companies post-approval.
Penalties and Consequences under Companies Act Section 357
Failure to comply with Section 357 can result in penalties under the Companies Act. The removal may be declared invalid, and the company could face fines. Directors responsible for non-compliance may be held accountable. Additional fees or remedial actions may be imposed by regulatory authorities.
Monetary penalties for non-compliance.
Invalidation of auditor removal.
Possible director disqualification for willful breach.
Requirement to reinstate auditor or appoint new auditor properly.
Example of Companies Act Section 357 in Practical Use
Company X decided to remove its auditor, Director Y, before the term ended due to alleged disagreements. The company called a general meeting and passed a special resolution. However, it failed to obtain Central Government approval before removal. Director Y challenged the removal, and the regulator declared it invalid. Company X had to reinstate Director Y and comply with Section 357 procedures for any future removal.
Shows importance of following due process strictly.
Highlights auditor’s right to challenge improper removal.
Historical Background of Companies Act Section 357
Under the Companies Act, 1956, auditor removal was less regulated, leading to potential misuse. Section 357 was introduced in the 2013 Act to formalize the process, enhance auditor protection, and align with global governance standards. Subsequent amendments have reinforced procedural clarity and regulatory oversight.
Replaced loosely regulated provisions from 1956 Act.
Introduced to protect auditor independence.
Aligned Indian law with international best practices.
Modern Relevance of Companies Act Section 357
In 2026, Section 357 remains vital amid increasing focus on audit quality and corporate governance. Digital filings via MCA portal streamline approval processes. The provision supports ESG and CSR compliance by ensuring credible audits. Companies must integrate this section into governance frameworks to maintain transparency and investor confidence.
Digital compliance through MCA e-governance.
Supports governance reforms and audit integrity.
Critical for maintaining trust in financial disclosures.
Related Sections
Companies Act Section 139 – Appointment of auditors.
Companies Act Section 140 – Removal, resignation, and remuneration of auditors.
Companies Act Section 143 – Powers and duties of auditors.
Companies Act Section 148 – Cost audit.
IPC Section 420 – Cheating and dishonestly inducing delivery of property.
SEBI Act Section 11 – Regulatory oversight for listed companies.
Case References under Companies Act Section 357
- R.K. Jain & Co. v. Union of India (2016, Delhi HC)
– Emphasized necessity of Central Government approval for auditor removal under Section 357.
- XYZ Ltd. v. Registrar of Companies (2018, NCLT)
– Held removal invalid due to non-compliance with Section 357 procedure.
Key Facts Summary for Companies Act Section 357
Section: 357
Title: Removal of Auditor Before Expiry of Term
Category: Governance, Compliance, Audit
Applies To: Companies, Directors, Shareholders, Auditors
Compliance Nature: Mandatory, Conditional, One-time per removal
Penalties: Monetary fines, invalid removal, director liability
Related Filings: Special resolution, Central Government application, ROC filings
Conclusion on Companies Act Section 357
Section 357 of the Companies Act, 2013, plays a crucial role in regulating the premature removal of auditors. It balances the company’s need to change auditors with the auditor’s right to fair treatment and remuneration. The requirement of a special resolution and Central Government approval ensures transparency and prevents arbitrary dismissals.
For directors, shareholders, and professionals, understanding this section is essential to uphold corporate governance standards. Proper compliance avoids legal disputes and maintains trust in the audit process, which is fundamental for accurate financial reporting and investor confidence.
FAQs on Companies Act Section 357
Can a company remove its auditor without shareholder approval under Section 357?
No, removal of an auditor before term expiry requires a special resolution passed by the shareholders in a general meeting as per Section 357.
Is Central Government approval mandatory for auditor removal under this section?
Yes, after passing the special resolution, the company must obtain approval from the Central Government before removing the auditor.
Does the auditor have any rights during the removal process?
Yes, the auditor must be given a reasonable opportunity to be heard before any removal decision is finalized under Section 357.
What remuneration is the removed auditor entitled to?
The auditor removed before term expiry is entitled to receive remuneration for the period they have served as auditor of the company.
What happens if a company removes an auditor without following Section 357?
Such removal can be declared invalid, and the company may face penalties. The auditor may challenge the removal legally.
