Changing the Auditor months after the incorporation

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Uday Kumar (Querist)
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25 March 2025 Hello Everyone. A client approached me to appoint me as an Auditor for his recently incorporated PVT.LTD company. He has already appointed a CA as his company's auditor at the time of incorporation and now he wants me to replace that CA appointed earlier. Now, i want to know the process of removal of an auditor and appointment of another auditor during the first year of Company Incorporation.
Please guide me regarding this.
Thanks in Advance

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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25 March 2025 Under the Companies Act, 2013, the process for removing an auditor and appointing a new one during the first year of a private limited company’s incorporation involves specific steps. Detailed guide:
Removal of the Existing Auditor
Resignation by the Auditor (Simplest Route):
The easiest way to replace the current auditor is if the existing Chartered Accountant (CA) voluntarily resigns. The auditor can submit a resignation letter to the company’s Board of Directors.

The company must file Form ADT-3 with the Registrar of Companies (ROC) within 30 days of the resignation, along with the resignation letter and any supporting documents.

Removal Before Term Ends (If Resignation Isn’t an Option):
If the existing auditor does not resign, the company can remove them before the completion of their term, but this is a more formal process.

As per Section 140(1) of the Companies Act, 2013:
The company must pass a Board Resolution to propose the removal of the auditor.

Obtain the auditor’s written consent or representation (they have the right to be heard).

Convene an Extraordinary General Meeting (EGM) and pass a Special Resolution (requiring 75% majority of members present and voting) to approve the removal.

File Form ADT-2 with the ROC within 30 days of the special resolution, attaching the resolution, auditor’s representation (if any), and other required documents.

Additionally, prior approval from the Central Government is required. This is done by submitting an application to the Regional Director in Form ADT-2.

Timeline Context:
For a recently incorporated company in its first year, the auditor appointed at incorporation (the "first auditor") typically holds office until the conclusion of the first Annual General Meeting (AGM), as per Section 139(6). If the client wishes to replace this auditor before the first AGM, the removal process outlined above (resignation or special resolution) applies.

Appointment of a New Auditor:
Casual Vacancy:
Once the existing auditor resigns or is removed, a "casual vacancy" arises. Under Section 139(8) of the Companies Act, 2013:
The Board of Directors can appoint you as the new auditor to fill the casual vacancy within 30 days.

If the vacancy is due to resignation, the appointment must be approved by the shareholders at a General Meeting within 3 months of the Board’s recommendation, and you will hold office until the conclusion of the next AGM.

Your Consent and Eligibility:
Before your appointment, you must provide:
A written consent to act as the auditor.

A certificate stating that you (or your firm) are eligible under Section 141 (e.g., not disqualified due to conflicts of interest, indebtedness, etc.).

The company will file Form ADT-1 with the ROC within 15 days of your appointment, along with your consent letter, certificate, and the Board/Shareholder resolution.

Tenure:
If appointed in the first year due to a casual vacancy, your term will typically last until the first AGM. At the AGM, the company can appoint you (or another auditor) for a full 5-year term, as per Section 139(1).

Practical Steps to be discussed with the Client:
Ask your client to confirm whether the current CA is willing to resign. This avoids the complexity of removal via special resolution and Central Government approval.

Ensure the client understands the legal process and timelines.

Documentation:
Prepare your consent letter and eligibility certificate.

Assist the client in drafting the necessary resolutions (Board or Special, as applicable).

Compliance:
Ensure the company files the required forms (ADT-3 for resignation, ADT-2 for removal, ADT-1 for your appointment) with the ROC on time to avoid penalties.

Communication:
The existing auditor must be informed and given an opportunity to make a representation, as per legal requirements.

Additional Notes
First Auditor’s Role: The first auditor appointed at incorporation (under Section 139(6)) doesn’t require Central Government approval for removal if replaced before the first AGM, but the process (resignation or special resolution) still applies.