Identify the stage before changing the appointment register
Section 140(5) of the Companies Act, 2013 permits the NCLT to direct a company to change auditors where it is satisfied that the auditor acted fraudulently, directly or indirectly, or abetted or colluded in fraud by or in relation to the company or its directors or officers. The Tribunal may act on its own motion or on an application by the Central Government or another concerned person. The filing of an application alone does not establish fraud.
Read the applicable text: Companies Act, 2013, section 140(5) and explanations Supreme Court, Union of India v Deloitte Haskins and Sells LLP, 2023 INSC 484.
Treat interim relief as a separate decision
Under the first proviso, on a Central Government application, if the Tribunal is satisfied a change is required, it must order within fifteen days of receiving the application that the auditor shall not function. The Central Government may appoint another auditor in that auditor's place. Track receipt, the order, its effective terms and the successor appointment evidence. Treat the order as engagement-specific only where its operative terms support that reading. Do not record the interim order as a final finding or treat the fifteen days as a deadline to conclude the merits.
Resignation does not dispose of the proceedings
In Union of India v Deloitte Haskins and Sells LLP, 2023 INSC 484, the Supreme Court held that resignation does not by itself make proceedings under section 140(5) non-maintainable; the Tribunal may still reach a final order on the merits. The Court rejected the view that resignation exhausts the provision and did not itself decide the fraud allegations. Record resignation and its statutory filing separately. Under section 140(2) and rule 8 of the Companies (Audit and Auditors) Rules, the outgoing auditor files the prescribed statement in Form ADT-3 within 30 days of resignation, with the company and Registrar and, for companies covered by section 139(5), also with the Comptroller and Auditor General of India. Record the reasons and other facts relevant to the resignation.
Read the final order person by person
The second proviso attaches five years of ineligibility for appointment as auditor of any company from the date of the final order under the section, and exposure to action under section 447. This is distinct from a section 447 conviction. Explanation I identifies liability of the firm and the partners who acted fraudulently, abetted or colluded; do not treat all partners as having been individually found liable merely because they belong to the firm. Check exactly whom the order identifies and whether any stay or later direction affects compliance.
Preserve the audit handover
Capture company and period, signatory, engagement scope, deadlines, previous report status and every operative direction. Document safe access and handover of company records; protect material subject to legal restrictions. Distinguish this route from routine removal before expiry, ordinary resignation, AGM non-reappointment and section 143(12) auditor reporting of fraud.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Record the receipt interval
Assume the Tribunal receives the Central Government application on 3 August and makes a first-proviso order on 14 August. The elapsed interval is 11 calendar days. Record the dates and apply the statutory clock; the application has not become a final finding.
Illustrative example 2: Keep post-resignation events open
The application is filed on 4 May, the auditor resigns on 9 May and the next hearing is on 26 May. The five-day gap between filing and resignation does not terminate the case. Keep the hearing and handover as separate entries.
Illustrative example 3: Anchor the five-year period to the right event
Assume an interim order dated 10 June 2026 and a final adverse order dated 20 November 2026. The fifth anniversary of the final order is 20 November 2031. Use the November order for the calculation. Before an appointment, verify the actual expiry and any stay or later direction.
Illustrative example 4: Distinguish named partners from the rest
An order against a six-partner firm identifies two participating partners. Track three named subjects including the firm, and do not mark the four other partners as individually found liable on these facts.
Illustrative example 5: Separate engagement checks
A group has four companies. The first-proviso order addresses one engagement only, and no final order exists on the assumed facts. Record the one directly affected engagement and review the remaining three rather than mark them automatically barred.
Illustrative example 6: Measure records received
A handover list contains 42 files. Thirty-six arrive and four are documented as legitimately out of scope; two remain unresolved. Flag those two for authorised follow-up while preserving the order and access restrictions.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the statutory route | Application and opening order sheet |
| 2 | Confirm the applicant and the relief sought | Filing and service record |
| 3 | Capture Tribunal receipt and order dates | Dated docket entries |
| 4 | Distinguish interim relief from merits | Separate entries for each order |
| 5 | Record resignation independently | Resignation evidence and statutory compliance file |
| 6 | Track the successor's authority | Operative order and appointment documents |
| 7 | Identify affected firm and persons | Final-order schedule by party |
| 8 | Calendar any final-order ineligibility | Date, stay and eligibility review |
| 9 | Reconcile custody and access | Controlled inventory and transfer record |
| 10 | Check updates before new appointments | Current orders, appeals and stays |
Sixteen practitioner FAQs
1. Who can start a section 140(5) proceeding?
The Tribunal can act on its own motion or on application by the Central Government or a concerned person.
2. Does every audit error constitute the statutory trigger?
No. Apply the fraud, abetment or collusion test in the section.
3. Is the special fifteen-day mechanism available on every application?
The first proviso identifies a Central Government application and Tribunal satisfaction that change is required.
4. Who may appoint the replacement under the first proviso?
The Central Government may appoint another auditor in the affected auditor's place.
5. Does the interim order start the five-year period?
No. The second proviso ties that period to the final order.
6. Is the ineligibility limited to the original company?
The second proviso addresses appointment as auditor of any company.
7. Does a pending allegation prove ineligibility?
Do not infer the final-order consequence from the allegation alone.
8. Does resignation end the merits proceedings?
No. The Supreme Court rejected that result under section 140(5).
9. Does the Supreme Court judgment itself prove fraud in other engagements?
No. The Supreme Court decided the legal scope of section 140(5) and restored the proceedings for a decision on their merits.
10. Does a final order amount to a criminal conviction?
No. Exposure to section 447 action is a separate consequence.
11. Is every partner automatically individually liable?
Apply Explanation I and the findings to the actual participating persons.
12. What if a later order stays the original directions?
Read and follow the scope of the current operative orders.
13. Is this the routine pre-expiry removal procedure?
No. Section 140(1) is a separate route.
14. Can the company discard records after the auditor changes?
Preserve relevant evidence and comply with applicable retention and directions.
15. Should the outgoing report be cancelled automatically?
Review what the order requires and the specific report status; do not assume cancellation.
16. What belongs in the governance file?
The docket, orders, appointment authority, resignation records, handover and dated eligibility review.
Official sources
Companies Act, 2013, section 140(5) and explanations Supreme Court, Union of India v Deloitte Haskins and Sells LLP, 2023 INSC 484 MCA Companies (Audit and Auditors) Rules, 2014, rule 8 Supreme Court judgment PDF, paragraphs 11–12