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Auditor Resignation

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We help companies to deal with the planned or unplanned resignation by the Statutory Auditor and related regulatory filing of ADT-1 form to the ROC. We also assist the Board of Director to find suitable auditor to fill the casual vacancy.
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Resignation of Auditor - Introduction

Navigating through the complexities of an auditor resignation is a daunting task that requires a comprehensive understanding of various legal and procedural aspects. Be it due to preoccupation with other assignments, conflicts of interest, non-compliance with the professional code of conduct, or personal reasons, the resignation of an auditor triggers a series of regulatory compliances and vacancies that need to be addressed swiftly.
Detailed in Section 140 of the Companies Act, 2013, these compliances require the resigning auditor to provide a written notice at least 30 days prior to the resignation and file Form ADT-3 with the Registrar of Companies mentioning the reasons for the resignation. Non-compliance with this section can potentially lead to hefty fines and penalties.
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The resignation of the auditor subsequently creates a ‘casual vacancy’, which the company needs to fill promptly. The appointment of a new, qualified auditor requires a resolution to be passed at a board meeting or a general meeting, as appropriate for the company, and must be communicated to the Registrar of Companies via Form ADT-1.
At Setindiabiz, we offer tailored services to help navigate this complex resignation and transition process. Our team of experts ensure that every step is carried out with due diligence and every mandatory compliance is met within the stipulated time. Our goal is to make the process of handling auditor resignation seamless and efficient for you, and letting your organization focus on its core operations instead.

Step Wise Process for Auditor Resignation

While the Companies Act does not prescribe a fixed step-by-step procedure for an auditor’s resignation, it’s crucial to adhere to the provisions under Section 140. Depending on the specific circumstances, the following steps present a logical approach to ensure compliance:

Step-1: Submission of Auditor Resignation Letter

The auditor provides a duly signed, written resignation letter stating the date and reasons for the resignation. Although it’s ideal for the resignation letter to be on the official letterhead of the resigning auditor, an email addressed to the Managing Director or the Chairman of the Board can also suffice.

Step-2: Board Meeting to Acknowledge Resignation

Within 30 days of the resignation date, the company should hold a board meeting. The meeting should involve discussions on the resignation letter and reasons for the resignation, followed by passing a resolution to accept the auditor’s resignation.

Step-3: Completion and Submission of Form ADT-3

The resigning auditor is required to file Form ADT-3 with the Registrar of Companies (RoC) within 30 days of resignation. The scanned resignation letter should be attached to the ADT-3 form, which needs to be digitally signed by the resigning auditor.

Step-4: Appointment of Successor Auditor

Following the resignation, the company must appoint a new, qualified chartered accountant in practice as its statutory auditor. The company should notify the RoC about the appointment through Form ADT-1.

What is ADT-3 Form and Who have to file it?

When an auditor resigns from his/her position, he/she is required to file a statement in Form ADT-3 with the Registrar of Companies (RoC) within 30 days of the date of resignation. This statement must be digitally signed by the auditor using his DSC,and along with his resignation letter must be submitted online at the MCA portal with the prescribed application fee. The table below details the contents of the ADT-3 Form and the government filing fee for it.

What is Reported in ADT-3 Form?

  1. Name of Company
  2. Date of Resignation
  3. Reason for Resignation
  4. Auditor PAN Number
  5. Auditor Membership Number
  6. Resigning Auditor Email & Mobile
  7. Letter of Resignation as Attachment

ADT-3 Form Application Fee

Authorized Capital (in Rupees)
Less Than 1,00,000
1,00,000 to 4,99,999
5,00,000 to 24,99,99
25,00,000 to 99,99,999
100,00,000 or more
Application Fee
₹ 200
₹ 300
₹ 400
₹ 500
₹ 600

How We Help When an Auditor Resigns?

While navigating through the complexities of auditor resignation and the subsequent filling of the casual vacancy created, you can consult our expert team to offer comprehensive services and ensure that your company is compliant with all regulatory requirements. Here’s how we can support your organization:

Drafting the Resignation Letter: Crafting a professional and compliant resignation letter is a critical initial step in the process. Our team can assist in writing this important document, ensuring it clearly communicates the reasons for resignation and maintains the required formal tone.

Conduct of Board Meeting: We can provide professional representation or support at the board meeting called to acknowledge the resignation. Our experts can guide discussions, answer questions, and help frame the resolution to accept the auditor's resignation.

Filing Form ADT-3: This crucial form needs to be accurately completed and filed with the ROC within the specified timeline. Our team is adept at handling these bureaucratic processes, ensuring a smooth submission with appropriate attachments and digital signatures from the resigning auditor.

Guidance on Filling the Casual Vacancy: Following the resignation, the task of filling the vacant auditor position can be challenging. We offer expert advice to identify suitable candidates, understand the process of their appointment, and guide the onboarding procedure, all while ensuring adherence to the regulations under the Companies Act.

By entrusting us with these crucial tasks, your company can focus on its core operations with a peace of mind that all compliance related to auditor resignation is being effectively and professionally handled.

Contravention and Penalty - Resignation of Auditor

Section 140 of the Companies Act, 2013 governs auditor resignation, requiring a written notice at least 30 days prior to the resignation date. Violations such as not providing timely notice, neglecting to submit Form ADT-3, or failing to comply with the Act’s provisions can result in penalties including fines or imprisonment. Auditors and the Board of Directors of the companies are therefore urged to strictly follow these regulations to avoid any potential sanctions.
If any of the provisions relating to an auditor resigns without giving the required notice, he or she will be liable to a penalty of ₹ 50,000 or an amount equal to the remuneration of the auditor, whichever is less. In case of continuing failure, a further penalty of ₹ 500 for each day after the first during which such failure continues, subject to a maximum of ₹ 2,00,000 may be imposed.

Amendement

The Companies (Amendment) Act, 2020 increased the maximum penalties for auditor resignation and Form ADT-3 non-filing to ₹ 2 lakh from ₹ 50,000. The amendment came into force on 29 September 2020.

Important Legal Cases and Interpretations

Re: Indian Bank (AIR 1984 SC 1561):

In this case the auditor of Indian Bank resigned from his position without giving any valid reasons. The Board of Directors of the bank accepted the resignation without ascertaining the reasons. The Supreme Court held that the auditor's resignation was invalid. The court held that an auditor can resign from his position only if there are valid reasons for doing so. The reasons must be communicated to the company in writing.

Re: National Rayon Corporation (AIR 1981 SC 749):

In this case the auditor of National Rayon Corporation resigned from his position. The board of directors of the company did not take any steps to fill the casual vacancy. The Supreme Court held that the board of directors had failed to comply with the provisions of the Companies Act. The court held that the board of directors is duty-bound to fill a casual vacancy in the office of auditor as soon as possible.

Re: Century Spinning & Manufacturing Co. Ltd.(AIR 1980 SC 2252)

In this case the auditor of Century Spinning & Manufacturing Co. Ltd. resigned from his position. The board of directors of the company accepted the resignation without considering the reasons given by the auditor.The Supreme Court held that the board of directors had failed to comply with the provisions of the Companies Act. The court held that the board of directors is duty-bound to consider the reasons given by an auditor for resigning before accepting his resignation.

Final Interpretation:

Based on the above cases, the final interpretation regarding the role of the Board of Directors in Auditor’s Resignation process is as follows:
  1. Ascertain the reasons for resignation: The board should first ascertain the reasons for the auditor’s resignation. If the reasons are valid, the board should accept the resignation.
  2. Ensure that the resigning auditor File Form ADT-3 with the ROC: The board should ensure that the resigning auditor must file Form ADT-3 with the Registrar of Companies within 30 days of the acceptance of his/her resignation. This form is required to be filed in order to notify the ROC of the change in auditor.
  3. Appoint a new auditor: The board should then appoint a new auditor as soon as possible. The new auditor should be appointed in accordance with the provisions of the Companies Act.

Frequently Asked Questions

Yes, Setindiabiz provides comprehensive services to guide companies through the process of auditor resignation and filling the casual vacancy. We help in drafting the resignation letter, attending board meetings, filing Form ADT-3, and providing guidance on filling the casual vacancy, ensuring compliance with all regulatory requirements.
Common reasons for an auditor’s resignation may include preoccupation with other assignments, conflicts of interest, disagreements with management, non-compliance with professional ethics, or personal reasons.
The legal requirements are laid out in Section 140 of the Companies Act, 2013. The resigning auditor should provide a written resignation notice at least 30 days before the resignation, and file Form ADT-3 with the Registrar of Companies detailing the reasons for resignation. Any contraventions can lead to penalties.
Form ADT-3 is a form that should be filed by the resigning auditor with the Registrar of Companies (RoC) within 30 days of the resignation. It details the reasons and circumstances regarding the auditor’s resignation.
After an auditor resigns, a casual vacancy is created. The company should fill this vacancy promptly by appointing a new, qualified auditor through a board resolution or a general meeting. This appointment should then be communicated to the RoC via Form ADT-1.
Yes, Setindiabiz provides comprehensive services to guide companies through the process of auditor resignation and filling the casual vacancy. We help in drafting the resignation letter, attending board meetings, filing Form ADT-3, and providing guidance on filling the casual vacancy, ensuring compliance with all regulatory requirements.