ADT-2: Application for removal of auditor(s) from his/their office before the expiry of term

Brief

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Introduction:

Form ADT-2 is a legal document used by companies in India to formally apply for the removal of an auditor before the end of their term. This process is governed by Section 140(1) of the Companies Act, 2013, and ensures that companies adhere to the regulatory framework when seeking to change their appointed auditor for valid reasons. The form is submitted to the Registrar of Companies (RoC) through the Ministry of Corporate Affairs (MCA) portal.

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Who Needs to File Form ADT-2?

Any company that wishes to remove its auditor before the completion of their term must file Form ADT-2. The form is applicable to both private and public companies. The need for such a removal may arise due to various reasons, including but not limited to issues of misconduct, lack of trust, or the auditor’s inability to perform their duties effectively. The decision to remove an auditor must be backed by a resolution passed by the company’s Board of Directors, followed by approval from the Central Government.

Importance of Form ADT-2

Filing Form ADT-2 is crucial for companies as it:

Ensures Compliance: Filing the form ensures that the company is in compliance with the provisions of the Companies Act, 2013.
Legally Validates Auditor Removal: The form provides a legal pathway for the company to remove an auditor, protecting the company from potential legal disputes or penalties.
Maintains Transparency: The process promotes transparency and accountability within the company’s financial operations, as the reasons for the auditor’s removal must be clearly stated and justified.
Safeguards Corporate Governance: It upholds the principles of good corporate governance by allowing companies to act against auditors who may not be fulfilling their responsibilities adequately

Deadline for Filing Form ADT-2

Form ADT-2 must be filed within 30 days from the date of passing the Board resolution for the removal of the auditor. Timely filing is essential to avoid any penalties or legal complications.

Documents Required for Filing Form ADT-2

Board Resolution: A certified copy of the Board resolution passed for the removal of the auditor.
Special Notice: A special notice of the intention to remove the auditor, as per Section 140(1) of the Companies Act, 2013.
Representation by the Auditor: If the auditor has submitted any representation against their removal, a copy of the same must be attached.
Approval of the Central Government: Proof of application to the Central Government for their approval of the auditor’s removal.
Company’s Memorandum and Articles of Association (MOA and AOA): These may be required to support the filing.

Penalties for Non-Compliance

Failure to file Form ADT-2 within the stipulated time frame or any inaccuracies in the filing can lead to penalties, including:

Monetary Fines: The company and its officers may be subject to fines as specified under the Companies Act, 2013.
Legal Action: The company may face legal consequences, including restrictions on further business activities.
Disqualification of Directors: Persistent non-compliance can result in the disqualification of directors under certain sections of the Companies Act.

Filing Process for Form ADT-2

Board Resolution: The process begins with the company’s Board of Directors passing a resolution for the removal of the auditor.
Special Notice: A special notice is served to the auditor and the shareholders regarding the intent to remove the auditor.
Application to Central Government: The company must apply to the Central Government for approval of the auditor’s removal.
Filing Form ADT-2: Once the approval is received, the company must file Form ADT-2 on the MCA portal within 30 days.
Payment of Fees: The prescribed filing fee must be paid online through the MCA portal.
Submission: After filling out the form and attaching the necessary documents, the form is submitted electronically.
Confirmation: The MCA portal will provide an acknowledgment or confirmation upon successful submission of the form.

FAQs

Why is it important to file Form ADT-2?

Filing Form ADT-2 ensures compliance with Section 140(1) of the Companies Act, 2013, and provides a legal mechanism for the removal of an auditor before the end of their term. This helps maintain the integrity of financial reporting and governance within the company.

How does Form ADT-2 benefit corporate governance?

The form supports good corporate governance by allowing a company to act on issues related to auditor performance or misconduct. This promotes transparency and accountability, ensuring that the financial oversight of the company is in capable hands.

What role does Form ADT-2 play in maintaining financial integrity?

By formally documenting and justifying the removal of an auditor, Form ADT-2 helps safeguard the accuracy and reliability of the company’s financial statements. This helps prevent potential discrepancies or misconduct that could affect financial integrity.

Can filing Form ADT-2 help avoid legal disputes?

Yes, proper filing of Form ADT-2 helps prevent legal disputes by ensuring that the removal of the auditor is conducted in accordance with legal requirements. This reduces the risk of legal challenges from the auditor or other stakeholders.

How does Form ADT-2 affect stakeholder confidence?

Transparent handling of auditor removal through Form ADT-2 enhances stakeholder confidence. It demonstrates that the company is committed to maintaining high standards of financial oversight and governance, which can positively impact investor and public trust.

What are the benefits of timely filing Form ADT-2?

Timely filing of Form ADT-2 (within 30 days of the Board resolution) helps avoid penalties and legal complications. It ensures that the process of auditor removal is completed smoothly and in compliance with the Companies Act.

Does Form ADT-2 streamline the auditor removal process?

Yes, Form ADT-2 streamlines the process by providing a structured format for the removal application. This helps in efficiently managing the transition and ensures that all required information and approvals are properly documented.

What is the impact of Form ADT-2 on company operations?

Filing Form ADT-2 allows the company to make necessary changes in its auditing process without disruption. It helps ensure that the company can appoint a new auditor who better fits its needs, thereby supporting uninterrupted and effective financial oversight.

Index

Failure to file Form INC-28 within the stipulated time frame can lead to significant penalties. The company may be subject to fines, and in some cases, officers of the company may also face penalties. Additionally, non-compliance can result in the court order not being recognized by the RoC, leading to further legal complications.